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Document and Entity Information
6 Months Ended
Jun. 30, 2012
Aug. 07, 2012
Document and Entity Information
Entity Registrant Name SYNERGY PHARMACEUTICALS, INC.
Entity Central Index Key 0001347613
Document Type 10-Q
Document Period End Date Jun 30, 2012
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Current Reporting Status Yes
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 65,806,178
Document Fiscal Year Focus 2012
Document Fiscal Period Focus Q2
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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
Jun. 30, 2012
Dec. 31, 2011
Current Assets:
Cash and cash equivalents $ 27,426,900 $ 13,244,883
Available-for-sales securities 16,149,789
Prepaid expenses and other current assets 1,408,719 1,063,402
Total Current Assets 44,985,408 14,308,285
Property and equipment, net 2,464 5,773
Available-for-sale securities long term 4,010,787
Security deposits 19,511 14,025
Due from related party 1,936,609 1,541,456
Total Assets 50,954,779 15,869,539
Current Liabilities:
Accounts payable 1,154,469 1,415,617
Accrued expenses 3,765,094 1,331,382
Total Current Liabilities 4,919,563 2,746,999
Derivative financial instruments, at estimated fair value-warrants 4,803,717 3,325,114
Total Liabilities 9,723,280 6,072,113
Stockholders' Equity:
Preferred stock, Authorized 20,000,000 shares, at June 30, 2012 and December 31, 2011, none outstanding      
Common stock, par value of $.0001 authorized 100,000,000 shares, outstanding 65,806,178 and 54,279,906 shares at June 30, 2012 and December 31, 2011, respectively 6,582 5,429
Additional paid-in capital 128,415,027 79,401,015
Deficit accumulated during development stage (87,190,110) (69,609,018)
Total Stockholders' Equity 41,231,499 9,797,426
Total Liabilities and Stockholder's Equity $ 50,954,779 $ 15,869,539
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, authorized shares 20,000,000 20,000,000
Preferred stock, outstanding shares 0 0
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, authorized shares 100,000,000 100,000,000
Common stock, outstanding shares 65,806,178 54,279,906
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
3 Months Ended 6 Months Ended 79 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Costs and Expenses:
Research and development $ 7,626,268 $ 2,354,450 $ 12,964,408 $ 3,832,576 $ 41,377,562
Purchased in-process research and development 28,156,502
General and administrative 1,918,488 1,524,402 3,649,616 3,422,028 23,294,258
Loss from Operations (9,544,756) (3,878,852) (16,614,024) (7,254,604) (92,828,322)
Interest and investment income 48,116 20,003 86,794 44,067 364,980
Interest expense (11,877) (11,877)
Other income 255,539 255,539 1,112,516
Change in fair value of derivative instruments-warrants (1,317,347) (697,660) (1,309,401) (1,036,375) 4,244,414
Total Other Income/(Expense) (1,013,692) (677,657) (967,068) (1,004,185) 5,710,033
Loss from Continuing Operations (10,558,448) (4,556,509) (17,581,092) (8,258,789) (87,118,289)
Loss from discontinued operations (71,821)
Net Loss $ (10,558,448) $ (4,556,509) $ (17,581,092) $ (8,258,789) $ (87,190,110)
Weighted Average Common Shares Outstanding Basic and Diluted (in shares) 60,416,068 46,642,901 [1] 57,357,081 46,406,472 [1]
Net Loss per Common Share, Basic and Diluted (in dollars per share) $ (0.17) $ (0.1) [1] $ (0.31) $ (0.18) [1]
[1] Restated for 1:2 reverse stock split effective November 30, 2011.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
Total
Common Stock, Par Value
Additional Paid in Capital
Deficit Accumulated during the Development Stage
Balance at Nov. 15, 2005
Increase (Decrease) in Stockholders' Equity
Sale of unregistered common stock to founder $ 2,000 $ 7,569 $ (5,569)
Sale of unregistered common stock to founder (in shares) 75,690,608
Sale of common stock 18,100 685 17,415
Sale of common stock (in shares) 6,850,000
Net loss for the year (16) (16)
Balance at Dec. 31, 2005 20,084 8,254 11,846 (16)
Balance (in shares) at Dec. 31, 2005 82,540,608
Increase (Decrease) in Stockholders' Equity
Net loss for the year (20,202) (20,202)
Balance at Dec. 31, 2006 (118) 8,254 11,846 (20,218)
Balance (in shares) at Dec. 31, 2006 82,540,608
Increase (Decrease) in Stockholders' Equity
Capital contribution by shareholders 8,893 8,893
Net loss for the year (20,043) (20,043)
Balance at Dec. 31, 2007 (11,268) 8,254 20,739 (40,261)
Balance (in shares) at Dec. 31, 2007 82,540,608
Increase (Decrease) in Stockholders' Equity
Cancellation of unregistered founder shares (7,499) 7,499
Cancellation of unregistered founder shares (in shares) (74,990,604)
Common stock issued via Exchange Transaction 27,278,861 2,273 27,276,588
Common stock issued via Exchange Transaction (in shares) 22,732,380
Common stock issued via private placements 3,025,000 252 3,024,748
Common stock issued via private placements (in shares) 2,520,833
Fees and expenses related to private placements (73,088) (73,088)
Stock based compensation expense 379,883 379,883
Net loss for the year (31,755,180) (31,755,180)
Balance at Dec. 31, 2008 (1,155,792) 3,280 30,636,369 (31,795,441)
Balance (in shares) at Dec. 31, 2008 32,803,217
Increase (Decrease) in Stockholders' Equity
Common stock issued via private placements 15,970,100 1,141 15,968,959
Common stock issued via private placements (in shares) 11,407,213
Fees and expenses related to private placements (260,002) (260,002)
Common stock Issued for services rendered 1,500 1 1,499
Common stock Issued for services rendered (in shares) 1,250
Stock based compensation expense 1,053,062 1,053,062
Net loss for the year (8,125,100) (8,125,100)
Balance at Dec. 31, 2009 7,483,768 4,422 47,399,887 (39,920,541)
Balance (in shares) at Dec. 31, 2009 44,211,680
Increase (Decrease) in Stockholders' Equity
Common stock issued via registered direct offering and private placement 7,179,000 121 7,178,879
Common stock issued via registered direct offering and private placement (in shares) 1,209,000
Fees and expenses related to direct offering (468,130) (468,130)
Warrants classified to derivative liability - net (3,784,743) (3,784,743)
Common stock issued to extend lock-up agreements related to unregistered shares 67 (67)
Common stock issued to extend lock-up agreements related to unregistered shares (in shares) 670,933
Common stock Issued for services rendered 18,271 18,271
Common stock Issued for services rendered (in shares) 2,469
Stock based compensation expense 693,887 693,887
Net loss for the year (15,221,441) (15,221,441)
Balance at Dec. 31, 2010 (4,099,388) 4,610 51,037,984 (55,141,982)
Balance (in shares) at Dec. 31, 2010 46,094,082
Increase (Decrease) in Stockholders' Equity
Common stock issued via registered direct offering and private placement 34,369,064 773 34,368,291
Common stock issued via registered direct offering and private placement (in shares) 7,733,093
Fees and expenses related to financing transactions - paid in cash (2,148,383) (2,148,383)
Fees and expenses related to financing transactions - paid in units of common stock and warrants 8 (8)
Fees and expenses related to financing transactions - paid in units of common stock and warrants (in shares) 77,750
Warrants classified to derivative liability - net (5,094,186) (5,094,186)
Common stock issued to make whole certain unregistered shares 22 (22)
Common stock issued to make whole certain unregistered shares (in shares) 215,981
Exercise of warrant 415,309 8 415,301
Exercise of warrant (in shares) 80,000
Common stock Issued for services rendered 341,295 8 341,287
Common stock Issued for services rendered (in shares) 79,000
Stock based compensation expense 480,751 480,751
Net loss for the year (14,467,036) (14,467,036)
Balance at Dec. 31, 2011 9,797,426 5,429 79,401,015 (69,609,018)
Balance (in shares) at Dec. 31, 2011 54,279,906
Increase (Decrease) in Stockholders' Equity
Common stock issued via registered direct offering and private placement 51,750,000 1,150 51,748,850
Common stock issued via registered direct offering and private placement (in shares) 11,500,000
Fees and expenses related to financing transactions - paid in cash (3,357,930) (3,357,930)
Warrants classified to derivative liability - net (169,203) (169,203)
Common stock Issued for services rendered 92,663 3 92,660
Common stock Issued for services rendered (in shares) 26,272
Stock based compensation expense 699,635 699,635
Net loss for the year (17,581,092) (17,581,092)
Balance at Jun. 30, 2012 $ 41,231,499 $ 6,582 $ 128,415,027 $ (87,190,110)
Balance (in shares) at Jun. 30, 2012 65,806,178
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
6 Months Ended 79 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Cash Flows From Operating Activities:
Net loss $ (17,581,092) $ (8,258,789) $ (87,190,110)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 988 988 8,138
Loss on disposal of property and equipment 2,321 2,321
Stock-based compensation expense 792,298 296,558 3,760,947
Accretion of discount/premium on investment securities (160,576) (160,576)
Purchased in-process research and development 28,156,502
Change in fair value of derivative instruments-warrants 1,309,401 1,036,375 (4,244,414)
Changes in operating assets and liabilities:
Security deposit (5,486) (19,511)
Accounts payable and accrued expenses 2,172,563 (191,634) 4,196,519
Prepaid expenses and other current assets (345,317) 136,185 (1,408,719)
Total Adjustments 3,766,192 1,278,472 30,291,207
Net Cash Used in Operating Activities (13,814,900) (6,980,317) (56,898,903)
Cash Flows From Investing Activities:
Net cash paid on Exchange Transaction (155,326)
Repayment from/(loans to) related parties (395,153) 295,614 (1,936,609)
Purchases of available-for-sale securities (20,000,000) (20,000,000)
Additions to property and equipment (12,195)
Net Cash (Used in)/Provided by Investing Activities (20,395,153) 295,614 (22,104,130)
Cash Flows From Financing Activities:
Capital contribution by shareholders 8,893
Issuance of common stock 2,000
Proceeds from sale of common stock 51,750,000 5,461,242 112,293,164
Proceeds from exercise of warrants 415,309 415,309
Proceeds from sale of unregistered common stock to founders 18,100
Fees and expenses related to sale of common stock (3,357,930) (395,620) (6,307,533)
Net Cash Provided by Financing Activities 48,392,070 5,480,931 106,429,933
Net increase (decrease) in cash and cash equivalents 14,182,017 (1,203,772) 27,426,900
Cash and cash equivalents at beginning of period 13,244,883 1,707,516
Cash and cash equivalents at end of period 27,426,900 503,744 27,426,900
Supplementary disclosure of cash flow information:
Cash paid for taxes 11,948 8,021 83,564
Value of warrants classified as derivative liability - net 169,203 3,920,500 9,048,132
Value of common stock issued to induce stockholders to extend lock-up agreements $ 3,235,040
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Business Overview
6 Months Ended
Jun. 30, 2012
Business Overview
Business Overview

1. Business Overview

 

Synergy Pharmaceuticals Inc. (“Synergy” or the “Company”) is a biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal, or GI, disorders and diseases. Its lead product candidate is plecanatide (formerly called SP-304), a guanylyl cyclase C, or GC-C, receptor agonist, to treat GI disorders, primarily chronic constipation, or CC, and constipation-predominant- irritable bowel syndrome, or IBS-C. CC and IBS-C are functional gastrointestinal disorders that afflict millions of sufferers worldwide. CC is primarily characterized by constipation symptoms but a majority of these patients report experiencing bloating and abdominal discomfort as among their most bothersome symptoms. IBS-C is characterized by frequent and recurring abdominal pain and/or discomfort associated with chronic constipation. Synergy is also developing SP-333, its second generation GC-C receptor agonist for the treatment of gastrointestinal inflammatory diseases, such as ulcerative colitis, or UC.

 

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Basis of Presentation and Accounting Policies
6 Months Ended
Jun. 30, 2012
Basis of Presentation and Accounting Policies
Basis of Presentation and Accounting Policies

2. Basis of Presentation and Accounting Policies

 

On July 14, 2008, Pawfect Foods Inc. (“Pawfect”), a Florida corporation incorporated on November 15, 2005, acquired 100% of the common stock of Synergy Pharmaceuticals, Inc., a Delaware corporation incorporated on September 11, 1992, and its wholly-owned subsidiary, Synergy Advanced Pharmaceuticals, Inc., (collectively “Synergy-DE”), under the terms of an Exchange Agreement among Pawfect, Callisto Pharmaceuticals, Inc. (“Callisto”), Synergy-DE, and certain other holders of Synergy-DE common stock (“Exchange Transaction”).

 

Synergy acquired the GI drugs and related technology in connection with the Exchange Transaction. On July 21, 2008, Pawfect amended its articles of incorporation to effect the actions necessary to complete the transactions contemplated by the Exchange Transaction and changed its name to Synergy Pharmaceuticals, Inc. The acquisition of Synergy-DE was treated as an asset acquisition, since Synergy-DE is a development stage company and does not have the necessary inputs and outputs to meet the definition of a business. The results of operations of Synergy-DE are included in the accompanying consolidated financial statements from the date of acquisition. As a result of the acquisition of Synergy-DE on July 14, 2008, the Company decided to discontinue its pet food business and accordingly, amounts in the consolidated statements of operations and related notes for all historical periods have been restated to reflect these operations as discontinued.

 

On November 29, 2011 the Company filed an amendment to its amended and restated articles of incorporation pursuant to which the Company effected a one for two (1:2) reverse stock split on its authorized, issued and outstanding shares of Common Stock, effective on November 30, 2011.  All share and per share information has been adjusted to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented, (e.g. inception November 15, 2005).

 

On February 14, 2012, Synergy Pharmaceuticals, Inc., (the “Company”) entered into an agreement and plan of merger (the “Agreement”) with its wholly-owned subsidiary, Synergy Pharmaceuticals Inc., a Delaware corporation (“Synergy-DE”) for the purpose of changing the state of incorporation of the Company to Delaware from Florida. Pursuant to the Agreement, the Company merged with and into Synergy-DE with Synergy-DE continuing as the surviving corporation.

 

These unaudited condensed consolidated financial statements include Synergy and its wholly-owned subsidiaries:  (1) Synergy Advanced Pharmaceuticals, Inc. and (2) IgX, Ltd (Ireland—inactive). These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission (“SEC”) and United States generally accepted accounting principles (“GAAP”) for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to present fairly Synergy’s interim financial information. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2011 contained in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) on March 15, 2012. Certain items in the prior year’s financial statements have been reclassified to conform to the current year’s presentation. All intercompany balances and transactions have been eliminated.

 

Synergy’s independent registered public accounting firm has issued a report on Synergy’s December 31, 2011financial statements that included an explanatory paragraph referring to its recurring losses from operations and expressing substantial doubt in Synergy’s ability to continue as a going concern without additional capital becoming available.  These condensed consolidated financial statements as of June 30, 2012 and December 31, 2011 have been prepared under the assumption that Synergy will continue as a going concern. Synergy’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

As of June 30, 2012, Synergy had an accumulated deficit of $87,190,110 and expects to incur significant and increasing operating losses for the next several years as the Company expands its research and development, continues clinical trials of plecanatide for the treatment of GI disorders, acquires or licenses technologies, advances other product candidates into clinical development, seeks regulatory approval and, if FDA approval is received, commercializes products. Because of the numerous risks and uncertainties associated with product development efforts, Synergy is unable to predict the extent of any future losses or when Synergy will become profitable, if at all.

 

Net cash used in operating activities was $13,814,900 for the six months ended June 30, 2012, as compared to net cash used of $6,980,317 for the six months ended June 30, 2011. As of June 30, 2012 Synergy has $27,426,900 of cash and cash equivalents on hand as compared to $13,244,883 of cash and cash equivalents on hand as of December 31, 2011. In addition, on June 30, 2012 Synergy held $20,160,576 in available-for-sale securities, whereas the Company had no such investments as of December 31, 2011. As of June 30, 2012 Synergy had working capital of $40,065,845 as compared to working capital of $11,561,286 as of December 31, 2011.

 

On May 9, 2012, Synergy closed an underwritten public offering of 10,000,000 shares of common stock at an offering price of $4.50 per share. The gross proceeds from this offering were $45 million, before deducting underwriting discounts and commissions and other offering expenses of $2,952,930. Synergy also granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock at an offering price of $4.50 per share to cover over-allotments, if any.  On June 6, 2012 the underwriters exercised all of the over-allotment option resulting in additional gross proceeds of $6,750,000, before deducting underwriting discounts, commissions and other offering expenses of $405,000, bringing total gross proceeds from the offering to $51,750,000.

 

Synergy may be required to raise additional capital to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. Synergy cannot be certain that additional funding will be available on acceptable terms, or at all. Recently worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain difficult for the foreseeable future. These developments will make it more difficult to obtain additional equity or credit financing, when needed. To the extent that Synergy raises additional funds by issuing equity securities, Synergy’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact Synergy’s ability to conduct business. If Synergy is unable to raise additional capital when required or on acceptable terms, Synergy may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that Synergy would otherwise seek to develop or commercialize ourselves on unfavorable terms.

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Financial Instruments - Cash, Cash Equivalents and Marketable Securities
6 Months Ended
Jun. 30, 2012
Financial Instruments - Cash, Cash Equivalents and Marketable Securities
Financial Instruments - Cash, Cash Equivalents and Marketable Securities

3. Financial Instruments - Cash, Cash Equivalents and Marketable Securities

 

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s marketable securities consist solely of investments in US Treasury Bills and Notes and have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the available-for-sale designations as of each balance sheet date.

 

The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term.  The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The Company recognized no net realized gains or losses during the three and six month periods ended June 30, 2012. The maturities of the Company’s long-term marketable securities range from one year to two years.

 

Cash equivalents and accounts payable are carried at amounts that approximate fair value due to their short-term maturities. As of June 30, 2012, gross unrealized losses were not material. The Company recognized no net realized gains or losses during the three and six month periods ended June 30, 2012. The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. Fair values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the three and six month periods ended June 30, 2012, the Company did not recognize any impairment charges. As of June 30, 2012, the Company did not consider any of its investments to be other-than-temporarily impaired.

 

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Recent Accounting Pronouncements
6 Months Ended
Jun. 30, 2012
Recent Accounting Pronouncements
Recent Accounting Pronouncements

4. Recent Accounting Pronouncements

 

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”) which is intended to facilitate the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”) as well as to increase the transparency of items reported in other comprehensive income. As a result of ASU 2011-05, all non-owner changes in stockholders’ equity are required to be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The option to present other comprehensive income in the statement of changes in equity has been eliminated. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 and should be applied retrospectively. The Company adopted this standard on January 1 2012 and the adoption did not have a material impact on the Company’s consolidated financial statements.

 

In May 2011, FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820 to provide common fair value measurement and disclosure requirements in U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and International Financial Reporting Standards. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, as well as providing guidance on how fair value should be applied where its use is already required or permitted by other standards within U.S. GAAP. ASU No. 2011-04 is to be applied prospectively, and early adoption is not permitted. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 on January 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

 

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 provides for additional disclosures of both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this Update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and disclosures required by these amendments should be provided retrospectively for all comparative periods presented. The adoption of ASU No. 2011-11 is not expected to have a material impact on the Company’s consolidated financial statements.

 

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Accounting for Shared-Based Payments
6 Months Ended
Jun. 30, 2012
Accounting for Shared-Based Payments
Accounting for Shared-Based Payments

5. Accounting for Shared-Based Payments

 

Stock Options

 

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. ASC Topic 718 did not change the way Synergy accounts for non-employee stock-based compensation. Synergy continues to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity-Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

 

ASC Topic 718 requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to Synergy’s accumulated deficit position, no excess tax benefits have been recognized. Synergy accounts for common stock, stock options, and warrants granted to employees and non-employees based on the fair market value of the instrument, using the Black-Scholes option pricing model based on assumptions for expected stock price volatility, term of the option, risk-free interest rate and expected dividend yield, at the grant date.

 

Synergy adopted the 2008 Equity Compensation Incentive Plan (the “Plan”) during the quarter ended September 30, 2008. Stock options granted under the Plan typically vest after three years of continuous service from the grant date and have a contractual term of ten years.

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30

 

November 15,
2005
(inception) to

 

 

 

2012

 

2011

 

2012

 

2011

 

June 30, 2012

 

Employees—included in research and development

 

$

146,071

 

$

37,157

 

$

261,840

 

$

73,906

 

$

888,622

 

Employees—included in general and administrative

 

100,091

 

45,115

 

193,740

 

89,733

 

968,150

 

Non-employees—included in research and development

 

 

8,456

 

 

16,818

 

168,096

 

Non-employees—included in general and administrative

 

108,065

 

58,370

 

336,718

 

116,101

 

1,736,079

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

354,227

 

$

149,098

 

$

792,298

 

$

296,558

 

$

3,760,947

 

 

The unrecognized compensation cost related to non-vested employee stock options outstanding at June 30, 2012, net of expected forfeitures, was $4,038,235, to be recognized over a weighted-average remaining vesting period of 2.9 years. This unrecognized compensation cost does not include amounts related to 4,364,000 stock options which vest upon a change of control.

 

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the following periods indicated.

 

 

 

Six Months Ended
June 30, 2012

 

Six Months Ended
June 30, 2011

 

Risk-free interest rate

 

0.97%-1.50%

 

(*)

 

Dividend yield

 

 

(*)

 

Expected volatility

 

60%

 

(*)

 

Expected term (in years)

 

6 years

 

(*)

 

 

(*) No stock options granted during this period.

 

A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:

 

 

 

Number of
Options

 

Exercise Price
Per Share

 

Weighted Average
Exercise Price
Per Share

 

Intrinsic
Value

 

Weighted Average
Remaining
Contractual Term

 

Balance outstanding, December 31, 2011

 

5,964,039

 

$

0.50 – 4.30

 

$

1.77

 

$

10,631,388

 

8.2 years

 

Granted

 

1,272,000

 

$

3.40 – 4.42

 

$

3.89

 

 

 

 

 

Exercised

 

 

$

 

$

 

 

 

 

 

Forfeited

 

(105,000

)

$

3.40 – 4.38

 

$

4.10

 

 

 

 

 

Balance outstanding, June 30, 2012

 

7,131,039

 

$

0.50 – 4.42

 

$

2.11

 

$

18,830,516

 

7.9 years

 

Exercisable at June 30, 2012

 

2,076,539

 

$

0.50 – 4.30

 

$

0.75

 

$

8,306,391

 

6.2 years

 

 

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Income Taxes
6 Months Ended
Jun. 30, 2012
Income Taxes
Income Taxes

6. Income Taxes

 

During the year ended December 31, 2011 the Company recorded refundable tax credits in prepaid and other current assets for its (i) 2010 New York State QETC credit, totaling $248,486 and (ii) its New York City Biotechnology Tax Credit for the tax year of 2011 totaling $118,437. On April 25, 2012, the Company received $246,402 for 2010 New York State QETC credit and on July 17, 2012, the Company collected $120,812 for 2011 New York City Biotechnology Tax Credit.

 

In addition, on June 15, 2012, the Company applied for its 2011 New York State QETC tax credit of $250,000 which is recorded as other income in the statement of operations for the quarter ended June 30, 2012.

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Stockholder's Equity
6 Months Ended
Jun. 30, 2012
Stockholder's Equity
Stockholder's Equity

7. Stockholder’s Equity

 

On January 29, 2012 Synergy issued 26,272 unregistered shares of common stock to its corporate counsel for professional services rendered. The shares had a fair value on the date of issuance of $3.53 per share and $92,663 was recorded as legal expense during the quarter ended March 31, 2012.

 

On February 14, 2012, Synergy Pharmaceuticals, Inc., (the “Company”) entered into an agreement and plan of merger (the “Agreement”) with its wholly-owned subsidiary, Synergy Pharmaceuticals Inc., a Delaware corporation (“Synergy-DE”) for the purpose of changing the state of incorporation of the Company to Delaware from Florida. Pursuant to the Agreement, the Company merged with and into Synergy-DE with Synergy-DE continuing as the surviving corporation.  The directors and officers in office of the Company upon the effective date of the merger shall be the directors and officers of Synergy-DE, all of whom shall hold their directorships and offices until the election and qualification of their respective successors or until their tenure is otherwise terminated in accordance with the by-laws of Synergy-DE.  The effective date of the merger was the date on which the Certificate of Merger is filed with the Secretary of State of Delaware and the Secretary of State of Florida.  The Certificate of Merger was filed with the Secretary of State of Florida on February 15, 2012 and with the Secretary of State of Delaware on February 16, 2012.

 

On May 9, 2012, Synergy closed an underwritten public offering of 10,000,000 shares of common stock at an offering price of $4.50 per share. The gross proceeds from this offering were $45 million, before deducting underwriting discounts and commissions and other estimated offering expenses of $2,952,930. Synergy also granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock at an offering price of $4.50 per share to cover over-allotments, if any.  On June 6, 2012 the underwriters exercised the over-allotment option resulting in additional gross proceeds of $6,750,000, before deducting underwriting discounts, commissions and other offering expenses of $405,000, bringing total gross proceeds from the offering to $51,750,000.

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Research and Development Expense
6 Months Ended
Jun. 30, 2012
Research and Development Expense
Research and Development Expense

8. Research and Development Expense

 

Research and development costs include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, patient costs, drug formulation and tableting, data collection, monitoring, insurance and FDA consultants.

 

In accordance with FASB ASC Topic 730-10-55, Research and Development, Synergy recorded prepaid research and development costs of $897,806 and $577,745 as of June 30, 2012 and December 31, 2011, respectively, for nonrefundable pre-payments for production of drug substance and analytical testing services for its drug candidates. In accordance with this guidance, Synergy expenses deferred research and development costs when drug compound is delivered and services are performed.

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Derivative Financial Instruments
6 Months Ended
Jun. 30, 2012
Derivative Financial Instruments
Derivative Financial Instruments

9. Derivative Financial Instruments

 

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

 

Synergy Derivative Financial Instruments

 

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Synergy has determined that certain warrants issued in connection with sale of its common stock must be classified as derivative instruments. In accordance with ASC Topic 815-40, the fair value of these warrants is being re-measured at each balance sheet date and any resultant changes in fair value is being recorded in the Company’s statement of operations. The Company estimates the fair value of certain warrants using the Black-Scholes option pricing model in order to determine the associated derivative instrument liability and change in fair value described above. The range of assumptions used to determine the fair value of the warrants at each period end during the six months ended June 30, 2012 and June 30, 2011 were

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Estimated fair value of Synergy common stock

 

$4.05 - $4.75

 

$2.56 - $3.30

 

Expected warrant term

 

2.4 – 5.7 years

 

5-7 years

 

Risk-free interest rate

 

0.32% - 1.33%

 

1.2% - 2.5%

 

Expected volatility

 

60%

 

90%

 

Dividend yield

 

 

 

 

Estimated fair value of stock is the closing market price of the Company’s common stock on the date of warrant issuance and at the end of each reporting period when the derivative instruments are marked to market. Expected volatility is based on historical volatility of Synergy’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, Synergy used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates for maturities consistent with the expected remaining term of the warrants and the date of grant or quarterly revaluation.

 

Certain of Synergy’s warrants issued during the six months ended June 30, 2012 and June 30, 2011 contained a price protection clause which variable term required the Company to use a binomial model to determine fair value. The range of assumptions used to determine the fair value of the warrants at each period end during the six months ended June 30, 2012 and June 30, 2011 was as follows:

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Estimated fair value of Synergy common stock

 

$3.28 - $4.50

 

$1.89

 

Expected warrant term

 

4.4 – 4.6 years

 

7 years

 

Risk-free interest rate

 

0.72% - 1.03%

 

2.64%

 

Expected volatility

 

60%

 

90%

 

Dividend yield

 

 

 

 

In the Binomial model, the assumption for estimated fair value of the stock is based on a Black-Scholes based apportionment of the unit price paid for the shares and warrants issued in Synergy’s most recent registered direct unit offerings, which resulting stock prices were deemed to be arms-length negotiated prices. Expected volatility is based on historical volatility of Synergy’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, Synergy used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates for maturities consistent with the expected remaining term of the warrants.

 

The following table sets forth the components of changes in the Synergy’s derivative financial instruments liability balance for the periods indicated:

 

Date

 

Description

 

Warrants

 

Derivative
Instrument
Liability

 

12/31/2010

 

Balance of derivative financial instruments liability

 

728,469

 

$

3,487,959

 

3/31/2011

 

Fair value of new warrants issued during the quarter

 

210,000

 

$

1,312,673

 

3/31/2011

 

Change in fair value of warrants during the quarter recognized as other expense in the statement of operations

 

 

$

338,715

 

3/31/2011

 

Balance of derivative financial instruments liability

 

938,469

 

$

5,139,347

 

6/30/2011

 

Fair value of new warrants issued during the quarter

 

611,207

 

$

2,607,827

 

6/30/2011

 

Exercise of warrants during the quarter

 

(80,000

)

$

(486,328

)

6/30/2011

 

Change in fair value of warrants during the quarter recognized as other expense in the statement of operations

 

 

$

697,660

 

6/30/2011

 

Balance of derivative financial instruments liability

 

1,469,676

 

$

7,958,506

 

9/30/2011

 

Fair value of new warrants issued during the quarter

 

40,458

 

$

285,128

 

9/30/2011

 

Change in fair value of warrants during the quarter recognized as other income in the statement of operations

 

 

$

(4,382,796

)

9/30/2011

 

Balance of derivative financial instruments liability

 

1,510,134

 

$

3,860,838

 

12/31/2011

 

Fair value of new warrants issued during the quarter

 

1,810,294

 

$

3,082,203

 

12/31/2011

 

Reclass of derivative liability to equity during the quarter

 

(1,055,268

)

$

(1,707,317

)

12/31/2011

 

Change in fair value of warrants during the quarter recognized as other income in the statement of operations

 

 

$

(1,910,610

)

12/31/2011

 

Balance of derivative financial instruments liability

 

2,265,160

 

$

3,325,114

 

 

 

 

 

 

 

 

 

3/31/2012

 

Fair value of new warrants issued during the quarter

 

 

 

3/31/2012

 

Change in fair value of warrants during the quarter

 

 

(7,946

)

 

 

 

 

 

 

 

 

3/31/2012

 

Balance of derivative financial instruments liability

 

2,265,160

 

$

3,317,168

 

6/30/2012

 

Fair value of new warrants issued during the quarter

 

112,500

 

169,202

 

6/30/2012

 

Change in fair value of warrants during the quarter

 

 

1,317,347

 

6/30/2012

 

Balance of derivative financial instruments liability

 

2,377,660

 

$

4,803,717

 

 

Synergy Fair Value Measurements

 

The following table presents the Company’s liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2011 and June 30, 2012:

 

Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31,
2011

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
June 30,
2012

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

3,325,114

 

$

3,325,114

 

$

 

$

 

$

4,803,717

 

$

4,803,717

 

 

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the six months ended June 30, 2012:

 

Description 

 

Balance at
December 31,
2011

 

Fair Value of
warrants upon
issuance

 

Unrealized
(gains) or
losses

 

Balance as of
June 30,
2012

 

Derivative liabilities related to Warrants

 

$

3,325,114

 

$

169,202

 

$

1,309,401

 

$

4,803,717

 

 

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities in the Company’s statement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

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Loss per Share
6 Months Ended
Jun. 30, 2012
Loss per Share
Loss per Share

10. Loss per Share

 

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share, (“ASC Topic 260”) for all periods presented. In accordance with ASC Topic 260, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Diluted weighted-average shares are the same as basic weighted-average shares because shares issuable pursuant to the exercise of stock options would have been antidilutive.

 

For the three and six months ended June 30, 2012 the effect of 7,131,039 outstanding stock options and 5,647,203 warrants were excluded from the calculation of diluted loss per share because the effect was antidilutive. For the three and six months ended June 30, 2011 the effect of 4,157,029 outstanding stock options and 1,469,676 warrants were excluded from the calculation of diluted loss per share because the effect was antidilutive.

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Related Parties
6 Months Ended
Jun. 30, 2012
Related Parties
Related Parties

11. Related Parties

 

As of June 30, 2012 Callisto owns 34% of Synergy’s outstanding shares.

 

As of June 30, 2012 Synergy had advanced Callisto $1,936,609 which is Callisto’s share of Synergy payments for common operating costs since July 2008 that Callisto was unable to fund. The indebtedness as of December 31, 2011 is evidenced by an unsecured promissory note which bears interest at 6% per annum.  Due to the uncertainty surrounding Callisto’s ability to raise capital Synergy is unable to determine when this balance will be repaid and accordingly Synergy has classified the balance due as a long term asset.

 

As of June 30, 2012 and December 31, 2011, the balances due from Callisto are comprised of the following amounts:

 

 

 

June 30,
2012

 

December 31,
2011

 

Rent, utilities and property taxes

 

$

145,481

 

$

90,166

 

Insurance and other facilities related overhead

 

277,309

 

249,635

 

Independent accountants and legal fees

 

611,222

 

510,331

 

Financial printer and transfer agent fees

 

227,190

 

217,476

 

Salaries and consulting fees of shared executives

 

317,739

 

289,270

 

Working capital advances, net of repayments

 

357,668

 

184,578

 

 

 

 

 

 

 

Total due from Callisto

 

$

1,936,609

 

$

1,541,456

 

 

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Subsequent Events
6 Months Ended
Jun. 30, 2012
Subsequent Events
Subsequent Events

12. Subsequent Events

 

On July 17, 2012, Synergy collected its 2011 New York City Biotechnology Tax Credit of $120,812.

 

On July 20, 2012, Synergy entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Callisto.  Pursuant to the Merger Agreement, following the satisfaction or waiver of each of the applicable conditions set forth in the Merger Agreement, Callisto and Synergy will merge (the “Merger”), whereupon Callisto’s separate corporate existence will cease and Synergy will continue as the surviving corporation of the Merger.  Callisto is Synergy’s largest shareholder and is a development stage biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal disorders and diseases.

 

As a result of the Merger, each outstanding share of Callisto common stock will be converted into the right to receive 0.17 of one share of Synergy common stock (the “Exchange Ratio”) as set forth in the Merger Agreement and the 22,295,000 shares of Synergy held by Callisto will be canceled. Under the terms of the Merger Agreement at closing, Synergy will issue, and Callisto stockholders will receive in a tax-free exchange, shares of Synergy common stock such that Callisto stockholders will own approximately 38.3 percent of the combined company on a pro forma basis and Synergy stockholders will own approximately 61.7 percent. Each share of Synergy Common Stock received in connection with the Merger shall be subject to a lock-up beginning on the effective date of the Merger and ending on the earlier of (i) eighteen (18) months after such date or (ii) a Change in Control (as defined in the Merger Agreement).

 

The consummation of the Merger is subject to various customary closing conditions, including but not limited to, (i) approval by Callisto’s and Synergy’s stockholders, (ii) the Registration Statement on Form S-4 shall have been declared effective by the SEC and (iii) the shares of Synergy common stock to be issued in the Merger shall have been approved for listing on The NASDAQ Capital Market. Upon consummation of the Merger the related party balances due from Callisto, $1,936,609 as of June 30, 2012 (See Note 11), will be eliminated in consolidation.  Callisto’s common stock currently trades on the Over the Counter Bulletin Board under the symbol “CLSP.OB”, and Callisto’s recent filings with the SEC are available at http://www.sec.gov.

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Accounting for Shared-Based Payments (Tables)
6 Months Ended
Jun. 30, 2012
Accounting for Shared-Based Payments
Schedule of stock-based compensation expense

 

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30

 

November 15,
2005
(inception) to

 

 

 

2012

 

2011

 

2012

 

2011

 

June 30, 2012

 

Employees—included in research and development

 

$

146,071

 

$

37,157

 

$

261,840

 

$

73,906

 

$

888,622

 

Employees—included in general and administrative

 

100,091

 

45,115

 

193,740

 

89,733

 

968,150

 

Non-employees—included in research and development

 

 

8,456

 

 

16,818

 

168,096

 

Non-employees—included in general and administrative

 

108,065

 

58,370

 

336,718

 

116,101

 

1,736,079

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

354,227

 

$

149,098

 

$

792,298

 

$

296,558

 

$

3,760,947

 

 

Schedule of weighted-average assumptions used to estimate fair value of stock option awards using the Black-Scholes option valuation model

 

 

 

 

Six Months Ended
June 30, 2012

 

Six Months Ended
June 30, 2011

 

Risk-free interest rate

 

0.97%-1.50%

 

(*)

 

Dividend yield

 

 

(*)

 

Expected volatility

 

60%

 

(*)

 

Expected term (in years)

 

6 years

 

(*)

 

 

(*) No stock options granted during this period.

Summary of stock option activity and of changes in stock options outstanding under the Plan

 

 

 

 

Number of
Options

 

Exercise Price
Per Share

 

Weighted Average
Exercise Price
Per Share

 

Intrinsic
Value

 

Weighted Average
Remaining
Contractual Term

 

Balance outstanding, December 31, 2011

 

5,964,039

 

$

0.50 – 4.30

 

$

1.77

 

$

10,631,388

 

8.2 years

 

Granted

 

1,272,000

 

$

3.40 – 4.42

 

$

3.89

 

 

 

 

 

Exercised

 

 

$

 

$

 

 

 

 

 

Forfeited

 

(105,000

)

$

3.40 – 4.38

 

$

4.10

 

 

 

 

 

Balance outstanding, June 30, 2012

 

7,131,039

 

$

0.50 – 4.42

 

$

2.11

 

$

18,830,516

 

7.9 years

 

Exercisable at June 30, 2012

 

2,076,539

 

$

0.50 – 4.30

 

$

0.75

 

$

8,306,391

 

6.2 years

 

 

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Derivative Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2012
Derivative Financial Instruments
Schedule of changes in derivative financial instruments liability balance

 

 

Date

 

Description

 

Warrants

 

Derivative
Instrument
Liability

 

12/31/2010

 

Balance of derivative financial instruments liability

 

728,469

 

$

3,487,959

 

3/31/2011

 

Fair value of new warrants issued during the quarter

 

210,000

 

$

1,312,673

 

3/31/2011

 

Change in fair value of warrants during the quarter recognized as other expense in the statement of operations

 

 

$

338,715

 

3/31/2011

 

Balance of derivative financial instruments liability

 

938,469

 

$

5,139,347

 

6/30/2011

 

Fair value of new warrants issued during the quarter

 

611,207

 

$

2,607,827

 

6/30/2011

 

Exercise of warrants during the quarter

 

(80,000

)

$

(486,328

)

6/30/2011

 

Change in fair value of warrants during the quarter recognized as other expense in the statement of operations

 

 

$

697,660

 

6/30/2011

 

Balance of derivative financial instruments liability

 

1,469,676

 

$

7,958,506

 

9/30/2011

 

Fair value of new warrants issued during the quarter

 

40,458

 

$

285,128

 

9/30/2011

 

Change in fair value of warrants during the quarter recognized as other income in the statement of operations

 

 

$

(4,382,796

)

9/30/2011

 

Balance of derivative financial instruments liability

 

1,510,134

 

$

3,860,838

 

12/31/2011

 

Fair value of new warrants issued during the quarter

 

1,810,294

 

$

3,082,203

 

12/31/2011

 

Reclass of derivative liability to equity during the quarter

 

(1,055,268

)

$

(1,707,317

)

12/31/2011

 

Change in fair value of warrants during the quarter recognized as other income in the statement of operations

 

 

$

(1,910,610

)

12/31/2011

 

Balance of derivative financial instruments liability

 

2,265,160

 

$

3,325,114

 

 

 

 

 

 

 

 

 

3/31/2012

 

Fair value of new warrants issued during the quarter

 

 

 

3/31/2012

 

Change in fair value of warrants during the quarter

 

 

(7,946

)

 

 

 

 

 

 

 

 

3/31/2012

 

Balance of derivative financial instruments liability

 

2,265,160

 

$

3,317,168

 

6/30/2012

 

Fair value of new warrants issued during the quarter

 

112,500

 

169,202

 

6/30/2012

 

Change in fair value of warrants during the quarter

 

 

1,317,347

 

6/30/2012

 

Balance of derivative financial instruments liability

 

2,377,660

 

$

4,803,717

 

 

Schedule of liabilities that are measured and recognized at fair value on a recurring basis

 

 

Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31,
2011

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
June 30,
2012

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

3,325,114

 

$

3,325,114

 

$

 

$

 

$

4,803,717

 

$

4,803,717

 

 

Summary of changes in the fair value of Level 3 liabilities

 

 

Description 

 

Balance at
December 31,
2011

 

Fair Value of
warrants upon
issuance

 

Unrealized
(gains) or
losses

 

Balance as of
June 30,
2012

 

Derivative liabilities related to Warrants

 

$

3,325,114

 

$

169,202

 

$

1,309,401

 

$

4,803,717

 

 

Derivative instrument liability | Warrants | Black-Scholes option pricing model
Derivative Financial Instruments
Schedule of range of assumptions used to determine the fair value of the warrants

 

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Estimated fair value of Synergy common stock

 

$4.05 - $4.75

 

$2.56 - $3.30

 

Expected warrant term

 

2.4 – 5.7 years

 

5-7 years

 

Risk-free interest rate

 

0.32% - 1.33%

 

1.2% - 2.5%

 

Expected volatility

 

60%

 

90%

 

Dividend yield

 

 

 

 

Derivative instrument liability | Warrants | Binomial model
Derivative Financial Instruments
Schedule of range of assumptions used to determine the fair value of the warrants

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Estimated fair value of Synergy common stock

 

$3.28 - $4.50

 

$1.89

 

Expected warrant term

 

4.4 – 4.6 years

 

7 years

 

Risk-free interest rate

 

0.72% - 1.03%

 

2.64%

 

Expected volatility

 

60%

 

90%

 

Dividend yield

 

 

 

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Related Parties (Tables)
6 Months Ended
Jun. 30, 2012
Related Parties
Schedule of balances due from Callisto Pharmaceuticals, Inc.

 

 

 

 

June 30,
2012

 

December 31,
2011

 

Rent, utilities and property taxes

 

$

145,481

 

$

90,166

 

Insurance and other facilities related overhead

 

277,309

 

249,635

 

Independent accountants and legal fees

 

611,222

 

510,331

 

Financial printer and transfer agent fees

 

227,190

 

217,476

 

Salaries and consulting fees of shared executives

 

317,739

 

289,270

 

Working capital advances, net of repayments

 

357,668

 

184,578

 

 

 

 

 

 

 

Total due from Callisto

 

$

1,936,609

 

$

1,541,456

 

 

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Basis of Presentation and Accounting Policies (Details) (USD $)
1 Months Ended 6 Months Ended 79 Months Ended
Jun. 30, 2012
May 31, 2012
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
May 09, 2012
Dec. 31, 2011
Nov. 30, 2011
Dec. 31, 2010
Jul. 14, 2008
Pawfect
Percentage of common stock acquired in Synergy-DE 100.00%
Reverse stock split ratio on authorized, issued and outstanding shares of common stock 0.5
Accumulated deficit $ 87,190,110 $ 87,190,110 $ 87,190,110 $ 69,609,018
Net cash used in operating activities (13,814,900) (6,980,317) (56,898,903)
Cash and cash equivalents on hand 27,426,900 27,426,900 503,744 27,426,900 13,244,883 1,707,516
Available-for-sale securities 20,160,576 20,160,576 20,160,576
Working capital 40,065,845 40,065,845 40,065,845 11,561,286
Number of shares of common stock closed under an underwritten public offering 10,000,000
Common stock price per share for public offering and over-allotment $ 4.5
Proceeds from sale of common stock 6,750,000 45,000,000 51,750,000 5,461,242 112,293,164
Underwriting discounts and commissions and other offering expenses $ 405,000 $ 2,952,930 $ 3,357,930 $ 395,620 $ 6,307,533
Period during which underwriters can purchase additional shares to cover an over-allotment option 45 days
Additional shares of common stock purchased by underwriters to cover over-allotment 1,500,000
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Financial Instruments - Cash, Cash Equivalents and Marketable Securities (Details) (US Treasury bills and notes)
6 Months Ended
Jun. 30, 2012
Minimum
Financial Instruments - Cash, Cash Equivalents and Marketable Securities
Maturity period of long-term marketable securities 1 year
Maximum
Financial Instruments - Cash, Cash Equivalents and Marketable Securities
Maturity period of long-term marketable securities 2 years
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Accounting for Shared-Based Payments (Details) (USD $)
3 Months Ended 6 Months Ended 80 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Shared-based payments
Total stock-based compensation expense $ 354,227 $ 149,098 $ 792,298 $ 296,558 $ 3,760,947
Employees | Research and development
Shared-based payments
Total stock-based compensation expense 146,071 37,157 261,840 73,906 888,622
Employees | General and administrative
Shared-based payments
Total stock-based compensation expense 100,091 45,115 193,740 89,733 968,150
Non-employees | Research and development
Shared-based payments
Total stock-based compensation expense 8,456 16,818 168,096
Non-employees | General and administrative
Shared-based payments
Total stock-based compensation expense 108,065 58,370 336,718 116,101 1,736,079
Stock options
Shared-based payments
Vesting period 3 years
Contractual term 10 years
Unrecognized compensation cost related to non-vested employee stock options, net of expected forfeitures $ 4,038,235 $ 4,038,235 $ 4,038,235
Weighted-average remaining vesting period over which unrecognized compensation cost is to be recognized 2 years 10 months 24 days
Number of stock options which vest upon a change of control 4,364,000 4,364,000 4,364,000
Weighted-average assumptions used to estimate fair value of stock option awards using the Black-Scholes option valuation model
Risk-free interest rate, minimum (as a percent) 0.97%
Risk-free interest rate, maximum (as a percent) 1.50%
Expected volatility (as a percent) 60.00%
Expected term 6 years
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Accounting for Shared-Based Payments (Details 2) (Stock options, USD $)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2012
Jun. 30, 2012
Dec. 31, 2011
Exercise price per Share 0.50 - 4.30
Number of Options
Balance at the beginning of the period (in shares) 5,964,039
Balance at the end of the period (in shares) 5,964,039
Exercisable at the end of the period (in shares) 2,076,539 2,076,539
Exercise Price Per Share
Exercise price, low end of the range (in dollars per share) $ 0.5 $ 0.5
Exercise price, high end of the range (in dollars per share) $ 4.3 $ 4.3
Weighted Average Exercise Price Per Share
Balance at the beginning of the period (in dollars per share) $ 1.77
Balance at the end of the period (in dollars per share) $ 1.77
Exercisable at the end of the period (in dollars per share) $ 0.75 $ 0.75
Intrinsic Value
Balance at the end of the period $ 10,631,388
Exercisable at the end of the period 8,306,391 8,306,391
Weighted Average Remaining Contractual Term
Balance at the end of the period 8 years 2 months 12 days
Exercisable at the end of the period 6 years 2 months 12 days
Exercise price per Share 3.40 - 4.42
Number of Options
Granted (in shares) 1,272,000
Exercise Price Per Share
Exercise price, low end of the range (in dollars per share) $ 3.4
Exercise price, high end of the range (in dollars per share) $ 4.42
Weighted Average Exercise Price Per Share
Granted (in dollars per share) $ 3.89
Exercise price per Share 3.40 - 4.38
Number of Options
Forfeited (in shares) (105,000)
Exercise Price Per Share
Exercise price, low end of the range (in dollars per share) $ 3.4
Exercise price, high end of the range (in dollars per share) $ 4.38
Weighted Average Exercise Price Per Share
Forfeited (in dollars per share) $ 4.1
Exercise price per Share 0.50 - 4.42
Number of Options
Balance at the end of the period (in shares) 7,131,039 7,131,039
Exercise Price Per Share
Exercise price, low end of the range (in dollars per share) $ 0.5
Exercise price, high end of the range (in dollars per share) $ 4.42
Weighted Average Exercise Price Per Share
Balance at the end of the period (in dollars per share) $ 2.11 $ 2.11
Intrinsic Value
Balance at the end of the period $ 18,830,516 $ 18,830,516
Weighted Average Remaining Contractual Term
Balance at the end of the period 7 years 10 months 24 days
Low end of the range | Exercise price per Share 0.50 - 4.30
Exercise Price Per Share
Balance at the end of the period (in dollars per share) $ 0.5
Exercisable at the end of the period (in dollars per share) $ 0.5 $ 0.5
Low end of the range | Exercise price per Share 3.40 - 4.42
Exercise Price Per Share
Granted (in dollars per share) $ 3.4
Low end of the range | Exercise price per Share 3.40 - 4.38
Exercise Price Per Share
Forfeited (in dollars per share) $ 3.4
Low end of the range | Exercise price per Share 0.50 - 4.42
Exercise Price Per Share
Balance at the end of the period (in dollars per share) $ 0.5 $ 0.5
High end of the range | Exercise price per Share 0.50 - 4.30
Exercise Price Per Share
Balance at the end of the period (in dollars per share) $ 4.3
Exercisable at the end of the period (in dollars per share) $ 4.3 $ 4.3
High end of the range | Exercise price per Share 3.40 - 4.42
Exercise Price Per Share
Granted (in dollars per share) $ 4.42
High end of the range | Exercise price per Share 3.40 - 4.38
Exercise Price Per Share
Forfeited (in dollars per share) $ 4.38
High end of the range | Exercise price per Share 0.50 - 4.42
Exercise Price Per Share
Balance at the end of the period (in dollars per share) $ 4.42 $ 4.42
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Income Taxes (Details) (New York, USD $)
1 Months Ended 1 Months Ended
Jun. 30, 2012
QETC credit
Apr. 30, 2012
QETC credit
Dec. 31, 2011
QETC credit
Jul. 31, 2012
Biotechnology Tax Credit
Dec. 31, 2011
Biotechnology Tax Credit
Income Taxes
Refundable tax credits $ 248,486 $ 118,437
Refund received from tax credit 246,402 120,812
Tax credit amount recorded in other income $ 250,000
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Stockholder's Equity (Details) (USD $)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended 79 Months Ended
Jun. 30, 2012
May 31, 2012
Jan. 31, 2012
Mar. 31, 2012
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Jun. 30, 2012
May 09, 2012
Jan. 29, 2012
Stockholder's Equity
Common stock issued for professional services rendered (in shares) 26,272
Fair value of common stock issued professional services rendered (in dollars per share) $ 3.53
Value of common stock issued for professional services rendered, recorded as legal expense $ 92,663 $ 92,663 $ 341,295 $ 18,271 $ 1,500
Number of shares of common stock closed under an underwritten public offering 10,000,000
Proceeds from sale of common stock 6,750,000 45,000,000 51,750,000 5,461,242 112,293,164
Common stock price per share for public offering and over-allotment $ 4.5
Underwriting discounts and commissions and other estimated offering expenses $ 405,000 $ 2,952,930 $ 3,357,930 $ 395,620 $ 6,307,533
Period during which underwriters should purchase additional shares to cover over-allotments 45 days
Additional shares of common stock purchased by underwriters to cover over-allotment 1,500,000
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Research and Development Expense (Details) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Research and Development Expense
Prepaid research and development costs $ 897,806 $ 577,745
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Derivative Financial Instruments (Details) (Derivative instrument liability, Warrants, USD $)
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Black-Scholes option pricing model
Range of assumptions used to determine the fair value of the warrants
Expected volatility (as a percent) 60.00% 90.00%
Black-Scholes option pricing model | Minimum
Range of assumptions used to determine the fair value of the warrants
Estimated fair value of Synergy common stock (in dollars per share) 4.05 2.56
Expected warrant term 2 years 4 months 24 days 5 years
Risk-free interest rate (as a percent) 0.32% 1.20%
Black-Scholes option pricing model | Maximum
Range of assumptions used to determine the fair value of the warrants
Estimated fair value of Synergy common stock (in dollars per share) 4.75 3.3
Expected warrant term 5 years 8 months 12 days 7 years
Risk-free interest rate (as a percent) 1.33% 2.50%
Binomial model
Range of assumptions used to determine the fair value of the warrants
Estimated fair value of Synergy common stock (in dollars per share) 1.89
Expected warrant term 7 years
Risk-free interest rate (as a percent) 2.64%
Expected volatility (as a percent) 60.00% 90.00%
Binomial model | Minimum
Range of assumptions used to determine the fair value of the warrants
Estimated fair value of Synergy common stock (in dollars per share) 3.28
Expected warrant term 4 years 4 months 24 days
Risk-free interest rate (as a percent) 0.72%
Binomial model | Maximum
Range of assumptions used to determine the fair value of the warrants
Estimated fair value of Synergy common stock (in dollars per share) 4.5
Expected warrant term 4 years 7 months 6 days
Risk-free interest rate (as a percent) 1.03%
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Derivative Financial Instruments (Details 2) (USD $)
3 Months Ended 6 Months Ended 79 Months Ended
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Changes in warrants
Balance at the beginning of the period (in shares) 2,265,160 2,265,160 1,510,134 1,469,676 938,469 728,469 2,265,160 728,469
New warrants issued during the quarter (in shares) 112,500 1,810,294 40,458 611,207 210,000
Reclassification of derivative liability to equity during the quarter (in shares) (1,055,268)
Exercise of warrants during the quarter (in shares) (80,000)
Balance at the end of the period (in shares) 2,377,660 2,265,160 2,265,160 1,510,134 1,469,676 938,469 2,377,660 1,469,676 2,377,660
Changes in derivative instrument liability
Balance at the beginning of the period $ 3,317,168 $ 3,325,114 $ 3,860,838 $ 7,958,506 $ 5,139,347 $ 3,487,959 $ 3,325,114 $ 3,487,959
Fair value of new warrants issued during the quarter 169,202 3,082,203 285,128 2,607,827 1,312,673
Exercise of warrants during the quarter (486,328)
Reclassification of derivative liability to equity during the quarter (1,707,317)
Change in fair value of warrants during the quarter 1,317,347 (7,946) (1,910,610) (4,382,796) 697,660 338,715 1,309,401 1,036,375 (4,244,414)
Balance at the end of the period $ 4,803,717 $ 3,317,168 $ 3,325,114 $ 3,860,838 $ 7,958,506 $ 5,139,347 $ 4,803,717 $ 7,958,506 $ 4,803,717
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Derivative Financial Instruments (Details 3) (USD $)
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2010
Derivative Financial Instruments
Derivative liabilities related to Warrants $ 4,803,717 $ 3,317,168 $ 3,325,114 $ 3,860,838 $ 7,958,506 $ 5,139,347 $ 3,487,959
Fair value on a recurring basis | Significant Unobservable Inputs (Level 3) | Derivative instrument liability | Warrants
Derivative Financial Instruments
Derivative liabilities related to Warrants 4,803,717 3,325,114
Fair value on a recurring basis | Total Fair Value | Derivative instrument liability | Warrants
Derivative Financial Instruments
Derivative liabilities related to Warrants $ 4,803,717 $ 3,325,114
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Derivative Financial Instruments (Details 4) (Derivative instrument liability, Warrants, USD $)
6 Months Ended
Jun. 30, 2012
Derivative instrument liability | Warrants
Changes in the fair value of Level 3 liabilities
Balance at the beginning of the period $ 3,325,114
Fair Value of warrants upon issuance 169,202
Unrealized (gains) or losses 1,309,401
Balance at the end of the period $ 4,803,717
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Loss per Share (Details)
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Stock options
Loss per Share
Number of antidilutive securities excluded from the calculation of diluted loss per share 7,131,039 4,157,029 7,131,039 4,157,029
Warrants
Loss per Share
Number of antidilutive securities excluded from the calculation of diluted loss per share 5,647,203 1,469,676 5,647,203 1,469,676
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Related Parties (Details) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Balances due from Callisto Pharmaceuticals, Inc.
Total due from Callisto $ 1,936,609 $ 1,541,456
Callisto
Related Parties
Ownership percentage of outstanding shares owned by majority shareholder 34.00%
Balances due from Callisto Pharmaceuticals, Inc.
Rent, utilities and property taxes 145,481 90,166
Insurance and other facilities related overhead 277,309 249,635
Independent accountants and legal fees 611,222 510,331
Financial printer and transfer agent fees 227,190 217,476
Salaries and consulting fees of shared executives 317,739 289,270
Working capital advances, net of repayments 357,668 184,578
Total due from Callisto $ 1,936,609 $ 1,541,456
Callisto | Unsecured promissory note
Related Parties
Interest rate (as a percent) 6.00%
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Subsequent Events (Details) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Jul. 31, 2012
New York
Biotechnology Tax Credit
Jul. 31, 2012
Subsequent Event
Callisto
Jul. 20, 2012
Subsequent Event
Callisto
Jun. 30, 2012
Subsequent Event
Callisto
Jul. 31, 2012
Subsequent Event
New York
Biotechnology Tax Credit
Callisto
Subsequent Events
Amount collected from tax credit $ 120,812 $ 120,812
Exchange Ratio of shares 0.17
Shares of Synergy held by the merged entity that will be canceled 22,295,000
Percentage of ownership to be received by the merged entity's stockholders at closing of the merger agreement 38.30%
Percentage of ownership to be received by Synergy's stockholders at closing of the merger agreement 61.70%
Period of lock-up for shares received in connection with the merger 18 months
Due from Callisto $ 1,936,609 $ 1,541,456 $ 1,936,609
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