Vincent Perrone – Director-Corporate Communication Steven Shallcross – Acting Chief Executive Officer and Chief Financial Officer Joseph Sliman – Chief Medical Officer.

Keith Markey – Griffin Securities Tim Chiang – BTIG.

Good afternoon, and welcome to the Synthetic Biologics 2018 First Quarter Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the call over to Vincent Perrone, Director, Corporate Communication at Synthetic Biologics.

Please go ahead..

Thank you, Rochelle, and good afternoon, everyone. Welcome to Synthetic Biologics 2018 first quarter investor conference call. Today, I am joined by our acting CEO and CFO, Steven Shallcross; and our Chief Medical Officer, Dr. Joseph Sliman.

Synthetic Biologics issued a press release this afternoon, which provided operational highlights and reported our financial results for the period ending March 31, 2018. The release can be found on the Investors section of our website.

During our call today, Steve and Joe will provide an operational update on our microbiome-focused clinical programs and summarize our financial results. We'll take questions after our prepared remarks.

In addition to the phone line, this call is being streamed live via webcast, which will be archived on our website, www.syntheticbiologics.com for 90 days. During this call, we will be making forward-looking statements regarding Synthetic Biologics' current expectations and projections about future events.

Generally, the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions.

These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Synthetic Biologics' filings with the SEC, many of which are difficult to predict.

No forward-looking statements can be guaranteed and actual results may differ materially from such statements.

The information on this call is provided only as of the date of this call and Synthetic Biologics undertakes no obligation to update any forward-looking statements contained on this conference call on account of new information, future events or otherwise, except as required by law. With that, I'd like to turn the call over to Steve.

Steve?.

one, work with the FDA to establish a clear path forward for our planned Phase 3 clinical trial for ribaxamase, our first-in-class oral enzyme; and two, continue to pursue and evaluate strategic opportunities, including partnership or licensing agreements for one or both of our proprietary late-stage microbiome-focused assets, ribaxamase and SYN-010.

Ribaxamase holds the potential to be a disruptive yet simple approach to more effective antibiotic therapies. It has been well established that the prolonged use of antibiotics significantly increases the risk of developing gastrointestinal infections, like CDI, as well as the emergence and spreading of antimicrobial-resistant genes.

Designed to be taken in conjunction with certain IV beta-lactam antibiotics, ribaxamase offers a first-of-its-kind, innovative approach to preventing antibiotic-mediated CDI and AMR by degrading residual antibiotics before they can disrupt the natural balance of microorganisms that inhibit the GI tract.

As the first development-stage drug candidate designed for the prevention of CDI, ribaxamase holds the potential to help combat the more than 450,000 cases of CDI and the approximately 29,000 CDI deaths each year in the U.S. Ribaxamase is unique in many ways.

Its mechanism of action is designed to prevent opportunistic GI infections before they occur by protecting the gut microbiome from antibiotic-mediated disruption, whereas conventional therapies are designed to treat an infection once it's already taken place.

Towards the end of 2017, we began our collaborative efforts and discussions with the FDA on the design of a Phase 3 clinical study protocol for ribaxamase.

Working with little established regulatory guidance on how to develop a comprehensive clinical trial of this nature, we remained engaged in our interactions with the FDA to ensure we address their requirements while also designing a clinical study protocol that would maximize our opportunity for a successful Phase 3 program.

During the first quarter of 2018, we announced that following a series of highly productive meetings with the FDA, we reached preliminary agreement on a protocol synopsis for our planned Phase 3 clinical trial for ribaxamase.

Our recent discussions with the FDA have left us excited and encouraged as we view this announcement as an extremely positive outcome that provides us with a clear and achievable pathway towards marketing approvals.

In accordance with the recommendations and guidance from the agency, we expect the Phase 3 study to be a global, event-driven clinical trial with a fixed maximum number of patients for total enrollment.

This trial was expected to evaluate the efficacy and safety of ribaxamase in a broader patient population than the previously completed Phase 2b study via the inclusion of at least one additional IV beta-lactam antibiotic in addition to ceftriaxone and by enrolling patients with a variety of underlying infections.

The inclusion of more than one antibiotic and the broadening of the patient population is designed to enable us to evaluate the benefit and utility of ribaxamase in real-world scenarios where we believe ribaxamase can provide the greatest benefit in the targeted at-risk patient populations.

Importantly and with the support of the FDA, we have reached agreement to evaluate the efficacy and safety of ribaxamase as separate and decoupled co-primary endpoints.

Similar to our previously completed Phase 2b clinical trial, the primary efficacy endpoint of this study is expected to be the reduction in the incidence of CDI in the ribaxamase treatment group compared to placebo. We will also evaluate mortality risk, an accepted measure of safety, as a separate and independent co-primary data endpoint.

The decoupling of efficacy and safety in a clinical trial designed to evaluate prevention or risk reduction is an important distinction and critical in a trial of this nature for several reasons. First, we anticipate CDI rates in the proposed Phase 3 trial to average between 3% and 5%.

However, these rates can be higher or lower depending on each respective clinical site. Second, we expect the mortality rates for the target population in this trial to be as high as 10% or more. This is due to the fact that this patient population is typically being treated for an infection along with other underlying serious health issues.

Conventional clinical trials typically classify missing data of any type as a treatment failure and include this data as part of the statistical efficacy calculation. Missing data can include early terminations, patients' failure to follow up and fatal events for any reason, including those that may be unrelated to study drug.

However, in a study such as this, where the incidence of missing data is expected to far outweigh the frequency of the measurable CDI event data, it is necessary to decouple and independently evaluate efficacy and safety.

Looking ahead, we believe the establishment of a clear and achievable regulatory path forward for ribaxamase will aid in advancing our discussions with prospective partners and collaborators as we can now begin to solidify important aspects of a Phase 3 trial that were previously unknown.

Over the last few weeks, we received a number of calls from investors regarding the decision to voluntarily withdraw breakthrough therapy designation for ribaxamase. To clarify, the reason breakthrough designation is granted is because it offers sponsors additional and incremental access to the FDA to discuss the design of clinical trials.

During the course of our interactions with the FDA, we were extremely pleased with the degree of engagement and the access we were given by agency officials that allowed us – that allowed for a comprehensive discussion and agreement on key elements for the Phase 3 protocol design.

As we announced last month, the FDA undertook further review of additional data and analysis from our previously completed Phase 2b clinical trial as part of our Phase 3 discussions. They determined that the requirements for breakthrough therapy designation were no longer met for two reasons.

One, the limited size in safety database and overall scope of this trial did not allow for a comprehensive evaluation of safety.

And two, the statistical treatment of missing data for patients who did not complete the study for any reason would require a larger clinical trial in which safety outcomes to be fully evaluated independently from efficacy outcomes to provide conclusive evidence that ribaxamase does not adversely alter mortality risk in this patient population.

I'd like to be clear when I say that the withdrawal has not impeded our interactions with the FDA.

In fact, the FDA remains engaged with the company and has provided their assistance and assurance that they intend to continue to work with us as we continue to finalize the ribaxamase Phase 3 program, which we believe will enable a definitive determination of both efficacy and safety.

In the coming months, we will continue to work closely with the FDA to finalize the remaining elements of our proposed Phase 3 clinical program. We look forward to sharing these details with you following the completion of our end-of-Phase 2 meeting, which is expected to take place during the second half of 2018. Now turning to SYN-010.

SYN-010 is a proprietary modified-release formulation of lovastatin lactone, designed to reduce methane production in the GI tract to treat the underlying cause of the symptoms commonly associated with irritable bowel syndrome with constipation. SYN-010 remains an important asset that we believe will deliver long-term shareholder value.

During the first quarter of 2018, we continued to fortify our intellectual property estate for our SYN-010 program. Earlier this month, we were issued a U.S. patent, which includes claims related to composition of matter for the use of antimethanogenic compositions to treat IBS-C.

The patent will expire no later than 2035 and will provide key intellectual property protection in the U.S. for SYN-010. We now have over 60 granted U.S. and international patents for SYN-010.

We continue to believe the optimal path forward for this asset will be in collaboration with a strategic partner or partners, both domestically and internationally. Towards the end of 2017, we engaged outside consultants to explore the international regulatory and market access structures that may support the advancement of SYN-010 in Europe.

During the first quarter, we received initial guidance on what that potential regulatory pathway may entail. We believe being armed with this additional clarity may further support our ongoing efforts to advance discussions with potential pharmaceutical partners to move this program forward.

We continue to aggressively pursue these opportunities, and we'll continue to update you on any meaningful developments.

While we are keenly focused on advancing our lead assets, our preclinical development pipeline remains robust, and we will continue to explore the potential of our formulary and microbiome expertise to deliver additional value from these earlier-stage assets. Now I'll transition to finance.

Financial stewardship and cash management remain a top priority for us. With that backdrop, I will review our financial results for the period ending March 31, 2018. General and administrative expenses decreased 23% to $1.6 million for the three months ended March 31, 2018, compared to $2.1 million for the same period in 2017.

This decrease is primarily the result of lower salary expense, stock-based compensation, and related benefits costs incurred in 2018 due to the resignation of our CEO, along with the reduction of travel, consulting fees, and legal expenses in 2018 offset by higher registration fees.

The charge related to stock-based compensation expense was $349,000 for the three months ended March 31, 2018, compared to $698,000 for the same period in 2017. Research and development expenses decreased 44% to $3.4 million for the three months ended March 31, 2018, compared to $6.1 million for the same period in 2017.

This decrease is primarily the result of lower ribaxamase and SYN-010 program costs for 2018, since no clinical trials were ongoing during the quarter.

The research and development costs incurred during the quarter were primarily related to planning for future ribaxamase Phase 3 and SYN-010 Phase 2b/3 clinical programs as we seek to secure the financial resources necessary for the completion of these clinical trials.

The charge related to non-cash stock-based compensation expense was $326,000 for the three months ended March 31, 2018, compared to $437,000 for the same period in 2017. We recorded other income was $2.7 million for the three months ended March 31, 2018, compared to other income of $5.1 million for the same period in 2017.

Other income for the three months ended March 31, 2018 is primarily comprised of non-cash income of $2.7 million from the change in fair value of warrants. The decrease in the fair value of the warrants was due to the decrease in our stock price from the prior quarter. Cash and cash equivalents as of March 31, 2018 was $11 million.

Switching gears, I'd like to take a moment to address a few housekeeping items. During the first quarter of 2018, we announced that we received notice from the New York Stock Exchange as the company was not in compliance with the stockholders' equity continued listing standard as set forth in the NYSE American Company Guide.

On April 3 and in accordance with the NYSE America's policy, we submitted a compliance plan outlining the steps we intend to take to regain compliance with the NYSE American. If accepted, the company will have 18 months to regain compliance with the stockholders' equity continued listing standard.

However, should our market capitalization increase and remain above $50 million for a sustained period of time during the 18-month evaluation period, we will regain compliance with the NYSE America's continued listing standards. Our compliance plan is currently under review by the NYSE, and we intend to provide an update at the appropriate time.

Yesterday, we filed a Form S-3 to register the sale of up to $200 million worth of securities under a mixed shelf registration. To be clear, we do not have any immediate plans to utilize this vehicle.

Rather, we elected to file the current Form S-3 to supersede the previous Form S-3, which is scheduled to expire this August, ensuring the company maintains maximum flexibility going forward.

The Form S-3 was filed with the inclusion of a prospectus supplement, which will allow us to continue to utilize our ATM vehicle under the newly filed shelf registration. We plan to utilize our ATM vehicle prudently and when and only when favorable market conditions will allow.

In closing, during the first quarter, we achieved one of our key objectives for 2018. Having worked closely with the FDA, we reached preliminary agreements on the design of a Phase 3 clinical trial synopsis for ribaxamase. And while we now have a much better understanding of what the road ahead looks like, we still have work to do.

During the remainder of 2018, our priorities are to continue to work with the FDA to solidify the remaining elements of the ribaxamase Phase 3 clinical trial protocol and to continue to aggressively evaluate strategic partnering opportunities, which may enable us to move these programs forward.

In this pursuit, we will continue to bring to bear all of our available internal and external resources to ensure that we fully capitalize on the vast potential of our late-stage compounds and establish the right collaborative relationships to bring their promise to reality. I look forward to continuing to share our progress with you.

With that, I'll now turn the call back to Vincent..

Thank you, Steve. Rochelle, we'd like to open the phone line to questions.

Would you please describe the procedure to ask questions for our listeners?.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Keith Markey with Griffin Securities..

Hi, thank you for taking my questions. I have a few.

I was wondering, could you possibly explain in a little bit more detail the uncoupling of the safety and the primary efficacy endpoints of your ribaxamase trial?.

Go ahead, Joe..

Yes, sure, Keith. So in a nutshell, a standard clinical trial, especially a pivotal trial, usually requires you to enroll a set of patients for treatment who already have a condition. And then you evaluate efficacy by looking not only at your measure of the endpoint, your responders, but you count any missing data.

So any patient who does not complete the study, who's enrolled obviously, and doesn't complete the study, whether that's due to a fatality or withdrawal of consent for adverse event or for some other reason or a simple failure of follow-up, they count as a treatment failure, okay? So that's how you treat missing data.

Safety is a large component often of missing data. So in our study, which is a prevention trial in which we're enrolling a population that is highly at risk of mortality due to their comorbid conditions, right, and where the – we expect that in a best-case scenario, our underlying rates of C. diff infection in these patients will be 3% to 5%.

The mortality in these patients, for example, among the high-at-risk lower respiratory tract inpatients, is 10% or more in the first 30 days. And that's – again, that's at least double the anticipated endpoint rate.

So what you have is you have – statistically, you have your missing data, your fatal events, which should count as missing data because you don't know how they turned out because they never got to the endpoint. Even if they are balanced between groups, they overwhelm your endpoint. It significantly dilutes your smaller number of C. diff events.

And so statistically speaking, it doesn't make any sense to include any of these events in the evaluation of your efficacy endpoint. We were happy, of course, that the FDA actually agreed with our assessment, and they have given the initial agreement to evaluate the risk reduction in the endpoint, meaning the reduction in the rate of C.

diff infection between groups, separate that from a separate analysis of mortality and missing data. So in other words, we are able to not only power our study adequately and effectively but at a much lower number than we would have otherwise.

That make sense?.

Thank you. Yes, sure, it does.

So if we can take that a step further, if you – if I understand you correctly, then the event-driven nature of your ribaxamase trial has a lot to do with missing data and obviously fatalities?.

Well, right. And so it will be an evaluation separately of the missing data – the different categories of missing data, primarily the fatal events between the two groups. But again, as a separate evaluation, so we will be evaluating safety and missing data to be statistically relatively the same between the two groups, yes..

Okay.

And do you have a certain event number that will – or a percentage, I guess, it would have to be, that would cause the trial to come to a halt, and you'd do a readout at that point?.

Well, we're going to be – we're considering having a separate safety monitoring board or data monitoring board to evaluate that separately from us. So that would be an independent evaluation..

Okay.

And then I was just wondering, do you feel that the recent issuance of the composition of matter patent on SYN-010 is going to aid you significantly in your discussions with potential partners?.

Yes, absolutely, Keith. This only adds to the pretty comprehensive patent estate that's already built around the asset. But this is a key patent. And again, we've already just received this, so it's now being included in our discussions with potential partners..

Great. And then if I could jump back, I have one more question about the ribaxamase trial. It sounds – you mentioned the global nature of the trial.

Can you give us a little bit more detail, Europe, Australia, that sort of thing?.

Yes. For a couple of reasons, we'd like to get to Australia at least as part of the southern hemisphere simply because lower respiratory tract infection is – the rates of it anywhere, the incidence is driven largely by the flu season and the cold season. And that's obviously the opposite in the southern hemisphere from the northern hemisphere.

So it will give us theoretically a better enrollment rate year round, so we can continue to go without having any kind of lull or dead period in enrollment. And also, in Asia, particularly in China, there is an emerging threat of – or I guess I should say it's an emerging recognition of the threat of antimicrobial resistance and C. diff infection.

And of course, as you're probably well aware, that the market in China is already as big as the U.S. and Europe, and it's only getting bigger as they continue to improve access to health care.

So it's important because there's a lot of patients over there to be evaluated and are in need of the exact same therapies and the same antibiotics that we are in Europe and North America..

Yes. And I imagine that they have a higher incidence of multidrug resistance over there given the relative frequent use of the antibiotics..

Yes. I think it's still largely dependent upon who you ask and who your data resource is, but that's our expectation, yes..

Okay, thank you very much..

[Operator Instructions] The next question comes from Tim Chiang with BTIG..

Hi, Steven. So is there any sort of update you can provide in terms of potential partnerships? Certainly, I think you've got two interesting assets here, SYN-004, SYN-010. But certainly, you need larger companies to help fund the development of these pivotal studies. Looks like the SYN-004 program's going to require a pretty large patient study.

What sort of progress have you guys made so far? Is there anything you can – you could highlight on that in that regard?.

Yes. So I'll go back in part to the comments I made back in the beginning of the year. And I stated, if you recall, that securing a partnership or partnerships was one of our key objectives for the next six to 12 months. It is very clear we got to get something over the line.

I can tell you this much, we have engaged additional outside resources, and we are very focused on execution and trying to make something happen. We're evaluating opportunities in North America, we're evaluating opportunities in Europe, and we're evaluating opportunities in China. And we're – I should say we have interest in both assets.

Other than that, I'm not going to give you any additional color on the progress of discussions. I just think that's unfair and sets unfair expectations, but I can assure you that we’re on top of this. It is my top priority. And as soon as we have something to announce, we'll obviously certainly get that news out as quickly as possible..

Okay, great. And then just the cash on the balance sheet, I think, what, it's around $11 million.

Do you have enough cash to get through the rest of this year?.

So what I stated previously and which still holds to be true is that we have a fixed burn that runs about $1.3 million a month, and then we've been strategically spending a little extra on prep activities, primarily on the regulatory side for ribaxamase, as well as a little extra on manufacturing, and it's primarily on the tech transfer and validation side.

Other than that, I'll let you do the math and figure out what the runway looks like. Having said that, I'll also make this comment, I am very sensitive to how our shareholders feel about potential dilution. I get it. I also understand the need to get something over the line because of our limited on-hand cash resources. We do have options.

Obviously, our first option would be to secure some type of deal where we bring in some non-dilutive upfront cash. We also have availability under our ATM if I need to extend our runway to bridge to some type of action down the road. And I might add that we have not utilized the ATM from the third quarter of last year through today.

So again, I take the use of that very seriously, and I view this as another tool in the toolbox. We also have the ability if needed to do some type of strategic funding, maybe through a PIPE, if you will, or more traditional public offerings. Obviously, the first choice is to bring non-dilutive cash into the company to top up the balance sheet.

But whatever happens, you can be assured that I'm going to keep the best interest of our investors and the company in mind, whatever choice we decide to make. And it's all towards making sure we continue to move our late-stage products forward. We've got clarity on ribaxamase now. We have the ability to find a home for it.

So moving forward, with what we have is what this story is all about now..

Okay, that’s very helpful. Thanks, Steve. Operator This concludes our question-and-answer session. I would like to turn the conference back over to Steve Shallcross for any closing remarks..

Yes. I just want to make one additional brief comment. I just want to reiterate the point that we are very focused on execution and delivery of what I said I was going to do back in the beginning of the year. And I think we're well on our way to achieving those objectives. I get it.

We have incredibly positive momentum following our successful discussions with the FDA, which, as I said earlier, gives us the ability to move our strategic discussions forward. And again, as soon as we have something further to talk about, we'll get that news out to you.

We have incredibly great assets, and again, we're working very, very hard to unlock the value of those assets. I'd like to thank our dedicated shareholders for hanging in there with us.

And I also want to thank our dedicated team members for the commitment they've made to helping bring these assets ultimately forward and hopefully in relative short order to the market. I look forward to continuing our dialogue and updating you on our progress in the months ahead. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..