Executive Summary / Key Takeaways

• Synlogic is undergoing a comprehensive strategic review, including potential merger or sale, following the discontinuation of its pivotal Phase 3 PKU trial (Synpheny-3) in February 2024 due to the trial being unlikely to meet its primary endpoint.
• The company's operations have been significantly scaled back, resulting in substantially lower operating expenses in Q1 2025 ($0.9 million) compared to Q1 2024 ($38.9 million), primarily driven by reduced R&D and restructuring costs.
• Synlogic possesses a validated synthetic biology platform focused on orally administered, GI-restricted Synthetic Biotics, which offers potential advantages in targeted metabolic correction and manufacturing efficiency compared to other modalities.
• As of March 31, 2025, Synlogic held $17.3 million in cash and cash equivalents, which management believes is sufficient to fund operations at current reduced levels for at least the next 12 months, providing a limited window for the strategic review process.
• The investment thesis currently hinges on the outcome of the strategic review and the potential for a transaction that realizes value from the company's platform technology and remaining pipeline assets, rather than near-term clinical development success.

Synlogic's Strategic Crossroads: Unlocking Value from a Pivotal Shift

Synlogic, Inc. is a biopharmaceutical company built on the promise of synthetic biology, specifically the development of orally administered, GI-restricted Synthetic Biotics. Originating from technology developed at MIT, the company's core strategy has centered on engineering well-characterized probiotics, primarily Escherichia coli Nissle 1917, to perform therapeutic functions within the gastrointestinal tract. This approach is designed to metabolize toxic substances, compensate for missing metabolic pathways, or deliver therapeutic factors locally, thereby minimizing systemic exposure and potentially enhancing safety compared to systemically absorbed therapies. The manufacturing process leverages familiar foundations like fermentation and lyophilization, which management has indicated facilitates process design and scale-up.

This technological differentiation is central to Synlogic's value proposition. By restricting activity to the GI tract, Synthetic Biotics aim to avoid the systemic risks associated with other modalities. For instance, in the context of metabolic disorders like Phenylketonuria (PKU), where the body cannot properly break down phenylalanine (Phe), a Synthetic Biotic designed to consume Phe in the gut offers a fundamentally different approach than enzyme replacement therapies that require injections and carry risks like anaphylaxis. Early clinical data with SYNB1618 in PKU patients demonstrated a statistically significant reduction in plasma Phe levels, validating the platform's ability to impact systemic biomarkers from local GI activity. An evolved strain, SYNB1934, showed approximately two-fold greater activity than SYNB1618 in healthy volunteers, suggesting the potential for enhanced efficacy. This technological edge, coupled with the potential for more straightforward manufacturing and oral administration, positions Synlogic's platform as a potentially lower-cost, more convenient alternative in specific disease areas.

The company's history reflects a journey focused on translating this platform into clinical assets. Following a business combination in 2017 that provided public market access and funding, Synlogic advanced a pipeline targeting rare metabolic disorders like PKU and homocystinuria (HCU), as well as other indications like enteric hyperoxaluria and gout. Collaborations with partners like Ginkgo Bioworks (DNA) and Roche (RHHBY) further validated the platform's potential and contributed to pipeline expansion and revenue generation.

However, the company recently reached a critical juncture. In February 2024, Synlogic announced the discontinuation of its pivotal Phase 3 study, Synpheny-3, evaluating labafenogene marselecobac (SYNB1934) for PKU. This decision was based on an internal review that indicated the trial was unlikely to meet its primary endpoint, though importantly, it was not driven by safety concerns. This outcome fundamentally altered the company's trajectory.

The discontinuation of the lead program triggered a comprehensive corporate restructuring and a significant reduction in the workforce, leaving only one remaining full-time employee supported by consultants. This drastic operational change is clearly reflected in the company's recent financial performance. For the three months ended March 31, 2025, total operating expenses plummeted to $0.9 million, a dramatic decrease from $38.9 million in the corresponding period of 2024. This reduction was primarily attributable to a steep decline in research and development expenses, which fell from $7.7 million in Q1 2024 to just $0.02 million in Q1 2025, and a substantial decrease in restructuring and other charges, from $28.3 million to $0.04 million. General and administrative expenses also decreased from $2.9 million to $0.8 million due to reduced headcount and associated costs. The net result for Q1 2025 was a net income of $0.3 million, primarily driven by a non-cash gain from the change in fair value of a purchase warrant liability, a stark contrast to the net loss of $25.6 million in Q1 2024. While this shift to net income is notable, it is a consequence of winding down operations and non-cash accounting adjustments, not a reflection of sustainable, revenue-generating activities.

In the wake of these events, Synlogic's current corporate strategy is centered on evaluating strategic alternatives to enhance stockholder value, including the possibility of a merger or sale of the company. This process is active and ongoing. The company's liquidity position provides a limited runway for this evaluation. As of March 31, 2025, Synlogic held $17.3 million in unrestricted cash and cash equivalents. Management has guided that this cash position is expected to be sufficient to fund operations at the current, significantly reduced levels for at least the next 12 months from the filing date of May 8, 2025. This cash runway provides a critical window for the strategic review to potentially culminate in a transaction, but it also underscores the urgent need for such an outcome to avoid future funding challenges if the company were to attempt to resume significant operational activities.

The competitive landscape in rare metabolic diseases, particularly PKU, is dominated by established players like BioMarin Pharmaceutical (BMRN) with its approved therapies Kuvan and Palynziq. While Synlogic's Synthetic Biotic approach offered a differentiated mechanism (oral, GI-restricted) compared to BMRN's injectable (Palynziq) or less broadly effective (Kuvan) options, the discontinuation of the Phase 3 PKU trial means Synlogic is no longer actively competing for market share in this indication in the near term. Other competitors like Ultragenyx Pharmaceutical (RARE) and PTC Therapeutics (PTCT) also operate in the rare disease space with different technological platforms (e.g., gene therapies, RNA-based therapies). These companies generally possess significantly greater financial resources, established product portfolios, and market presence compared to Synlogic's current state. Synlogic's competitive edge now lies primarily in the potential value of its underlying synthetic biology platform and remaining preclinical/early clinical assets as potential targets for acquisition or partnership, rather than its ability to independently bring a product to market in the near future. The prior clinical data, particularly the proof-of-concept in PKU and early data in other programs, serves as validation of the platform's capabilities, which could be attractive to a potential partner or acquirer seeking to leverage this technology.

Key risks for investors are significant and directly tied to the current strategic pivot. There is no assurance that the evaluation of strategic alternatives will result in any transaction that enhances shareholder value. Even if a transaction occurs, it may not deliver the anticipated benefits. The company continues to have a substantial accumulated deficit ($441.3 million), and while current cash is sufficient for 12 months at reduced burn, future funding will be required if no transaction occurs and the company seeks to pursue any form of development or operational expansion. Furthermore, the company has disclosed a material weakness in internal control over financial reporting that persists as of March 31, 2025, although remediation efforts are ongoing.

Conclusion

Synlogic stands at a critical strategic crossroads. The discontinuation of its lead clinical program has necessitated a dramatic restructuring and a pivot towards exploring strategic alternatives, including a potential sale or merger. While this has significantly reduced the company's operational burn rate and extended its cash runway to at least 12 months at current levels, the long-term viability hinges on the outcome of this process. The core investment thesis is no longer centered on the near-term clinical success of its pipeline but rather on the potential for a transaction that unlocks value from its validated synthetic biology platform and remaining assets. The company's technological differentiation offers a unique approach in the treatment of metabolic diseases, which could be attractive to potential partners or acquirers seeking to leverage this capability. However, the uncertainty surrounding the strategic review, coupled with the historical challenges and limited cash runway beyond the current reduced operational state, presents a high-risk, event-driven investment profile. Investors should closely monitor developments related to the strategic review process as the primary determinant of future value.