Business context and reporting period
The supplied filing is Flex Pharma, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2019; it does not appear to be a Decoy Therapeutics Inc. filing. Flex Pharma continued to sell HOTSHOT, while its Phase 2 FLX-787 trials had been discontinued in 2018. A merger with Salarius Pharmaceuticals was approved by stockholders on July 12, 2019, after quarter-end, and was expected to close around July 19.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $164,705 | $245,502 | $269,682 | $424,084 |
| Operating loss | $(1,398,138) | $(9,103,681) | $(3,641,781) | $(17,386,501) |
| Net loss | $(1,384,777) | $(9,051,872) | $(3,615,207) | $(17,275,099) |
| Operating cash used | Not separately stated | Not separately stated | $(3,442,004) | $(17,667,923) |
At June 30, cash and cash equivalents were $6.51 million, working capital was $6.1 million, total liabilities were $1.04 million, and the company reported no long-term debt. Accumulated deficit was $136.58 million. Management said existing cash was expected to fund its current operating plan for at least 12 months from issuance of the financial statements, while noting estimates could prove wrong.
Material changes versus the prior comparable period
- Revenue fell 33% in Q2 and 36% in the first half, primarily because reduced marketing spend lowered HOTSHOT demand. First-half bottle sales declined to approximately 58,000 from 93,000; e-commerce represented about 85% of revenue.
- Q2 product revenue costs fell to $36,148 from $179,945; there were no inventory write-offs in 2019, compared with approximately $85,000 in Q2 2018.
- Research and development expense fell to $29,294 in Q2 and $31,000 for the first half, principally following the termination of FLX-787 trials and reductions in staffing and development activity.
- SG&A declined 50% in Q2 and 43% in the first half, reflecting cost reductions, partly offset by merger-related fees. First-half merger fees included approximately $1.7 million.
- Cash declined from $9.83 million at December 31, 2018 to $6.51 million at June 30, 2019, mainly due to operating cash use.
Outlook, risks and unusual items
The operating plan assumed limited R&D and continued HOTSHOT sales; management expected ongoing losses. If the Salarius merger failed, alternatives included liquidation, another strategic transaction, or continuing the consumer business. The filing warned liquidation could leave common stockholders with no recovery and that additional financing, if needed, might not be available on acceptable terms.
Following stockholder approval of the merger on July 12, certain change-in-control retention and severance payments became probable. The filing estimated remaining change-in-control retention benefits of approximately $603,000 and potential severance of up to approximately $928,000 under specified circumstances. A purported stockholder had also sent a demand letter alleging proxy disclosure violations and seeking corrective disclosures; the company was assessing its response. Management reported disclosure controls were effective and no material changes in internal control.
Important facts for investors to verify
- Confirm the filing identity: the source is Flex Pharma, Inc. (ticker FLKS), not Decoy Therapeutics Inc.
- Verify whether the Salarius merger closed as expected and the terms and resulting ownership of the combined company.
- Assess post-merger cash needs, actual change-in-control payments, and any additional financing or dilution.
- Track HOTSHOT sales and cash burn; the reduced losses largely reflect discontinued drug development and cost cutting, not revenue growth.
- Check the status and potential cost of the stockholder proxy-disclosure dispute and any other merger-related contingencies.