Filing identity and period
The supplied filing is Flex Pharma, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not a filing identified as Decoy Therapeutics Inc. Verify the company and filing before relying on this summary.
Flex Pharma was developing FLX-787 for muscle cramps, spasms and spasticity, while selling its HOTSHOT consumer beverage. Its lead drug candidate was in two U.S. Phase 2 trials; the company reported no drug-product revenue.
Financial results
Unless otherwise noted, amounts are U.S. dollars. Comparisons are with the three months ended March 31, 2017.
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $178,582 | $242,547 | Down 26% |
| Net loss | $8.22 million | $8.27 million | Loss narrowed by $45,168 |
| Research and development | $4.68 million | $3.91 million | Up 20% |
| Selling, general and administrative | $3.70 million | $4.59 million | Down 20% |
| Operating cash used | $9.41 million | $8.23 million | Use increased by $1.19 million |
Net loss per share was $0.46, versus $0.49. HOTSHOT generated all revenue: net product revenue was $176,255, and other revenue was $2,327. Product costs were $83,934; the filing does not report a consolidated gross margin. HOTSHOT segment operating loss was $1.26 million; Drug Development operating loss was $4.66 million, with $2.36 million of corporate and unallocated operating loss.
At March 31, 2018, cash and cash equivalents were $21.95 million and marketable securities were $2.00 million, totaling $23.95 million in unrestricted cash, cash equivalents and securities. Working capital was $21.5 million. Total liabilities were $4.15 million; the company reported no long-term debt. Accumulated deficit was $119.26 million. Cash, cash equivalents and restricted cash increased $2.76 million during the quarter, principally because securities matured or were sold; this was despite operating cash outflow. No material capital expenditures were reported.
Changes and notable items
- Revenue fell 26%; reported bottle sales declined to about 39,000 from 52,000. Management attributed the decline to lower demand and period-comparison effects from revenue deferred in 2016 and recognized in Q1 2017 under the prior accounting method. E-commerce accounted for approximately 87% of revenue in both periods.
- R&D rose by about $0.77 million, mainly from higher FLX-787 Phase 2 clinical activity. SG&A fell by about $0.90 million, principally due to lower headcount, stock compensation and marketing costs, partly offset by higher professional and consulting expenses.
- Adoption of ASC 606 on January 1, 2018 changed the timing of recognition for e-commerce sales with refund rights. The transition reduced accumulated deficit by approximately $40,000. The filing says Q1 revenue would have been approximately $18,000 higher under the prior method.
- In March, the company reported exploratory Phase 2 MS trial results: pre-specified analyses of the parallel portion showed a 27.3% reduction in cramp/spasm frequency versus control and a statistically significant clinician-rated spasticity improvement. In analyses combining crossover periods, spasticity improvement remained statistically significant, but cramp/spasm frequency and other measures did not show statistically significant improvement.
- The company had engaged an investment banking firm to consider strategic alternatives for its consumer business. It also added information-technology and data-security incidents as a risk factor. No material legal proceedings were reported.
Outlook, liquidity and risks
Management expected continued losses for the foreseeable future and said additional capital would ultimately be needed. The filing’s liquidity disclosures differ in framing: the notes state existing resources were expected to fund the operating plan for at least 12 months from issuance of the financial statements, while MD&A estimates funding through mid-2019. These estimates assume focus on current drug trials, reduced consumer-segment spending and limited hiring and corporate expenditures. Management cautioned that assumptions could prove wrong and funds could be used sooner.
Topline data from the COMMEND Phase 2 motor-neuron-disease trial were expected by early 2019. Data from the COMMIT CMT trial were also expected in early 2019, conditional on increased enrollment. Key risks include clinical-trial results and timing, regulatory approval, financing availability, commercialization and consumer-product demand, intellectual-property protection, and cybersecurity. If funding is insufficient, the company said it may delay, scale back or discontinue programs or sell or license assets. The company disclosed no formal financial guidance.
Important facts for investors to verify
- Confirm the registrant identity: the provided filing is for Flex Pharma, Inc., despite the request metadata naming Decoy Therapeutics Inc.
- Reconcile the stated cash runway—at least 12 months from issuance in the notes versus through mid-2019 in MD&A—and assess burn relative to available funds.
- Review the full MS trial results and subsequent COMMEND and COMMIT trial updates, including enrollment progress and whether reported exploratory findings are confirmed.
- Assess the strategic review of HOTSHOT, falling product revenue, and the assumptions behind reduced consumer spending.
- Consider the comparability effects of ASC 606, including its transition adjustment and the disclosed difference from prior-method Q1 revenue.