Scinai Immunotherapeutics Ltd. annual report, Q4 FY2023

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Scinai Immunotherapeutics Ltd. — FY2023 Form 20-F

Reporting period: Fiscal year ended December 31, 2023; filed May 15, 2024. This is an annual report, not a standalone Q4 report. Financial statements are prepared under U.S. GAAP. Scinai is an Israel-based development-stage biopharmaceutical company with R&D and CDMO reporting segments.

Business context

Scinai’s R&D focus is licensed nanosized VHH antibodies (NanoAbs), led by an anti-IL-17 candidate initially targeting psoriasis and psoriatic arthritis. The company suspended independent development of its COVID-19 NanoAb program while seeking a development partner. In September 2023, it launched Scinai Bioservices, a CDMO business using its Jerusalem laboratories and manufacturing facility. The company reported no 2023 revenue from product or service sales; it described CDMO revenue to date as limited.

Financial results and liquidity

  • Revenue: No revenue from sales of products or services in 2023, according to the filing.
  • Operating expenses and loss: R&D expense, net, was $5.21 million, down from $5.77 million in 2022. Marketing, general and administrative expense was $4.51 million, down from $5.30 million. Operating loss was $9.71 million versus $11.06 million.
  • Net loss: $6.50 million, compared with $5.80 million in 2022. Net financial income was $3.21 million, versus $5.27 million in 2022; 2023 included approximately $4.02 million of warrant-liability remeasurement income.
  • Cash flow: Operating cash outflow was $9.38 million, compared with $7.27 million in 2022. Investing cash outflow was $0.64 million, primarily capital equipment purchases. Financing cash inflow was $1.09 million, versus $6.78 million in 2022.
  • Cash and working capital: Cash and cash equivalents were $4.87 million at year-end, down from $14.08 million; restricted cash was another $0.14 million. Current assets of $5.45 million less current liabilities of $1.78 million imply working capital of about $3.67 million.
  • Debt and liabilities: The EIB loan’s balance-sheet carrying value was $19.37 million; the filing reports nominal principal of €24 million, or about $26.55 million. The loan maturity was extended to December 31, 2031. Interest accrues at 7%, and specified events of default could permit acceleration. The EIB has a first-ranking floating charge over substantially all assets, subject to stated exclusions.
  • Equity and assets: Shareholders’ deficit was $4.57 million, compared with a $1.76 million deficit in 2022. Total assets were $17.47 million. Year-end ordinary shares outstanding were 1.857 billion, up from 989.3 million.
  • Margins: Revenue was absent, so revenue-based margins are not meaningful. The filing does not provide a comparable positive operating margin.

Material changes versus 2022

  • Operating expenses fell by about $1.36 million, but net loss increased by about $0.70 million as net financial income declined.
  • Cash and cash equivalents fell by about $9.21 million. Operating cash use increased by about $2.12 million, while financing inflows were substantially lower.
  • Shares outstanding increased by about 868 million, reflecting warrant exercises, share issuances and other equity activity.
  • The company launched the CDMO unit, signed initial client contracts, and obtained an exclusive worldwide license for anti-IL-17 NanoAbs. It continued to seek a partner for COVID-19 development.

Outlook, risks and unusual items

  • Going concern: Management and the auditor disclose substantial doubt about the company’s ability to continue as a going concern. The auditor issued an unmodified opinion but identified going concern as a critical audit matter. Year-end cash was insufficient to fund planned operations for at least a year beyond the financial-statement issuance date without additional financing or other actions. A board-approved cost-saving plan includes potential headcount reductions and postponement or cancellation of capital spending. Management’s expectation that financing, cost reductions and other plans could support operations is not assured.
  • Funding and debt: Scinai expects to require substantial additional capital. Equity financing may dilute shareholders; debt or partnerships may impose restrictions or require concessions. EIB acceleration and collateral enforcement could materially threaten operations. The company reported that 10% of capital raises are allocated to EIB repayment under the amended arrangements.
  • Nasdaq listing: The filing describes a November 2023 minimum-bid-price deficiency and an April 30, 2024 delisting determination, with a hearing appeal requested. A proposed 1-for-10 ADS ratio change was expected to address bid-price compliance. The filing also states year-end shareholders’ equity was below Nasdaq’s $2.5 million minimum, despite prior notice that the company had regained compliance. These are post-year-end listing disclosures; the outcome was not established in the provided text.
  • Development outlook: The anti-IL-17 program had positive ex-vivo psoriasis-model results, but these are not clinical evidence. The company planned an in-vivo proof-of-concept study and, subject to favorable results and resources, toxicology work before a potential first-in-human trial in the second half of 2025. The COVID-19 program remains dependent on finding a partner.
  • CDMO outlook: Management reported two client contracts by year-end and approximately $500,000 in work orders obtained since January 1, 2024. These are not equivalent to recognized revenue; the filing says revenue to date remained limited. The business faces execution, quality, regulatory, capacity and competition risks.
  • Israel and operations: The company’s Jerusalem facility is its sole specialized manufacturing site, with no redundant facility. The filing warns that the Israel conflict, reserve-force call-ups, supply disruptions or escalation could delay development and CDMO work. Management said operations had not been materially affected to date.
  • Other items: 2023 financial income included a sizable non-cash benefit from remeasurement of warrant liabilities. The EIB loan maturity extension was treated as a troubled debt restructuring, with no modification gain or loss recorded. The company changed its functional currency to the U.S. dollar effective July 1, 2023.

Most important facts for investors to verify

  1. Current cash runway, financing plans and progress in executing the cost-saving plan, given the disclosed going-concern doubt.
  2. Nasdaq hearing and bid-price outcome, the ADS ratio change, and the company’s compliance with the minimum-equity requirement.
  3. Current EIB loan balance, payment obligations, covenants and any defaults or required consents.
  4. Whether CDMO work orders convert into performed services, recognized revenue, repeat business and positive cash contribution.
  5. Anti-IL-17 program milestones, timing and funding for preclinical and clinical work, and whether a COVID-19 development partner is secured.
  6. Whether the Israel conflict affects staffing, the Jerusalem facility, suppliers, study timelines or client engagements.