SCYNEXIS, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. SCYNEXIS is a clinical-stage biotechnology company developing ibrexafungerp, an antifungal drug candidate. The company filed an FDA New Drug Application (NDA) in October 2020 for treatment of vulvovaginal candidiasis (VVC).
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0.1 million |
| Research and development expense | $8.0 million | $9.3 million | $26.4 million | $27.4 million |
| Selling, general and administrative expense | $3.5 million | $2.5 million | $9.4 million | $7.5 million |
| Operating loss | $11.5 million | $11.8 million | $35.8 million | $34.8 million |
| Net income (loss) | $0.9 million | $(7.9) million | $(12.5) million | $(39.3) million |
| Net cash used in operating activities | Not stated for quarter | Not stated for quarter | $32.8 million | $24.7 million |
- Q3 net income reflected substantial noncash gains from revaluing warrant and derivative liabilities, not operating profitability. Basic EPS was $0.09; diluted EPS was a loss of $0.28, reflecting the convertible-debt dilution calculation.
- For the first nine months, the net loss narrowed year over year, largely due to noncash fair-value gains and a $3.1 million New Jersey tax-credit/NOL sale benefit. Operating cash use increased by $8.1 million.
- Cash and cash equivalents were $29.5 million at September 30, 2020, down from $41.9 million at year-end 2019; restricted cash was $0.3 million. Current assets were $32.3 million and current liabilities $8.3 million.
- Balance-sheet carrying value for convertible debt and associated derivative liabilities was $13.3 million; warrant liabilities were $2.3 million. The company had 6% senior unsecured convertible notes, with stated maturities in 2025 and 2026. Note fair values and balance-sheet carrying amounts use different measurements.
- No product sales revenue had been generated. Operating margin is not meaningful given no revenue and continuing development-stage operations.
Material changes and unusual items
- Q3 R&D expense fell 13% year over year, mainly as the VANISH Phase 3 VVC program and supporting studies wound down. SG&A rose 40%, primarily due to professional fees and commercial-preparation costs.
- For the first nine months, R&D declined 4%, while SG&A increased 26% as the company prepared for a potential VVC launch. The company expects R&D to decline as VANISH completion-related costs ease, while launch-related SG&A may increase.
- Fair-value gains on warrants were $7.8 million for Q3 and $16.1 million for the first nine months; derivative-liability gains were $5.3 million and $6.7 million, respectively. The company attributed the gains primarily to a decline in its share price. These noncash items materially affected reported earnings.
- In July, SCYNEXIS completed a 1-for-10 reverse stock split and reduced authorized common shares from 250 million to 100 million. Shares outstanding at September 30 were 10.8 million.
- Financing included $10.0 million principal of April 2020 convertible notes and equity sales through ATM and Aspire Capital arrangements. The company reported $4.0 million of net ATM proceeds and $0.6 million of net Aspire proceeds for the first nine months.
Outlook, risks and contingencies
- The FDA was expected to notify the company in December 2020 whether the VVC NDA was accepted for review; management anticipated a potential FDA decision around mid-2021. The filing does not assure acceptance or approval.
- Enrollment continued in the Phase 3 CANDLE study for prevention of recurrent VVC; top-line data and a supplemental NDA were anticipated in the second half of 2021, subject to successful completion. COVID-19-related delays pushed expected SCYNERGIA Phase 2 top-line data to the second half of 2021.
- Management said existing cash and expected NOL proceeds might fund operating requirements past the potential mid-2021 VVC decision, but would not fund all remaining development and a commercial launch. The filing states substantial doubt about the company’s ability to continue as a going concern without additional capital.
- Potential funding sources include equity, debt, ATM sales, Aspire Capital, grants, tax-credit/NOL sales, and partnerships. The company disclosed up to $58.4 million of remaining ATM capacity and $19.4 million under the Aspire agreement at September 30. Equity sales could dilute existing holders; debt or licensing could impose restrictions or require surrender of valuable rights.
- COVID-19 had caused some clinical-trial delays, particularly for SCYNERGIA. Management reported adequate supply for ongoing trials and no material internal operating impact at that time, but warned that further effects on trials, manufacturing, regulatory activity, liquidity, and the broader economy remained uncertain.
- Merck may receive up to $19.0 million in specified milestones and mid- to high-single-digit royalties on worldwide ibrexafungerp sales. Additional clinical, regulatory, lease, and commercialization expenditures remain relevant contingencies.
Important facts for investors to verify
- FDA acceptance, review timeline, and ultimate decision on the VVC NDA, along with the potential launch timing and costs.
- Cash runway assumptions and whether new financing is obtained; assess dilution, debt terms, and actual availability of ATM and Aspire capacity.
- Progress and timing of CANDLE, SCYNERGIA, FURI, and CARES studies, including any continuing COVID-19 impact.
- Underlying operating cash burn separately from noncash fair-value gains and tax-credit proceeds; reported Q3 net income is not evidence of recurring profitability.
- Convertible-note obligations, potential share issuance on conversion, warrant-related dilution, and the company’s ability to meet its obligations.