SCYNEXIS, Inc. — Q1 2019 Form 10-Q
Business context and period. Biotechnology company developing ibrexafungerp, an oral and intravenous antifungal candidate for vulvovaginal candidiasis (VVC) and serious fungal infections. This unaudited report covers the three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. The company had not generated product-sales revenue.
Key financial metrics
| Metric | Q1 2019 / March 31, 2019 | Comparable / prior period |
|---|---|---|
| Revenue | $64,000 | $64,000 |
| Research and development expense | $9.684 million | $5.326 million |
| Selling, general and administrative expense | $2.241 million | $1.971 million |
| Operating loss | $11.861 million | $7.233 million |
| Net loss | $22.908 million; $0.46 per share | $4.002 million; $0.12 per share |
| Net cash used in operations | $6.501 million | $8.219 million |
| Cash, cash equivalents and short-term investments | $39.060 million | $44.157 million at Dec. 31, 2018 |
| Total assets / stockholders’ equity | $45.067 million / $11.330 million | $53.170 million / $31.225 million at Dec. 31, 2018 |
| Convertible debt and derivative liability, combined | $18.296 million | None reported at Dec. 31, 2018 |
Revenue was collaboration-related amortization, not product sales. Gross margin was not presented. The net loss included a $6.522 million warrant-liability fair-value loss, a $3.425 million derivative-liability fair-value loss, and a $0.814 million debt-extinguishment loss. These items materially increased reported net loss; cash used in operations was lower than net loss in part because of noncash charges and a $6.7 million receipt from selling New Jersey tax losses.
Material changes and financing
- R&D expense rose 81.8%, primarily reflecting the Merck milestone triggered by starting the Phase 3 VVC program and increased clinical-development costs, including VANISH and SCYNERGIA.
- On March 7, 2019, SCYNEXIS issued $16.0 million of 6% senior convertible notes due 2025, receiving $14.7 million net proceeds, and used the proceeds to repay its Solar term loan. The repayment generated the $0.814 million extinguishment loss.
- The notes have an initial conversion price of approximately $1.35 per share. In April 2019, the investor converted $2.0 million principal into 1,626,000 shares. The filing reported 50.232 million shares outstanding at March 31 and 53.651 million at May 1, 2019.
- Warrant-liability fair value increased to $7.508 million from $0.986 million at year-end, with the reported quarterly loss primarily attributed to an increase in the company’s stock price. The company also recorded $9.840 million of derivative liability related to the notes.
- Operating lease adoption added a $3.317 million right-of-use asset and $3.322 million lease liability at quarter-end; the 11-year office lease entails $6.808 million of undiscounted remaining payments.
Outlook, commentary and risks
- Management expected VANISH Phase 3 acute-VVC topline data in the first half of 2020, planned to initiate a Phase 3 recurrent-VVC trial in Q2 2019, and anticipated an initial VVC NDA in the second half of 2020 and a supplemental NDA for recurrent-VVC prevention in 2021.
- Management said existing cash, investments and the New Jersey NOL sale proceeds were expected to fund operations past the anticipated acute-VVC NDA submission. This estimate depends on assumptions that may prove wrong; the company expects continuing losses and increasing R&D spending and may need additional capital.
- Potential funding sources include equity, debt, grants, tax-loss sales, partnerships and licensing. Equity or convertible-debt financing could dilute shareholders; debt may impose restrictions; licensing or collaborations may require giving up valuable rights.
- Merck may receive up to $19.0 million in future ibrexafungerp milestones plus mid- to high-single-digit royalties. The Phase 3 VVC milestone became due in January 2019 and was paid in March.
- Clinical and regulatory outcomes remain uncertain. The filing cites positive interim FURI results in 17 of 20 patients, but these are not confirmatory registration results. Management reported no material changes to the risk factors in its 2018 Form 10-K and stated disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether VANISH and recurrent-VVC trials meet enrollment, timing and efficacy objectives, and whether anticipated NDA dates remain achievable.
- Whether the stated cash runway remains realistic as trial costs increase; the filing does not guarantee funding through approval or commercialization.
- The effects of the April note conversion, remaining note terms, potential share dilution, and outstanding warrants on fully diluted share count.
- The assumptions behind Level 3 warrant and derivative valuations and the effect of future stock-price changes on reported earnings.
- Timing and amount of remaining Merck milestones, licensing obligations and other clinical-development commitments.