SCYNEXIS, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. SCYNEXIS is a development-stage biotechnology company focused principally on SCY-078, an oral and intravenous antifungal candidate for serious fungal infections and vulvovaginal candidiasis. It has no product-sales revenue and expects continued losses.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $0.064 million | $0.064 million |
| Research and development expense, net | $5.326 million | $4.020 million; up 32.5% |
| Selling, general and administrative expense | $1.971 million | $2.060 million; down 4.3% |
| Total operating expenses | $7.297 million | $6.080 million; up 20.0% |
| Loss from operations | $(7.233) million | $(6.016) million |
| Net loss | $(4.002) million | $(4.869) million |
| Net loss per share, basic | $(0.12) | $(0.19) |
| Net cash used in operating activities | $(8.219) million | $(6.772) million |
No meaningful product gross margin is reported; revenue consists of amortization of an upfront R-Pharm payment. Net loss improved despite a larger operating loss, chiefly because the noncash gain from revaluing warrant liabilities was $3.554 million, compared with $1.523 million in Q1 2017. The company reported no product-sales revenue.
At March 31, cash and cash equivalents were $27.223 million, short-term investments were $36.477 million, and restricted cash was $0.328 million. Cash, cash equivalents and short-term investments totaled approximately $63.7 million. Current assets were $64.345 million and current liabilities $10.852 million. Total liabilities were $28.644 million, including $14.763 million of loan principal before unamortized discount and issuance costs, and $9.299 million of warrant liabilities.
Operating cash use was $8.219 million. Investing activities used $4.005 million, primarily reflecting net purchases of short-term investments; financing activities provided $28.306 million, principally from the March equity offering. Cash, cash equivalents and restricted cash ended the quarter at $27.551 million. The filing does not present a conventional operating margin measure.
Material changes and developments
- R&D expense rose $1.306 million, primarily from preclinical toxicology and other studies, the DOVE and FURI clinical studies, and development and manufacture of an intravenous SCY-078 formulation; lower consulting expense partly offset the increases.
- On March 8, SCYNEXIS completed a public offering of 17,751,500 common shares and warrants for up to 21,301,800 additional shares. Net proceeds were approximately $27.9 million. Common shares outstanding increased to 46,843,441 from 28,971,651 at year-end.
- The March offering warrants are liability-classified and remeasured each reporting period. Their $3.554 million fair-value gain reduced reported net loss, but is noncash and dependent on valuation assumptions and share price.
- The Solar term loan amendment extended interest-only payments through October 1, 2018; equal monthly principal payments then begin through the September 2020 maturity. The loan bears interest at LIBOR plus 8.49% and is secured by substantially all assets other than intellectual property.
- SCYNEXIS signed an 11-year lease for approximately 19,275 square feet of office space, with total lease payments of $7.3 million; the new lease commences no earlier than July 1, 2018, subject to completion of improvements.
Outlook, risks and contingencies
- Management said existing cash and short-term investments were expected to fund operations into 2020, based on the current operating plan. SCYNEXIS expects losses and R&D spending to continue or increase and anticipates needing additional capital; actual cash use could exceed estimates.
- Enrollment in the Phase 2b DOVE study of oral SCY-078 for vulvovaginal candidiasis was complete; management expected top-line results by July 2018. More than 450 subjects and patients had been exposed, with no reported change to the known overall safety profile.
- Management described SCY-078 development and regulatory timing as uncertain. Funding needs depend on clinical progress, trial and regulatory costs, commercialization capabilities, and potential financing or collaboration terms. Equity financing may dilute shareholders; debt may impose restrictive covenants.
- Merck may receive up to $19.0 million in development and regulatory milestones, plus mid- to high-single-digit royalties on worldwide SCY-078 sales if commercialized. Other licenses could entail up to $2.3 million in milestone payments. These are contingent on future events.
- A purported securities class action filed in 2017 seeks damages and fees. SCYNEXIS disputes the claims; it had not accrued a liability as of March 31, 2018 because the loss was not considered probable and reasonably estimable.
- The filing identifies potential GDPR compliance and data-security exposure when EU privacy rules take effect May 25, 2018, including potentially significant fines. Management reported disclosure controls effective at a reasonable assurance level and no material change in internal financial controls during the quarter.
Important facts for investors to verify
- Whether DOVE results met expectations and how subsequent clinical and regulatory milestones affect SCY-078’s development plan.
- Cash burn and runway against management’s “into 2020” estimate, including the effect of planned trial expansion and future financing needs.
- The dilutive and potential cash-settlement effects of the 21.3 million March offering warrants, and the assumptions behind the $9.299 million warrant liability.
- Loan covenant compliance, interest and principal obligations beginning October 2018, and the impact of the new long-term lease.
- Developments in the securities litigation and the contingent Merck milestone and royalty obligations.