SCYNEXIS, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. SCYNEXIS is a development-stage biotechnology company; its lead candidate is SCY-078, an oral and intravenous antifungal. It reported no product sales.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $64,000 | $64,000 | $129,000 | $129,000 |
| R&D expense, net | $4.448 million | $6.659 million | $8.467 million | $11.402 million |
| SG&A expense | $2.361 million | $1.673 million | $4.420 million | $4.207 million |
| Operating loss | $6.745 million | $8.268 million | $12.758 million | $15.480 million |
| Net loss | $4.199 million | $8.128 million | $9.070 million | $15.312 million |
| Basic and diluted loss per share | $0.16 | $0.56 | $0.35 | $1.07 |
Revenue was recurring amortization of an upfront R-Pharm payment, not product revenue. Product gross margin is not applicable; the filing does not provide a meaningful product margin.
- Cash flow: Six-month operating cash use was $14.153 million, versus $17.951 million a year earlier. Investing activities used $19.127 million, primarily reflecting purchases and maturities of short-term investments; financing provided $5.074 million.
- Liquidity: Cash and cash equivalents were $7.450 million and short-term investments were $41.890 million at June 30, totaling approximately $49.3 million, down from $58.6 million at year-end 2016.
- Debt: The Solar Capital term loan had $15.0 million principal outstanding, with a $14.452 million balance-sheet carrying amount after unamortized discount and issuance costs. It bears interest at LIBOR plus 8.49%; interest-only payments run through March 2018, followed by scheduled principal payments. A $0.750 million final fee is due at maturity in 2020.
- Other balance-sheet data: Total assets were $51.835 million, total liabilities $20.179 million, and accumulated deficit $189.260 million. The warrant liability was $2.154 million.
Material changes versus prior periods
- Six-month R&D declined 25.7%, primarily because prior-period clinical studies were completed and clinical activity for IV SCY-078 was reduced; lower manufacturing costs also contributed.
- Six-month SG&A increased 5.1%, mainly from business-development, employee, and stock-compensation costs, partly offset by lower consulting costs.
- Net loss narrowed, but the improvement was materially affected by a $4.447 million noncash gain from remeasuring the June 2016 offering warrant liability, compared with a $0.101 million gain in the prior-year period. The gain was primarily driven by a lower share price; it did not represent operating cash generation.
- SCYNEXIS raised $5.1 million net through its at-the-market facility in the first half, including $1.9 million in Q2. Common shares outstanding increased to 26.478 million from 24.609 million at year-end 2016.
Outlook, risks, contingencies, and unusual items
- Management expects continued losses and increased R&D spending, and estimated existing cash and short-term investments would fund operations through at least early fiscal 2019. This forecast is based on assumptions that may prove incorrect; the company said it was evaluating its operating plan.
- The oral SCY-078 DOVE Phase 2 dose-finding study for vulvovaginal candidiasis had begun dosing; top-line results were expected in mid-2018. The company expected enrollment in its oral FURI study to begin in Q3 2017.
- The FDA clinical hold applies to new studies of IV SCY-078 after three thrombotic events in healthy volunteers. Oral-formulation development is unaffected. The company planned additional analyses and preclinical work to seek removal of the hold; it anticipated a Phase 2 invasive-candidiasis study in 2018, subject to FDA agreement and further study requirements. The hold may not be lifted.
- Additional funding will be required. Equity financing could dilute shareholders; debt could impose restrictive covenants; collaboration or licensing arrangements could require relinquishing valuable rights.
- A putative securities class action filed in March 2017 names the company and certain current and former officers. SCYNEXIS disputes the claims and intends to defend the case; it recorded no liability because it had not concluded a loss was probable and reasonably estimable.
- Potential future Merck milestone payments under the SCY-078 license total up to $19.0 million, with additional mid- to high-single-digit royalties if sales occur. Other licensing agreements include up to $2.3 million in contingent milestones. These amounts are conditional, not current debt.
Important facts for investors to verify
- Whether cash burn and updated development plans remain consistent with management’s early-2019 liquidity estimate, and what additional financing may be needed.
- Progress and results of the DOVE and FURI oral studies, including whether DOVE results arrive on the stated mid-2018 schedule.
- FDA feedback, evidence submitted, and any decision on the IV SCY-078 clinical hold and the revised anticipated trial timing.
- How much future reported earnings depend on noncash warrant remeasurement, and the loan’s interest, amortization, and covenant requirements.
- Developments in the securities litigation and any resulting change in the company’s assessment or financial exposure.