SCYNEXIS, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Financial statement amounts below are in millions of dollars unless otherwise stated. The company is a clinical-stage anti-infectives developer focused on SCY-078; it sold its contract research and development Services Business in July 2015, and reports that business as discontinued operations.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Continuing-operations revenue | $0.064 | $0.061 | $0.193 | $0.192 |
| Research and development expense | $3.458 | $2.478 | $10.525 | $5.621 |
| Selling, general and administrative expense | $4.143 | $2.121 | $9.628 | $5.582 |
| Loss from continuing operations | $(7.529) | $(4.200) | $(19.950) | $(2.225) |
| Discontinued-operations income (loss) | $(0.826) | $0.396 | $(4.285) | $1.066 |
| Net loss | $(8.355) | $(3.804) | $(24.235) | $(1.159) |
| Basic loss per share | $(0.60) | $(0.45) | $(2.09) | $(0.59) |
- Margins: Not meaningful as continuing revenue was minimal and the company incurred substantial development and corporate expenses.
- Cash and liquidity: Cash and cash equivalents were $53.766 million at September 30, 2015, versus $32.243 million at December 31, 2014. Management said existing cash was expected to fund operations into the first half of 2017, subject to assumptions and potential changes in the operating plan.
- Cash flows, nine months: Operating activities used $18.563 million; investing activities provided $2.002 million, including $2.549 million of sale proceeds; financing activities provided $38.084 million, primarily from the April follow-on offering.
- Debt: No outstanding debt at September 30, 2015. Total liabilities were $6.125 million and stockholders’ equity was $49.970 million.
- Revenue source: Continuing revenue was essentially amortization of the R-Pharm upfront payment. The company said it did not expect product-sale revenue for at least several years.
Material changes versus the prior comparable periods
- Continuing R&D expense rose 39.5% in Q3 and 87.2% for the nine months, principally from SCY-078 clinical and preclinical development costs, including the IV formulation and Phase 2 work.
- SG&A expense increased 95.3% in Q3 and 72.5% for the nine months, reflecting higher compensation, stock-based compensation, severance and retention costs, and public-company professional expenses.
- Net loss widened substantially year over year. The 2014 nine-month comparison included a $10.080 million derivative fair-value gain and tax benefits, while 2015 included higher operating costs and discontinued-operations losses.
- Services Business revenue fell to $7.408 million for the nine months from $13.535 million in 2014, reflecting its July sale and reduced animal-health services activity. The business generated a $4.285 million discontinued-operations loss in the 2015 nine-month period.
- Shares outstanding increased to 13,905,599 at September 30, 2015, from 8,512,103 at year-end 2014, principally following the April offering.
Outlook, management commentary and notable items
- SCY-078 development: The oral-formulation Phase 2 study for invasive Candida infections was enrolling more slowly than anticipated. The company opened additional sites, amended the protocol to facilitate enrollment, and expected top-line data in the first half of 2016. It had also initiated enrollment in a Phase 1 study of the IV formulation and planned a Phase 2 vulvovaginal candidiasis study for Q4 2015, with top-line results expected in the first half of 2016.
- Spending and funding: Management expected R&D expense to continue increasing and anticipated operating losses for several years. Additional capital would be required; possible sources included equity or debt financing, collaborations, and licensing. Future equity issuance could dilute shareholders. An October 2015 shelf registration authorized up to $150 million of securities, including a $40 million at-the-market sales prospectus.
- Services Business sale: Sold to Accuratus for stated aggregate consideration of $3.875 million, subject to a $0.824 million working-capital adjustment. Net cash received at closing was $2.549 million; $0.500 million was held in escrow. The company recorded a $1.350 million impairment charge and a $0.073 million disposal loss.
- Continuing obligations: Accuratus agreed to provide contract research and development services for 18 months, with a minimum purchase obligation of at least $3.300 million. Q3 expense under the agreement was $0.667 million. The company also accrued severance and retention obligations associated with the sale, relocation and executive departures.
- Other subsequent development: In November 2015, Dechra notified SCYNEXIS that it intended to terminate its SCY-641 animal-health license effective May 2016. Management did not expect a significant effect on its cash forecast.
- Principal risks: Clinical enrollment delays or unfavorable trial results; regulatory uncertainty; continuing cash burn and need for future financing; reliance on third-party providers, including Accuratus; competition, reimbursement and commercialization challenges; and potential intellectual-property, product-liability and compliance exposures.
- Controls: Management concluded disclosure controls were effective at the reasonable-assurance level as of September 30, 2015. It reported changes to controls following the Services Business sale and enhancements related to executive and finance leadership changes.
Important facts for investors to verify
- Progress and enrollment in the invasive Candida Phase 2 trial, and whether the stated first-half 2016 data timing was achieved.
- Clinical and regulatory progress for IV SCY-078 and the planned vulvovaginal candidiasis study.
- Actual cash burn, updated runway assumptions, financing needs, and any use of the shelf or at-the-market facility.
- Accuratus service quality, remaining minimum-purchase obligations, and receipt of the $0.500 million escrow proceeds.
- Final cash costs for severance, retention, relocation and executive arrangements, and any effects of the Dechra license termination.