SCYNEXIS, Inc. — 2016 Form 10-K Summary
Business context and reporting period
This is the annual report for the fiscal year ended December 31, 2016, not a stand-alone fourth-quarter filing. SCYNEXIS is a clinical-stage drug developer focused on SCY-078, an oral and intravenous antifungal candidate for invasive candidiasis, vulvovaginal candidiasis (VVC), and invasive aspergillosis. The company sold its contract research services business in July 2015 and has no approved products or product-sale revenue.
Financial and operating metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $0.257 million | $0.257 million |
| Research and development expense, net | $20.076 million | $16.440 million |
| Selling, general and administrative expense | $7.998 million | $12.166 million |
| Operating loss | $27.817 million | $28.349 million |
| Net loss | $29.989 million | $32.623 million |
| Net loss per share, basic | $1.58 | $2.68 |
| Cash and cash equivalents | $35.656 million | $46.985 million |
| Short-term investments | $22.930 million | — |
| Operating cash used | $29.353 million | $24.545 million |
2016 revenue was amortization of the upfront R-Pharm payment, not product sales. Gross margin is not meaningful for the company’s current development-stage business. At year-end, cash and short-term investments totaled $58.586 million; current assets were $59.327 million and current liabilities $3.717 million. The company reported an accumulated deficit of $180.123 million.
SCYNEXIS had a $15.0 million secured term loan from Solar Capital, with a $14.252 million carrying value at year-end. It bears interest at LIBOR plus 8.49%, matures September 2020, and is secured by substantially all assets other than intellectual property, which is subject to a negative pledge. The company reported $15.750 million of principal and final-fee payments due at maturity. Its operating lease commitments totaled $0.489 million.
In fourth-quarter 2016, revenue was $65,000, operating loss was $5.631 million, net loss was $3.449 million, and basic and diluted loss per share was $0.02. In fourth-quarter 2015, revenue was $64,000, operating loss and net loss were each $8.387 million, and loss per share was $0.55.
Material changes versus the prior comparable period
- Revenue was unchanged from 2015 and remains minimal, reflecting continued recognition of the R-Pharm upfront payment.
- R&D expense rose 22.1%, primarily due to expanded SCY-078 development, including two Phase 2 studies, the extended IV program, toxicology studies, and drug-interaction studies.
- SG&A expense fell 34.3%, mainly because 2015 included severance, retention, and stock-compensation costs related to management departures and the Services Business sale.
- Net loss narrowed from $32.623 million to $29.989 million, while cash used in operations increased from $24.545 million to $29.353 million.
- Cash and investments increased to $58.586 million from $46.985 million, supported by 2016 equity and debt financing, partly offset by operating and investment outflows. The June 2016 offering also issued warrants to purchase up to 4.219 million shares.
Outlook, commentary, risks and unusual items
- Management estimated that year-end cash and investments would fund operating and capital needs through at least early 2019, while cautioning that changing circumstances could accelerate cash use. The company expects continuing losses and will need additional capital to complete development and pursue commercialization.
- On March 2, 2017, the FDA directed SCYNEXIS to hold initiation of new clinical studies using SCY-078’s IV formulation pending its review of preclinical and clinical data. Oral-formulation development was unaffected. The company planned to discuss the IV data and a suitable dose regimen with the FDA in the second quarter of 2017; lifting the hold and trial timing were not assured.
- In a small Phase 2 invasive-candidiasis study, oral SCY-078 achieved target exposure and was generally tolerated, but the 22-patient trial was too small for definitive efficacy conclusions. In a 96-patient VVC study, clinical cure at test-of-cure was 76% with SCY-078 versus 65% with fluconazole; at the four-month visit, reported cure rates were 88% versus 65% (p=0.04), and recurrence rates were 4% versus 15%. Gastrointestinal adverse events were more frequent with SCY-078.
- Three mild-to-moderate thrombotic events occurred in healthy volunteers receiving the highest IV doses/concentrations; a causal contribution from the formulation could not be ruled out. The filing also describes one resolved liver-function-test elevation considered potentially related by the investigator.
- Planned development included a dose-ranging Phase 2 study for invasive candidiasis, subject to FDA discussions, and an open-label study for refractory or treatment-intolerant invasive fungal infections. SCYNEXIS held Fast Track, QIDP, and Orphan Drug designations for specified indications; these do not guarantee approval or a faster review.
- On March 8, 2017, a purported securities class-action lawsuit was filed against the company and certain current and former officers. SCYNEXIS said it considered the claims meritless and intended to defend itself; it had not established a reserve and could not estimate potential costs.
- The June 2016 warrants were recorded as a liability; remeasurement resulted in a $1.906 million 2016 loss, and their year-end fair value was $6.601 million. Merck may also receive up to $19 million in development and regulatory milestones and tiered royalties if SCY-078 is commercialized.
Important facts for investors to verify
- The status and terms of the FDA review of the IV formulation, including whether the clinical hold is lifted and what safety or dosing requirements apply.
- The company’s actual cash burn and financing needs against management’s early-2019 runway estimate, including debt terms, covenants, and potential share dilution from warrants or future offerings.
- Whether subsequent, adequately powered clinical trials confirm SCY-078’s efficacy and safety, particularly the VVC results and the IV thrombotic-event findings.
- The status, potential cost, and outcome of the securities class action, as well as any other material contingencies.
- Commercial development timelines, manufacturing readiness, and the degree to which Merck milestones, royalties, and R-Pharm arrangements affect future economics.