Skye Bioscience, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Skye is a pre-revenue biopharmaceutical company developing cannabinoid-derived therapeutics. Its lead candidate, THCVHS for glaucoma, remained preclinical; CBDVHS was also preclinical, and a cannabinoid anti-infective program remained at the research stage.
Financial highlights
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $609,656 | $799,612; down 24% |
| General and administrative expense | $1,127,606 | $1,411,596; down 20% |
| Operating loss | $1,737,262 | $2,211,208 |
| Net loss | $2,160,517 | $2,341,660 |
| Net loss per share, basic and diluted | $0.01 | $0.01 |
| Net cash used in operations | $1,348,088 | $1,266,113 |
| Cash and restricted cash at quarter-end | $5,156,992, including $5,152,425 unrestricted | Unrestricted cash was $2,469,410 at Dec. 31, 2020 |
| Working capital | $3,997,320 | Not clearly provided for the comparable period |
| Total liabilities | $2,920,050 | $2,220,940 at Dec. 31, 2020 |
No meaningful revenue or profit margins were reported because the company has not generated revenue. The accumulated deficit was $40,894,498. Operating cash use increased about $82,000 year over year. Cash from financing was $4,041,800, primarily from warrant exercises; investing cash use was $10,696.
Changes and financing
- Operating expenses declined year over year. Management attributed lower R&D expense primarily to a one-time patent-allowance license fee in Q1 2020; lower G&A reflected reduced legal and fundraising costs, partly offset by higher investor-relations and consulting expense.
- Other expense rose to $423,255 from $130,452, mainly because a derivative-liability fair-value gain in Q1 2020 became a $238,350 loss in Q1 2021. Interest expense was $184,905, including $141,097 of noncash debt-discount amortization.
- During Q1, the company received $4.03 million from exercising 67,166,667 common warrants and $11,800 from exercising 11,800,000 pre-funded warrants. Common shares outstanding increased to 367,641,082 from 288,074,415 at year-end; 371,974,416 were outstanding as of May 5, 2021.
- Related-party credit-agreement advances had $2,464,500 of principal outstanding at quarter-end, bearing 7% interest and maturing October 5, 2022. The facility permits up to $20 million, but the company says undrawn amounts are not available until approved and funded by the lender. A March 29 amendment deferred interest payments through maturity or prepayment. The company also had a $116,700 PPP loan, for which it applied for full forgiveness on April 5; the application was under review.
Outlook, risks, and notable items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It expected significant 2021 losses and said additional funding would be needed by December 2021 to continue clinical studies. The filing does not assure that financing will be available.
- Development outlook: First-in-human THCVHS studies in Australia were expected in the second half of 2021, following a delay from the second half of 2020. The company was conducting formulation and manufacturing work, GLP toxicology studies, pharmacokinetic-assay validation, and trial preparation.
- Risks: COVID-19 could disrupt clinical-site activity, patient or volunteer recruitment, laboratory resources, and sourcing of formulation materials, and could make capital raising more difficult. Other key risks include early-stage development, regulatory approval, dependence on the University of Mississippi and third parties, intellectual-property protection, and the need for substantial additional funding.
- Other: The company increased authorized common shares to 5 billion and preferred shares to 50 million on February 5, 2021. It reported no material change to previously disclosed risk factors, no material legal-proceeding developments, and effective disclosure controls at quarter-end.
Key facts for investors to verify
- Current cash runway, planned spending, and the amount and timing of financing needed to sustain operations and advance clinical studies.
- Whether Emerald Health Sciences will approve and fund further draws under the related-party credit facility, and the terms and potential dilution of any financing.
- THCVHS trial-readiness, timing, regulatory requirements, and the effect of COVID-19 or supply constraints on the expected second-half 2021 start.
- Outcome of the PPP loan-forgiveness application.
- Post-quarter warrant exercise proceeds are reported inconsistently: the subsequent-events note gives 4,333,334 shares and $260,000, while MD&A gives 3,833,334 shares and $230,000. Confirm the correct figures.