Skye Bioscience, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The company is a preclinical pharmaceutical developer focused on cannabinoid derivatives, initially targeting eye diseases. It reported no product revenue and had no products approved for sale.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $2.93 million | $1.94 million |
| General and administrative expense | $4.92 million | $4.34 million |
| Operating loss | $7.85 million | $6.29 million |
| Net loss | $8.52 million | $6.56 million |
| Net loss per share, basic and diluted | $0.02 | $0.03 |
| Cash used in operating activities | $6.47 million | $6.05 million |
| Cash provided by financing activities | $13.08 million | $6.70 million |
- At year-end, unrestricted cash was $8.98 million; working capital was $5.70 million; total assets were $9.86 million, total liabilities $3.99 million, and stockholders’ equity $5.86 million. Accumulated deficit was $47.26 million.
- Outstanding related-party credit agreement principal was $2.46 million, bearing 7% interest and due October 5, 2022. The facility’s disbursement line was closed in September 2021. The balance-sheet carrying value of the related-party advances, net of debt discounts, was $1.97 million.
- No revenue or gross margin was reported; margins are not meaningful for this pre-revenue company.
Material changes and financing
- Net loss increased by $1.96 million year over year. R&D expense rose 51%, mainly from increased contract research, consultants, and development staffing. G&A rose 13%; higher personnel, investor-relations, recruiting, and facility costs were partly offset by lower professional fees and insurance.
- Financing activity substantially increased cash: the company reported net proceeds of $6.06 million from securities issuances and $7.01 million from warrant exercises, among other proceeds. A September 2021 offering generated approximately $7.00 million gross proceeds and included common shares and warrants. A separate July warrant inducement generated $1.27 million gross proceeds.
- Common shares outstanding rose from 288.1 million at year-end 2020 to 476.1 million at year-end 2021. The filing reported 495.9 million outstanding as of March 24, 2022. Outstanding warrants, options, restricted stock units, and convertible related-party debt create additional potential dilution.
- Other expense included $769,000 of interest expense and a $21,000 loss from the change in fair value of derivative liabilities; these were partly offset by a $118,000 gain on forgiveness of the Paycheck Protection Program loan.
Business outlook, risks, and contingencies
- Pipeline: SBI-100, a cannabinoid receptor type 1 agonist, is the lead candidate for glaucoma and ocular hypertension. The company described preclinical results, including IOP-lowering activity, but these are not evidence of clinical efficacy. The first-in-human Phase 1 study in Australia was expected to begin in the second quarter of 2022, after COVID-19-related delays. The company planned to pursue a U.S. Phase 2 study after initiating Phase 1 and filing an IND.
- SBI-200 remained in research and formulation work. The company also announced its Cannabinoid Pharmaceutical Innovation Program and an exclusive sponsored research agreement with VivaCell, a related party, under which the company funds projects, owns resulting project IP, and owes a single-digit royalty on certain licensing proceeds. The agreement includes a $200,000 annual retainer.
- Funding and going concern: Management expected continuing losses and negative operating cash flows. It stated that additional funding was needed and that, without sufficient funding, cash would not support obligations and clinical work beyond one year after issuance of the financial statements; the notes say funding would be needed by the third quarter of 2022. The auditor’s report includes a going-concern uncertainty paragraph. The statements contain no adjustments for a possible failure to continue as a going concern.
- Key risks: Clinical and regulatory outcomes are uncertain; SBI-100 is a Schedule I controlled substance in the United States, requiring significant regulatory controls; the company depends on third-party manufacturers, CROs, suppliers, and University of Mississippi licenses; and COVID-19 could disrupt supplies, trial recruitment, and operations. Financing availability, dilution, related-party dependence, competition, and thin OTCQB trading are also significant risks.
- Legal contingency: A former employee’s 2021 lawsuit alleges whistleblower retaliation, wrongful termination, and related claims. The company denies the claims and is defending the case. At year-end, it could not estimate any potential loss because proceedings were at an early stage.
- The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2021. The auditor did not perform an audit of internal-control effectiveness.
Important facts for investors to verify
- Whether the company secured adequate financing after the filing, and how it addressed the October 2022 related-party debt maturity.
- Whether SBI-100 Phase 1 began as planned, and what trial timing, enrollment, safety, and pharmacokinetic results were subsequently disclosed.
- The amount and terms of subsequent equity or debt financing, including resulting dilution and warrant exercises.
- The status and potential financial exposure of the former employee lawsuit.
- The terms, project spending, royalties, and governance safeguards for related-party financing and VivaCell research arrangements.
- Whether reported cash and working capital remain sufficient relative to operating cash burn and clinical-development commitments.