SCYNEXIS, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. SCYNEXIS is a clinical-stage anti-infective company developing SCY-078, an oral and intravenous candidate for invasive fungal infections. It had no product-sales revenue. Financial amounts below are in U.S. dollars; financial-statement figures are in thousands unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $64 | $64 | $129 | $129 |
| R&D expense, net | $6,659 | $3,282 | $11,402 | $7,069 |
| SG&A expense | $1,673 | $3,275 | $4,207 | $5,485 |
| Loss from continuing operations | $(8,128) | $(6,492) | $(15,312) | $(12,423) |
| Net loss | $(8,128) | $(9,497) | $(15,312) | $(15,881) |
| Net loss per share, basic and diluted | $(0.56) | $(0.78) | $(1.07) | $(1.53) |
Revenue was R-Pharm upfront-payment amortization. With revenue immaterial and no product sales, the filing does not present a meaningful gross margin. The company continued to report operating losses.
Cash and balance sheet: At June 30, 2016, cash and cash equivalents were $37.9 million and short-term investments were $12.5 million, totaling $50.3 million. Total assets were $53.5 million; total liabilities were $9.6 million, including a $4.6 million warrant liability. The filing shows no conventional borrowings. Accumulated deficit was $165.4 million. Common shares outstanding were 23.4 million.
Cash flows, six months: Operating activities used $18.0 million; investing activities used $12.5 million, primarily for short-term investments; financing activities provided $21.3 million. Cash and cash equivalents declined $9.1 million to $37.9 million. The June public offering generated approximately $20.8 million net proceeds. No dividends were reported.
Material changes versus prior comparable periods
- R&D expense rose 103% in Q2 and 61% for the first half, primarily reflecting expanded SCY-078 clinical development and increased chemistry, manufacturing and controls costs.
- SG&A declined 49% in Q2 and 23% for the first half, mainly because 2015 included costs associated with the Services Business disposal.
- Continuing-operations losses increased year over year in both periods. Lower reported net loss versus 2015 reflects the absence of losses from the Services Business, which was sold in July 2015, rather than improved continuing operations.
- The June 2016 offering issued 9.375 million shares at $2.40 per share and warrants for up to 4.219 million additional shares at $3.00. The warrants are liability-classified because of a cash-settlement provision; the company recorded a $101,000 fair-value gain in Q2.
Outlook, developments and risks
- Management expects continued losses and increasing R&D spending. Based on its existing operating plan, it believed available cash and cash equivalents could fund operating and capital needs through the end of Q3 2018; it cautioned that assumptions may prove incorrect and that development-plan changes could accelerate cash use. The forecast refers to cash and cash equivalents, not the full cash-and-investments balance.
- Management reported positive top-line Phase 2 VVC results in June: among combined SCY-078 arms, clinical cure was 78% versus 66% for fluconazole; mycological eradication was 70% versus 69%, and therapeutic cure was 56% in both groups. The study enrolled 96 patients; the filing notes small sample sizes and that follow-up for recurrence remained underway.
- After quarter-end, the company reported interim Phase 2 invasive-candidiasis results on August 1. In the 750 mg SCY-078 arm, 6 of 7 patients had a favorable global response, versus 5 of 7 on fluconazole; the filing describes the study as interim and open-label. Management said it planned to report IV-formulation Phase 1 results in November 2016, meet with FDA in Q4 2016, begin a refractory-infection study in Q4 2016 and a further invasive-candidiasis Phase 2 study in Q1 2017, with top-line data expected by year-end 2017. These are forward-looking plans, not results or guarantees.
- Management said additional capital would be needed and could come from equity, debt, grants, alliances or licensing. Equity financing may dilute shareholders; debt may impose restrictive covenants; partnerships or asset sales may require relinquishing valuable rights.
- Potential obligations include up to $19.0 million in Merck milestones for SCY-078, plus tiered royalties if commercialized, and up to $2.3 million in milestones under other licenses. Accuratus services carried a minimum $3.3 million purchase obligation over an 18-month term. Future payments are contingent or subject to contractual terms.
- Other items: the company sold its cyclophilin inhibitor assets to Cypralis after quarter-end for potential milestone and royalty payments; it retained a repurchase right if the assets are abandoned or deprioritized. A $500,000 escrow receivable from the Services Business sale was received in July 2016. Management reported no material change in risk factors from its 2015 Form 10-K and no off-balance-sheet arrangements.
Key facts investors should verify
- Whether SCY-078’s small Phase 2 results are confirmed in larger, controlled studies, and the timing and outcome of FDA discussions and planned trials.
- Actual cash runway and burn rate as development spending changes; management’s runway estimate depended on its operating-plan assumptions.
- Future financing needs, dilution and the potential exercise or valuation effects of the 4.219 million offering warrants.
- Collection of R-Pharm reimbursement receivables, fulfillment of the Accuratus services commitment, and any future contingent licensing milestones or royalties.
- Whether expected development timelines, safety findings and potential clinical benefit hold up in subsequent analyses and trials.