Syndax Pharmaceuticals, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The company is a clinical-stage biopharmaceutical business developing cancer therapies; it has no approved products and has generated no product-sales revenue.
Financial highlights
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.3 million | $0.3 million | $0.9 million | $0.3 million |
| Research and development expense | $12.3 million | $3.0 million | $23.2 million | $7.0 million |
| General and administrative expense | $3.3 million | $3.2 million | $10.3 million | $9.2 million |
| Net loss | $15.0 million | $7.7 million | $33.7 million | $18.9 million |
| Operating cash flow | Not separately stated | Not separately stated | $(24.7) million | $1.9 million provided |
Revenue was entirely license-fee recognition under the Kyowa Hakko Kirin (KHK) agreement, not product sales. No gross margin is presented. Q3 R&D expense rose $9.3 million year over year, including the $5.0 million upfront UCB license payment and higher clinical activity. For the nine-month period, R&D increased $16.2 million, primarily from the UCB payment and increased clinical and research activity.
At September 30, cash and cash equivalents were $12.8 million and short-term investments were $102.8 million, totaling $115.6 million; restricted cash was a further $0.2 million. Total assets were $117.7 million, total liabilities $23.9 million, and stockholders’ equity $93.8 million. There was no interest-bearing debt outstanding. Accumulated deficit was $294.5 million.
Nine-month investing cash outflow was $39.7 million, mainly reflecting purchases of short-term investments; financing provided $54.0 million, including $52.2 million of IPO proceeds and $1.9 million from option exercises. Cash and cash equivalents fell $10.4 million over the period. Management said available cash, cash equivalents, and short-term investments were expected to fund planned operations for at least 12 months.
Material changes and notable items
- Net loss widened to $15.0 million in Q3 from $7.7 million, and to $33.7 million for the first nine months from $18.9 million, primarily reflecting higher operating expenses.
- Operating cash flow shifted from $1.9 million provided in the first nine months of 2015 to $24.7 million used in 2016. The filing attributes much of the change to the prior-year KHK upfront payment and the resulting decrease in deferred revenue, as well as higher losses.
- The March 2016 IPO generated approximately $50.5 million net proceeds; preferred stock converted into common stock at IPO close. The company reported 18.18 million common shares outstanding at quarter-end and 18.19 million as of November 7, 2016.
- The July 2016 UCB agreement granted Syndax an exclusive worldwide license to SNDX-6352. The $5.0 million nonrefundable upfront payment was expensed as R&D. Potential obligations include up to $119.5 million in development and regulatory milestones, up to $250.0 million in sales milestones, and low double-digit sales royalties, subject to agreement terms.
- A $1.7 million nine-month expense from changes in warrant fair value was recorded before the Bayer warrant liability was reclassified to equity at the IPO. The prior-year comparative also included preferred-stock accretion that substantially affected loss attributable to common stockholders and per-share comparisons.
Outlook, programs, and risks
- Management expected continued substantial losses and rising R&D and G&A spending, with no positive operating cash flow expected for the foreseeable future. It noted that additional capital may be needed beyond the stated 12-month runway; financing may dilute shareholders or require concessions in collaborations.
- Entinostat had FDA Breakthrough Therapy designation based on earlier Phase 2b results; the filing cautions that this does not guarantee faster review or approval. The Phase 3 E2112 breast cancer study was reported as 60% enrolled, with enrollment completion and PFS analysis expected by the end of the second half of 2017.
- For ENCORE 601, the company reported initiating enrollment in the Phase 2 stage in NSCLC and melanoma in October 2016 and expected a go/no-go decision on advancing each arm by the end of Q1 2017. ENCORE 602 in triple-negative breast cancer was enrolling, with safety data anticipated in the first half of 2017. ENCORE 603 in ovarian cancer was expected to begin in Q4 2016, with safety data anticipated in the first half of 2017.
- SNDX-6352 entered a single-ascending-dose Phase 1 trial in healthy volunteers during Q4 2016, after the reporting date. Its clinical safety, efficacy, and development prospects remained uncertain.
- Key risks include clinical-trial failure or delay, enrollment and third-party collaborator performance, regulatory uncertainty, side effects, manufacturing and supply dependence, competition, intellectual-property protection, and the need for future financing. The filing highlights that entinostat’s composition-of-matter patent was expected to expire in 2017; patent-term extension and other protections were uncertain.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls and procedures were effective as of September 30, 2016; the filing did not provide an assessment of internal control over financial reporting.
Investor verification priorities
- Track actual E2112 enrollment, PFS and overall-survival timing, and whether the trial meets its endpoints; an SPA does not ensure approval.
- Check subsequent clinical data and enrollment progress for ENCORE 601, 602, and 603, and the safety and progress of SNDX-6352’s Phase 1 program.
- Monitor cash use, investment maturities, operating-expense growth, and whether the stated 12-month funding runway remains adequate.
- Review the full UCB and Bayer license terms, including milestone, royalty, patent, and termination provisions, and assess entinostat’s patent protection following the expected 2017 composition-of-matter expiry.
- Separate recurring operating performance from noncash warrant accounting and the prior-year preferred-stock accretion effects when comparing per-share losses.