Filing summary
Entity and period: The supplied filing is Flex Pharma, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019—not a filing for Decoy Therapeutics Inc. The company reported HOTSHOT consumer-product sales and sharply curtailed drug-development activity.
Financial results and liquidity
- Revenue: $104,977, down 41% from $178,582 in Q1 2018. Product revenue was $104,220. HOTSHOT sales volume fell to about 23,000 bottles from 39,000; average revenue per bottle was $4.56 versus $4.58.
- Costs and losses: Cost of product revenue was $47,329, implying product gross margin of about 55%, compared with about 53% in the prior-year quarter. Operating expenses totaled $2.35 million; operating loss was $2.24 million and net loss was $2.23 million, versus net loss of $8.22 million in Q1 2018. Basic and diluted loss per share was $0.12, compared with $0.46.
- Cash flow: Cash used in operations was $2.66 million, versus $9.41 million in Q1 2018. There was no investing or financing cash flow in Q1 2019. Cash and cash equivalents declined to $7.30 million from $9.83 million at December 31, 2018.
- Financial position: Working capital was approximately $7.2 million; total current liabilities were $0.91 million. The company reported no long-term debt and no marketable securities. Accumulated deficit was $135.2 million.
Changes and business developments
- Revenue fell as the company reduced HOTSHOT marketing and spending while evaluating strategic alternatives. Selling, general and administrative expense decreased 38% to $2.30 million, partly offset by merger-related fees, including $1.2 million incurred in Q1.
- Research and development expense fell from $4.68 million to $1,706, following the 2018 termination of Phase 2 FLX-787 trials in motor neuron disease and Charcot-Marie-Tooth disease because of oral tolerability concerns. The filing says the studies’ wind-down was completed in 2018.
- The company entered a merger agreement with privately held Salarius Pharmaceuticals on January 3, 2019. If completed, Salarius’s business would become the combined company’s business. The filing provides no assurance that the merger will close.
Outlook, risks and contingencies
- Management said existing cash was expected to fund the current operating plan for at least 12 months from issuance of the financial statements, assuming limited R&D and continued HOTSHOT sales. The company expected losses to continue and said future funding needs depend on the merger and other strategic choices.
- If the merger does not close, the company said it may pursue another transaction, continue the consumer business, or dissolve and liquidate; management described liquidation as the most likely course if the merger fails. Stockholders could lose their entire investment.
- Potential additional restructuring-related costs were estimated at $1.765 million to $3.343 million in total, including amounts contingent on a change in control and, in some cases, termination of retained employees. No 2019 charges were anticipated under management’s stated probability assessment.
- A purported stockholder sent a demand letter alleging proxy-statement disclosure violations related to the proposed merger and seeking corrective disclosures. The company said it was reviewing the demand. Management reported no material changes to the risk factors in its 2018 Form 10-K.
Investor facts to verify
- Confirm the issuer: the source is Flex Pharma, Inc. (ticker FLKS), despite the request naming Decoy Therapeutics Inc.
- Check the status and terms of the proposed Salarius merger, including shareholder approval and any related litigation or corrective disclosures.
- Assess cash burn and the adequacy of liquidity against the merger timeline and any liquidation, transaction, or continued-operation costs.
- Monitor HOTSHOT sales trends and whether the company resumes drug-development activity; the filing does not provide a clear plan or budget for either beyond its stated operating assumptions.