SCYNEXIS, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. SCYNEXIS is a clinical-stage biotechnology company developing ibrexafungerp, an oral and intravenous antifungal candidate. The company had no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $64,000 | $121,000 | $193,000 |
| Research and development | $9.3 million | $3.9 million | $27.4 million | $14.9 million |
| Selling, general and administrative | $2.5 million | $2.4 million | $7.5 million | $6.5 million |
| Operating loss | $11.8 million | $6.3 million | $34.8 million | $21.2 million |
| Net loss (income) | $7.9 million loss | $351,000 income | $39.3 million loss | $14.4 million loss |
| Net loss per share, diluted | $0.15 | $0.01 income | $0.74 | $0.34 |
| Cash used in operating activities | Not presented by quarter | $24.7 million | $22.3 million |
At September 30, cash, cash equivalents and short-term investments totaled $28.1 million, down from $44.2 million at December 31, 2018. Current assets were $29.0 million and current liabilities $8.1 million. Total assets were $33.8 million; stockholders’ equity was $6.1 million. No meaningful operating margin comparison is available given minimal revenue and continuing development spending.
The company reported $12.6 million of convertible debt and derivative liability on its balance sheet, including an $8.0 million net debt carrying amount and a $4.5 million embedded derivative liability. The notes bear 6% interest, mature in March 2025, and have an initial conversion price of approximately $1.35 per share. SCYNEXIS repaid its Solar term loan during the first quarter using proceeds from the notes.
Material changes and unusual items
- Nine-month R&D expense rose 85%, principally reflecting Phase 3 VVC development, the CANDLE study, manufacturing and regulatory-batch work, and a Merck milestone payment following initiation of the Phase 3 VVC program.
- For the nine months, net loss increased to $39.3 million from $14.4 million. The comparison was affected by warrant-liability fair-value movements: a $2.6 million loss in 2019 versus a $7.6 million gain in 2018. A $1.0 million debt-extinguishment loss was also recorded in 2019.
- Q3 2019 included a $1.8 million warrant-liability fair-value gain and a $2.3 million derivative-liability fair-value gain. These non-cash valuation changes contributed to reported results and are not operating revenue.
- Net cash from financing activities was $8.6 million for the nine months, including $10.1 million gross common-stock proceeds and convertible-note proceeds used to repay the Solar loan. The company sold 7.7 million shares through its at-the-market facility for $9.8 million net proceeds. Shares outstanding increased from 48.0 million at year-end 2018 to 57.4 million at September 30, 2019.
Outlook, clinical progress and risks
- In November 2019, after quarter-end, SCYNEXIS announced positive top-line Phase 3 VANISH-303 results for acute VVC: clinical cure was 50.5%, mycological eradication 49.5%, and clinical improvement 64.4%; the company reported statistically significant superiority to placebo. Full analysis was still underway. A second pivotal study, VANISH-306, was ongoing, with top-line results anticipated early in Q2 2020.
- Management planned to submit an NDA for acute VVC in the second half of 2020, subject to successful completion of the pivotal program. The Phase 3 CANDLE prevention study was enrolling; a supplemental NDA was anticipated in 2021 if successful. FURI and CARES studies for refractory infections and the Phase 2 SCYNERGIA study for invasive aspergillosis were also ongoing.
- The filing states that existing financial conditions raise substantial doubt about SCYNEXIS’s ability to continue as a going concern over the next 12 months. Management believed available cash, investments and New Jersey NOL-sale proceeds could fund operations past the anticipated acute-VVC NDA submission, but emphasized this estimate depends on assumptions and funding needs could arise sooner. The company expects continued losses and increasing R&D expense and may need additional capital.
- If additional financing is unavailable, the company may delay, reduce or eliminate clinical trials or other programs, change its operating plan, or cease operations. Equity or convertible financing could dilute shareholders; debt financing or licensing arrangements could impose restrictions or require concessions.
- Potential obligations include up to $19.0 million in Merck development and regulatory milestones, plus tiered mid- to high-single-digit royalties on future ibrexafungerp sales. A long-term office lease has a recognized liability of $3.4 million.
Important facts for investors to verify
- Full VANISH-303 results and outcomes from VANISH-306, CANDLE, FURI/CARES and SCYNERGIA, including timing and regulatory implications.
- Actual cash runway versus management’s estimate, subsequent financing or NOL-sale proceeds, and any changes to the going-concern assessment.
- Potential dilution and repayment or conversion terms for the notes, including share-cap provisions and the effects of outstanding warrants and equity awards.
- How much of reported earnings is driven by non-cash warrant and derivative fair-value changes, and the assumptions used in those Level 3 valuations.