SCYNEXIS, Inc. — Q3 2018 Form 10-Q
Business context and reporting period
SCYNEXIS is a clinical-stage biotechnology company developing ibrexafungerp, an oral and intravenous antifungal candidate for serious fungal infections. This unaudited report covers the three and nine months ended September 30, 2018; comparisons are with the corresponding 2017 periods. The company had not generated product-sales revenue.
Financial results and liquidity
| Metric (USD millions, except per-share data) | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | 0.064 | 0.064 | 0.193 | 0.193 |
| Research and development expense, net | 3.933 | 4.459 | 14.858 | 12.927 |
| Selling, general and administrative expense | 2.433 | 2.004 | 6.528 | 6.425 |
| Operating loss | (6.302) | (6.399) | (21.193) | (19.159) |
| Net income (loss) | 0.351 | (8.401) | (14.410) | (17.470) |
| Net income (loss) per share | 0.01 | (0.31) | (0.34) | (0.67) |
- Q3 2018 net income reflected a $6.931 million noncash gain from remeasuring warrant liabilities, primarily due to a lower share price. It should not be read as operating profitability: revenue was $64,000 and operating loss was $6.302 million.
- For the nine months, the net loss narrowed by $3.060 million year over year, despite a $2.034 million increase in operating expenses. The improvement included a larger warrant fair-value gain.
- Cash, cash equivalents and short-term investments totaled approximately $49.5 million at September 30, 2018, versus $43.9 million at year-end 2017. Cash, cash equivalents and restricted cash were $16.408 million; short-term investments were $33.408 million.
- Operating cash use was $22.265 million in the first nine months, compared with $19.398 million in 2017. Financing provided $28.602 million, principally from the March 2018 public offering.
- Debt: the Solar term loan had $15.0 million of principal outstanding, plus a $0.780 million final fee; its carrying amount was reduced by unamortized discount and issuance costs. The loan is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
- At September 30, current assets were $50.235 million and current liabilities were $11.086 million. Total assets were $51.650 million, total liabilities $23.771 million, and stockholders’ equity $27.879 million. The filing does not provide a conventional operating-profit margin measure; revenue was minimal relative to operating expenses.
Material changes versus prior comparable periods
- Q3 R&D expense decreased 12% year over year, mainly due to lower preclinical and consulting costs, partly offset by higher costs for manufacturing and development of the IV formulation and planned clinical activities.
- Nine-month R&D expense rose 15%, driven by clinical development, preclinical work, chemistry, manufacturing and controls, and employee compensation. SG&A increased 2% for the period.
- Common shares outstanding increased from 28.972 million at December 31, 2017 to 47.193 million at September 30, 2018, largely reflecting the March offering. The offering issued 17.752 million shares and warrants; net proceeds were approximately $27.9 million. Warrants and options create further potential dilution.
Outlook, commentary and risks
- Management estimated that existing cash and short-term investments would fund operating requirements into 2020, based on its operating plan. It warned that assumptions may prove incorrect and additional capital will be needed; expected sources include equity, debt, grants, alliances and licensing.
- Management expected R&D spending to increase as the company advanced ibrexafungerp, particularly its Phase 3 vulvovaginal candidiasis (VVC) program, and expected losses to continue for at least several years.
- After an October 2018 FDA End-of-Phase 2 meeting, the company reported FDA agreement with the proposed overall design of a three-trial Phase 3 program for VVC treatment and prevention of recurrent VVC. It expected acute VVC trial enrollment to begin by year-end 2018. Subject to successful trials, it anticipated an initial VVC NDA in 2020 and a supplemental application for recurrent VVC in 2021. These are forward-looking plans, not assured outcomes.
- The company also reported that the first patient with Candida auris infection had been dosed in its CARES emergency-protocol study in October 2018.
- On October 1, 2018, the Solar loan was amended to defer scheduled principal payments until April 1, 2019; the maturity date remained September 30, 2020, with a potential extension to March 30, 2021 if specified cash proceeds are obtained. The amendment increased the final fee by $0.1 million.
- Potential obligations include up to $19.0 million in Merck milestones for ibrexafungerp, plus mid- to high-single-digit royalties on worldwide net sales if commercialized; other licenses may require up to $2.3 million in milestones. The new office lease has total payments of approximately $7.3 million over its 11-year term.
- Warrant liabilities were $5.242 million at quarter-end and are remeasured using a model with significant unobservable inputs; their gains or losses can materially affect reported earnings. The company identified clinical, regulatory, funding, dilution and data-privacy risks, including potential GDPR penalties. A shareholder class action was dismissed on October 26, 2018.
- Management concluded disclosure controls were effective at a reasonable assurance level as of September 30, 2018; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether the Phase 3 VVC trials began on schedule and whether subsequent clinical results support the stated application timelines.
- Whether the projected cash runway into 2020 remains achievable as trial and manufacturing spending increases, and what financing may be required.
- The Solar loan’s payment schedule, liquidity covenants, final fee and any conditions for a maturity extension.
- The potential dilution and earnings volatility associated with outstanding warrants, options and future equity financing.
- Progress toward regulatory milestones and the resulting potential Merck payments, royalties, and other contractual obligations.