SCYNEXIS, Inc. — Q1 2017 Form 10-Q
Business context and period. Biotechnology company developing SCY-078, an oral and intravenous antifungal candidate. This unaudited report covers the three months ended March 31, 2017; comparisons are with Q1 2016 unless otherwise stated. SCYNEXIS had no product-sales revenue.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0.064 million | $0.064 million |
| R&D expense, net | $4.020 million | $4.743 million |
| SG&A expense | $2.060 million | $2.533 million |
| Operating loss | $6.016 million | $7.212 million |
| Net loss | $4.869 million | $7.184 million |
| Basic / diluted loss per share | $(0.19) / $(0.25) | $(0.52) / $(0.52) |
| Operating cash used | $6.772 million | $8.960 million |
Revenue in both periods was amortization of the R-Pharm upfront payment. The Q1 2017 net loss included a noncash $1.523 million gain from revaluing June 2016 offering warrants; diluted loss attributable to common stockholders was $6.392 million, or $0.25 per share. The filing does not provide a gross-margin measure.
At March 31, cash and cash equivalents were $19.908 million and short-term investments were $34.991 million, totaling approximately $54.9 million, versus $58.6 million at December 31, 2016. Current assets were $55.590 million and current liabilities $3.358 million. Stockholders’ equity was $33.533 million and accumulated deficit $185.059 million.
Cash used in investing was $12.163 million, mainly reflecting $18.161 million of investment purchases partly offset by $6.000 million of maturities; this largely reflects movement into short-term investments rather than operating burn. Financing provided $3.187 million, including $3.277 million of gross common-stock proceeds under the shelf registration. Cash and cash equivalents declined $15.748 million during the quarter.
The Solar secured term loan had $15.0 million of principal outstanding; its balance-sheet carrying amount was $14.352 million, net of discount. It bears interest at LIBOR plus 8.49%, with interest-only payments through March 2018 and principal amortization thereafter; a $0.750 million final fee is due at maturity in September 2020. Debt is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
Changes, outlook, and risks
- Operating expenses fell 16.4% to $6.080 million. R&D declined 15.2%, primarily due to lower clinical-development and manufacturing costs; SG&A declined 18.7%, mainly because prior-year costs included headquarters-transition services.
- On March 2, 2017, the FDA placed a clinical hold on initiation of new studies using IV SCY-078 following three thrombotic events in healthy volunteers. The hold does not affect oral SCY-078. Management plans to submit additional preclinical and clinical analyses to seek removal of the hold; there is no assurance the FDA will lift it.
- Management anticipated starting the IV invasive-Candida Phase 2 study in 2018, after FDA feedback and an additional healthy-volunteer study if the hold is lifted. Enrollment in the oral FURI study was expected to begin in Q2 2017. These are plans, not assurances.
- Management expects continued losses and increasing R&D spending. Based on its then-current operating plan, including work addressing the IV hold, it believed available cash and investments would fund operating and capital needs through at least early fiscal 2019; management was still evaluating the cash impact of its updated development strategy. Additional financing may be needed, with potential dilution, debt restrictions, or relinquishment of valuable rights.
- A putative securities class action was filed March 8, 2017, against the company and certain current and former officers, covering specified purchases from the IPO through March 2, 2017. The company intends to defend the case; no liability was accrued as of March 31.
- Potential future obligations include up to $19.0 million in Merck milestones and tiered mid- to high-single-digit royalties on SCY-078 sales, plus up to $2.3 million of milestones under other licenses. These payments are contingent on future events.
- Liquidity risks include continued development costs, the FDA hold and clinical outcomes, access to additional capital, and the securities litigation. The company reported no material change to its annual-report risk factors and no off-balance-sheet arrangements.
Key facts for investors to verify
- Cash runway assumptions and spending impact of the IV clinical hold, the additional Phase 1 work, and oral-program enrollment.
- FDA requirements and timing for any decision on lifting the IV hold, and whether the anticipated 2018 Phase 2 start remains achievable.
- Quarterly operating cash burn, funding availability, and dilution or covenants associated with future financing.
- Warrant-liability valuation and its effect on reported net loss and diluted loss per share.
- Developments and potential financial exposure in the securities class action; no loss estimate was accrued.
- Progress toward FURI enrollment and the clinical, regulatory, and milestone events that could trigger licensing payments.