SCYNEXIS, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Financial statements are unaudited; amounts below are in U.S. dollars. Unless otherwise noted, figures are in millions.
Business context and reporting period
SCYNEXIS is a pharmaceutical company developing anti-infective medicines. Its lead candidate, SCY-078, is being developed in oral and intravenous (IV) formulations for invasive fungal infections. The company also provides contract research and development services, historically its principal revenue source, but is shifting resources toward SCY-078 and plans to pursue a sale of the services business.
- The first patient entered the oral SCY-078 Phase 2 study in March 2015. The company was screening patients and preparing further protocol changes to support enrollment.
- SCYNEXIS planned to file an IND and begin first-in-human studies of IV SCY-078 in the second half of 2015. The oral formulation had FDA Fast Track and QIDP designations.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $3.297 million | $4.705 million |
| Cost of revenue | $3.231 million | $3.960 million |
| Gross profit (margin) | $0.066 million (2.0%) | $0.745 million (15.8%) |
| Research and development expense | $4.218 million | $1.320 million |
| Selling, general and administrative expense | $2.233 million | $1.206 million |
| Operating loss | $6.385 million | $1.781 million |
| Net income (loss) | $(6.384) million | $0.412 million |
| Net loss per share, basic and diluted | $(0.75) | Basic $(3.65); diluted $(6.57) |
| Cash used in operating activities | $4.547 million | Cash provided: $0.161 million |
| Capital expenditures | $0.171 million | $0.074 million |
- At March 31, cash and cash equivalents were $27.620 million, down from $32.243 million at December 31, 2014. Current assets were $29.830 million and current liabilities $5.132 million.
- The company had no outstanding debt at March 31. Total liabilities were $7.419 million; accumulated deficit was $123.895 million.
- On April 28, 2015, after quarter-end, SCYNEXIS completed a follow-on offering of 5,376,622 shares at $7.70 per share, receiving approximately $37.754 million in net proceeds.
Material changes versus the prior comparable period
- Revenue declined 29.9% year over year, primarily from lower animal-health services revenue under the Merial relationship, nonrecurring integrated pharmaceutical services, reduced discovery/DMPK work, and lower materials revenue. Merial-related revenue was $0.987 million, or 30% of Q1 2015 revenue, versus $1.822 million, or 39%, in Q1 2014.
- Gross margin fell to 2.0% from 15.8%, as revenue declined while fixed service-business costs remained at comparable levels.
- R&D expense rose 219.5%, mainly reflecting SCY-078 Phase 2 and IV-formulation development, as well as employee costs. SCY-078 accounted for $3.695 million of reported R&D expense.
- SG&A increased 85.2%, primarily due to public-company professional costs, including higher directors’ and officers’ insurance, and compensation expense.
- Q1 2014 results included a $2.783 million gain from a derivative fair-value adjustment and $0.536 million of financing-cost amortization; these items did not recur in Q1 2015. The prior-year net income therefore is not directly comparable with the current-period loss.
Outlook, commentary, risks and unusual items
- Management expected cash, including the April offering proceeds, to fund operating expenses and capital expenditures into the first half of 2017, based on its current plan. It cautioned that assumptions could prove wrong and additional capital would be needed to complete development and pursue commercialization.
- Management expected R&D and SG&A spending to rise, and did not expect product-sales revenue for several years. The company anticipated continued losses and no near-term profitability.
- SCYNEXIS expected complete data from the oral Phase 2 study in the first half of 2016. Enrollment changes were intended to improve recruitment, but the filing warned that delays could increase costs or affect study completion and data.
- In May 2015, the board directed management to pursue a sale of the services business; no sale had closed as of the filing. A successful divestiture was expected to materially reduce 2015 revenue and cost of revenue and increase net loss. Potential transaction costs include a success fee equal to the greater of $0.5 million or 4% of consideration, contingent employee payments of up to approximately $1.3 million, and severance costs that were not estimable.
- Merck could receive up to $19 million in SCY-078 development and regulatory milestones, including a deferred milestone shifted from Phase 2 initiation to Phase 3 initiation, plus mid- to high-single-digit royalties on worldwide net sales. Other compound licenses could require up to $2.3 million in milestone payments.
- The filing identifies substantial development and funding risks: clinical-trial enrollment, safety or efficacy results, regulatory approval, manufacturing and commercialization execution, dependence on third parties, and competition. The company had no approved products and had never generated product-sales revenue.
- Management reported disclosure controls and procedures effective at the reasonable-assurance level as of March 31, 2015, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress and enrollment in the oral SCY-078 Phase 2 trial, protocol amendments, and timing of the planned IV program.
- Whether the services-business sale closes, its consideration and transaction costs, and the resulting change in revenue, expenses, and cash flow.
- Actual cash burn and whether the stated runway into the first half of 2017 remains achievable against development plans and funding needs.
- Continuation and terms of the Merial services agreement, including the effect of any transfer or termination in connection with a divestiture.
- Follow-on offering proceeds, dilution, and subsequent share count; the filing reported 13,903,832 common shares outstanding as of May 1, 2015, before the offering.
- Potential Merck milestone obligations, lease commitments of $4.540 million, and unquantified divestiture-related severance or other costs.