Skye Bioscience, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Skye is a clinical-stage pharmaceutical company developing cannabinoid-derived therapeutics, including SBI-100 Ophthalmic Emulsion (SBI-100 OE) for glaucoma. It reported no revenue from planned principal operations.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $1.18 million | $1.27 million |
| General and administrative expense | $1.92 million | $1.62 million |
| Operating loss | $3.10 million | $2.89 million |
| Net loss | $5.17 million | $3.04 million |
| Net loss per share, basic and diluted | $0.01 | $0.01 |
| Net cash used in operating activities | $4.06 million | $2.91 million |
| Cash and cash equivalents, March 31 | $2.67 million | $1.24 million at Dec. 31, 2022 |
| Total assets / total liabilities, March 31 | $4.59 million / $9.37 million | $9.11 million / $12.12 million at Dec. 31, 2022 |
Cash, cash equivalents and restricted cash ended the quarter at $2.67 million. Investing cash inflow was $5.53 million, largely from the Verdélite divestiture; financing cash outflow was $45,307. Working capital deficit was $4.92 million, accumulated deficit was $71.91 million, and stockholders’ deficit was $4.78 million. The filing does not present a meaningful revenue or gross-margin measure.
Material changes and unusual items
- Net loss increased year over year, principally reflecting a $1.38 million noncash debt-conversion inducement expense, $383,109 in wind-down costs and a $307,086 loss on the Verdélite asset sale. Operating expenses rose 7% overall: R&D declined 6%, while G&A increased 18%.
- Skye sold Verdélite on February 9, 2023. It received $5.53 million net of legal and advisory costs at closing. The filing says remaining consideration is payable in installments through 2026, but fully reserves the remaining receivables and will recognize a gain when cash is collected.
- Emerald Health Sciences exercised warrants and converted the remaining related-party credit agreement balance into 41.4 million common shares. The debt was terminated; Skye reported no remaining debt to Sciences at quarter-end. Common shares outstanding increased to 971.5 million from 913.5 million at year-end.
- Current liabilities include a $6.21 million estimated legal contingency related to the Cunning lawsuit. Total assets fell from year-end largely as assets held for sale were removed following the Verdélite sale.
Outlook, liquidity and risks
- Management concluded that substantial doubt exists about Skye’s ability to continue as a going concern within one year after the financial statements’ issuance. It said additional funding is needed by the second half of 2023 to continue clinical studies and other operations; available financing is uncertain and equity financing would dilute shareholders.
- Cost controls included deferring employee payments, postponing nonclinical studies, restricting travel and hiring, and deferring certain contracts. The company expects significant losses and negative operating cash flows through 2023 and beyond.
- Skye reported FDA clearance to conduct U.S. clinical trials of SBI-100 OE and expected to begin a Phase 2 study in mid-2023. The multiple-ascending-dose arm of its Phase 1 trial in Australia began in April 2023. Trial timing, results, regulatory approval, funding and manufacturing remain uncertain.
- A January 2023 jury verdict in the Cunning case awarded $512,500 in economic damages, $840,960 in noneconomic damages and $3.5 million in punitive damages. Post-trial motions and an appeal were pending; the company intends to challenge the verdict and seek insurance reimbursement, whose amount, if any, is uncertain. The filing also describes a separate EHT class action with losses not reasonably estimable.
- After quarter-end, the board approved a plan to sell Avalite Sciences’ real estate asset; timing and realizable value are uncertain. Skye also disclosed termination of its VivaCell sponsored research agreement, effective March 31, 2023.
Important facts for investors to verify
- Current cash runway, financing progress and whether funding is secured to sustain clinical programs.
- Status and potential cash exposure from the Cunning litigation, including attorney-fee claims, appeal outcomes and insurance recovery.
- Actual collection, timing and amount of remaining Verdélite consideration, and proceeds and timing from the planned Avalite sale.
- Phase 1 results and Phase 2 timing for SBI-100 OE, including any delays from recruitment, supply or manufacturing constraints.
- Potential dilution: share count, outstanding warrants and options, and any subsequent financing or securities issuance.