Skye Bioscience, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. This quarterly report covers the three and nine months ended September 30, 2023. Skye is a clinical-stage pharmaceutical company developing therapies targeting the CB1 receptor. It reported no revenue from planned principal operations and remains dependent on external financing.
Key financial metrics
| Metric | Q3 / September 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No revenue reported | No revenue reported from planned operations |
| Operating loss | $24.7 million for Q3; $30.6 million for nine months | $2.9 million and $9.0 million, respectively, in 2022 |
| Net loss | $24.9 million for Q3; $33.2 million for nine months | $3.1 million and $9.6 million, respectively, in 2022 |
| Loss per share | $3.17 for Q3; $6.38 for nine months | $1.58 and $4.83, respectively, in 2022 |
| Cash and liquidity | $5.1 million unrestricted cash; $9.1 million restricted cash; $1.6 million working capital | Unrestricted cash was $1.2 million at December 31, 2022 |
| Cash flow | Nine-month operating cash use of $10.1 million; investing inflow of $6.6 million; financing inflow of $16.5 million | 2022 nine-month operating cash use of $7.9 million |
| Debt | $5.0 million principal convertible note; $4.1 million net carrying value | No comparable note at December 31, 2022 |
| Assets and liabilities | Total assets $15.6 million; total liabilities $13.9 million | At December 31, 2022: $9.1 million and $12.1 million, respectively |
Margins are not meaningful because the company had no revenue. The restricted cash principally collateralizes a $9.08 million appeal bond related to litigation and is not freely available for operations.
Material changes versus prior periods
- Q3 net loss increased to $24.9 million from $3.1 million, primarily due to a $21.2 million noncash charge for acquired in-process research and development (IPR&D) related to nimacimab.
- Q3 research and development expense declined 30% year over year to $1.3 million, while general and administrative expense rose 96% to $2.2 million, reflecting acquisition, financing, legal, and corporate costs.
- Nine-month net loss rose to $33.2 million from $9.6 million. Other expense included a $1.4 million debt-conversion inducement expense, $455,504 in EHT wind-down costs, and a $307,086 loss on the VDL asset sale.
- Cash increased following financing and asset-sale proceeds. Nine-month operating cash use nevertheless rose to $10.1 million from $7.9 million.
- Common shares outstanding increased from 3.65 million at year-end 2022 to 12.34 million at September 30, 2023, reflecting financing and the BRB acquisition. The company also effected a 1-for-250 reverse stock split in September; share and per-share data are retrospectively adjusted.
Outlook, risks, and unusual items
- Funding and going concern: Management states that financing from the August transactions is expected to fund operations into Q1 2024, but additional near-term financing is needed for the two planned Phase 2 studies. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements.
- Financing: The August PIPE raised $12.0 million gross and $11.7 million net. A related-party secured convertible note provided $5.0 million principal, bears 10% annual interest, matures August 18, 2024, and converts at $5.16 per share. The company issued warrants with both financings.
- Clinical plans: Skye reported positive Phase 1 safety and tolerability findings for SBI-100 OE and plans a Phase 2 glaucoma/ocular-hypertension study, with interim data expected in the first half of 2024. It plans to begin a Phase 2 nimacimab study for cardiometabolic disease, including obesity, in the first half of 2024. These are management plans, not assured outcomes.
- Litigation: A former employee obtained a jury award, and the company recorded a legal contingency of approximately $6.2 million. It posted a $9.08 million appeal bond to stay enforcement and is appealing; post-trial motions were denied on October 19, 2023. The company is pursuing up to $5.0 million, less the deductible, from its D&O insurer, but recovery is uncertain.
- Other uncertainties: Management cites reliance on third-party manufacturers and suppliers, possible clinical-trial delays, financing and dilution risk, and uncertainty over liquidation proceeds from remaining EHT assets. The company reported no material inflation impact to date but noted potential cost and financing effects.
- Subsequent corporate action: An amendment increasing authorized common shares to 100 million became effective November 6, 2023. As of November 12, 2023, 12,338,910 common shares were issued and outstanding.
Investor verification priorities
- Confirm available operating cash, the restrictions on the $9.1 million restricted balance, and the company’s actual runway against its stated Q1 2024 estimate.
- Track additional financing needs, potential dilution, and the terms and conversion or repayment outcomes of the related-party note and warrants.
- Verify clinical-trial start dates, enrollment, interim-data timing, and whether the planned Phase 2 programs can be funded.
- Monitor the Cunning appeal, appeal-bond requirements, the insurer coverage action, and any potential recovery or change in the recorded contingency.
- Assess the timing and collectability of remaining EHT asset-sale proceeds and the outcome of the proposed AVI real-estate sale.