Syndax Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited; amounts below are in U.S. dollars unless stated otherwise.
Business context
Syndax is a clinical-stage biopharmaceutical company developing cancer therapies, principally entinostat, SNDX-6352, and Menin-MLL inhibitors. It has no products approved for sale and has generated no product-sales revenue. Reported revenue consists of license fees under its Kyowa Hakko Kirin (KHK) agreement.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0.379 million | $0.305 million | $1.138 million | $0.915 million |
| Research and development | $14.095 million | $12.188 million | $44.286 million | $31.603 million |
| General and administrative | $4.125 million | $3.563 million | $13.395 million | $11.777 million |
| Operating loss | $17.841 million | $15.446 million | $56.543 million | $42.465 million |
| Net loss | $17.338 million | $15.088 million | $55.124 million | $41.699 million |
| Net loss per share, basic and diluted | $0.68 | $0.68 | $2.21 | $2.08 |
Revenue was immaterial relative to operating costs; the filing does not present a meaningful commercial gross margin. At September 30, cash and cash equivalents were $26.705 million and short-term investments were $62.894 million, totaling $89.599 million. Restricted cash was $0.216 million. Current assets were $95.846 million versus current liabilities of $17.016 million. No interest-bearing debt is reported; liabilities included $16.546 million of deferred revenue.
For the first nine months, operating cash use was $53.488 million, investing activities provided $35.436 million (principally net maturities of investments), and financing provided $9.584 million, mainly from ATM stock sales. Cash, cash equivalents, and restricted cash decreased $8.468 million. Management stated existing cash, cash equivalents, and short-term investments were expected to fund projected expenses and capital needs for at least 12 months, while warning that additional capital would be needed over time.
Material changes and financing
- Nine-month revenue increased 24% year over year, but net loss increased 32%. R&D expense rose 40%, reflecting higher development and manufacturing activity, increased headcount, and Menin program spending; G&A expense rose 14%.
- In Q3, R&D and G&A each increased 16%; net loss increased 15%. Management attributed Q3 R&D growth mainly to Menin and ENCORE 602 activity and higher employee costs.
- The company sold 1,329,582 shares through its ATM program during the first nine months, raising $9.4 million net. Through November 2, it sold a further 784,587 shares for approximately $6.1 million net; $32.1 million remained available under the program. These sales dilute existing holders.
- In June, BVF exchanged 2.0 million common shares for warrants to acquire 2.0 million shares at $0.0001 per share, subject to a 9.99% ownership limit. Bayer exercised its warrant cashlessly in March, resulting in 299,215 shares issued with no net cash proceeds.
- ASC 606 adoption resulted in a $0.649 million opening-equity adjustment and modestly changed reported license revenue; the company said adoption did not materially affect its financial position, results, or cash flows.
Outlook, clinical developments, and risks
- Entinostat breast cancer trial: In October, the company reported that Phase 3 E2112 did not meet the statistical hurdle for its first primary endpoint, progression-free survival. The trial continued to assess overall survival, with the next interim analysis scheduled for Q2 2019; final analysis was expected no later than the end of 2020. A positive overall-survival result could support a regulatory filing, but approval is not assured.
- Other entinostat programs: The company planned to begin a biomarker-driven NSCLC registration trial in the first half of 2019. Topline ENCORE 603 ovarian-cancer results were expected in Q1 2019 and ENCORE 602 triple-negative breast-cancer results in Q2 2019. A decision on the MSS colorectal cancer cohort was expected in Q1 2019; a melanoma program decision was expected later in 2018.
- SNDX-6352 and Menin: A Phase 1 SNDX-6352 trial in chronic graft-versus-host disease had begun enrollment, with initial results expected in the second half of 2019. The company expected to file an IND and initiate a Phase 1 trial for Menin inhibitor SNDX-5613 in Q2 2019.
- Management expected continued significant losses and R&D investment; expenses may fluctuate with trial, manufacturing, and development activity. The company has no product revenue and expects to require additional financing, which may dilute shareholders or require licensing rights on unfavorable terms.
- Key risks include clinical-trial failure or delay, reliance on collaborators and third-party manufacturers, uncertain regulatory approval and commercialization, competition, financing needs, and intellectual-property protection. The filing identifies no material legal proceedings as of September 30, 2018. Management reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Subsequent E2112 overall-survival analyses, timing, and whether the trial ultimately meets its endpoint; the PFS endpoint was not met.
- Actual cash burn and runway against management’s stated minimum 12-month estimate, including the effect of ongoing clinical and manufacturing spending.
- Further ATM issuance, remaining capacity, and resulting share dilution; also review the BVF warrant terms and potential exercise.
- Whether expected clinical milestones occur on schedule and produce results supporting further development or regulatory filings.
- Potential milestone, royalty, and other obligations under the Bayer, UCB, Allergan/Vitae, and clinical-trial agreements.