Filing identity and period
The supplied filing is Flex Pharma, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, filed May 3, 2017. This does not match the request metadata identifying Decoy Therapeutics Inc.; verify the issuer before relying on this summary.
Flex Pharma was developing treatments for muscle cramps and spasms and had launched the HOTSHOT consumer product in 2016. Its lead drug candidate, FLX-787, was in exploratory Phase 2 trials in Australia.
Financial results and position
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $242,547 | $0 |
| Operating loss | $8.35 million | $9.70 million |
| Net loss | $8.27 million | $9.59 million |
| Net loss per share, basic and diluted | $0.49 | $0.61 |
| Operating cash used | $8.23 million | $9.17 million |
HOTSHOT product revenue was $240,292, with $2,255 of other revenue. Product cost was $79,106; gross profit was $163,441, or approximately 67% of revenue. Research and development expense was $3.91 million and selling, general and administrative expense was $4.59 million. Interest income, net, was $77,854.
At March 31, 2017, cash and cash equivalents were $21.07 million, marketable securities were $31.74 million, and unrestricted cash, cash equivalents and securities totaled $52.81 million. Working capital was $51.6 million. Total liabilities were $3.28 million; the company reported no long-term debt. Accumulated deficit was $84.91 million. Cash and cash equivalents declined $1.34 million during the quarter; investing activities provided $6.88 million, mainly reflecting net maturities and sales of marketable securities.
Changes and management commentary
- Revenue began to appear following HOTSHOT’s 2016 launch; the prior-year quarter had no revenue. The company reported selling approximately 52,000 bottles in Q1 2017, at average total revenue of $4.66 per bottle; about 87% of revenue came from e-commerce.
- Net loss improved by $1.32 million year over year, primarily as total expenses fell 11%. Cost of product revenue was lower partly because Q1 2016 included approximately $185,000 of inventory write-offs; there were no inventory write-offs in Q1 2017.
- Management attributed lower R&D expense partly to reduced preclinical and consumer-product studies, lower stock-based compensation, and lower headcount, partly offset by higher consulting costs supporting the FLX-787 IND submission. SG&A fell 10%, including lower consulting and test-production costs.
- Management expected existing cash and marketable securities to fund its operating plan for at least 12 months from issuance of the financial statements; the MD&A separately projected funding into early 2019, subject to assumptions that could prove wrong. Management expected losses for the foreseeable future and said additional capital would be needed unless sufficient product revenue is achieved.
Outlook, risks and other notable items
- In April 2017, the company announced that the FLX-787 IND for ALS-related cramps had become effective and expected to begin the COMMEND Phase 2 trial in mid-2017. It also expected to initiate U.S. Phase 2 trials in motor neuron disease and CMT during 2017. These are forward-looking plans, not reported outcomes.
- Key risks include clinical and regulatory uncertainty, inability to obtain further funding on acceptable terms, uncertain HOTSHOT demand and commercialization, intellectual-property risks, and reliance on a single co-packer and certain sole-source suppliers. Failure to raise capital could require delaying, reducing or discontinuing programs.
- A January 2017 Boston headquarters lease increased future minimum lease payments by $933,186 through 2019. The company reported no material legal proceedings and no off-balance-sheet arrangements.
- Disclosure controls were judged effective; no significant change in internal control over financial reporting was reported. The filing also disclosed that CFO John McCabe was functioning as principal operating officer.
Important facts for investors to verify
- Confirm the issuer: the source filing is for Flex Pharma, Inc., not Decoy Therapeutics Inc.
- Check subsequent filings for actual FLX-787 trial initiation, enrollment, results and regulatory developments.
- Assess cash burn and runway against the differing statements of at least 12 months and into early 2019, and monitor financing needs and dilution risk.
- Track HOTSHOT sales, repeat purchases, channel mix, product economics and supplier continuity; Q1 sales were limited relative to operating costs.
- Review the assumptions underlying revenue recognition for e-commerce returns and management’s clinical, commercialization and funding outlook.