SCYNEXIS, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. SCYNEXIS is a clinical-stage anti-infectives company developing oral and intravenous SCY-078, primarily for invasive fungal infections. Amounts below are in U.S. dollars; financial statement amounts have been converted from thousands to millions unless otherwise noted.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.064m | $0.064m | $0.193m | $0.193m |
| Research and development, net | $4.890m | $3.458m | $16.293m | $10.525m |
| Selling, general and administrative | $1.880m | $4.143m | $6.086m | $9.628m |
| Operating loss | $(6.706)m | $(7.537)m | $(22.186)m | $(19.960)m |
| Net loss | $(11.228)m | $(8.355)m | $(26.540)m | $(24.235)m |
| Net loss per share | $(0.48) | $(0.60) | $(1.53) | $(2.09) |
- Revenue was entirely amortization of the R-Pharm upfront payment; the company had no product-sales revenue. Operating margins are not meaningful given the very small collaboration revenue and ongoing development-stage losses.
- Q3 research and development expense rose 41.4%, reflecting expanded SCY-078 preclinical and clinical work. Nine-month R&D expense rose 54.8%, including higher clinical, chemistry/manufacturing/controls, and preclinical costs. SG&A declined primarily because 2015 included former-executive severance and stock compensation related to the Services Business divestiture.
- Q3 net loss included a $4.570m noncash charge from remeasuring June offering warrants; the warrant liability was $9.164m at September 30. The nine-month warrant fair-value charge was $4.469m.
- Cash and cash equivalents were $29.809m; short- and long-term investments were $28.574m, for total cash, cash equivalents and investments of approximately $58.4m. Operating cash use was $24.799m for the first nine months, versus $18.563m a year earlier. Cash and cash equivalents alone decreased $17.176m during the period.
- At quarter-end, the company reported a $15m secured term loan, net carrying value $14.167m after unamortized discount and issuance costs. The loan bears interest at LIBOR plus 8.49%, matures September 30, 2020, and has interest-only payments through March 2018 before principal amortization. Substantially all assets other than intellectual property secure the loan; the IP is subject to a negative pledge.
- Common shares outstanding increased from 13.906m at December 31, 2015 to 23.431m at September 30, 2016, principally following the June equity-and-warrant offering. As of November 4, 2016, 23,990,603 shares were outstanding.
Material changes and unusual items
- The June 2016 public offering raised approximately $20.754m net and issued 9.375m common shares plus warrants for up to 4.219m shares, exercisable at $3.00 per share. These offering warrants are liability-classified and remeasured through earnings.
- Solar funded a $15m term loan on September 30, 2016; net proceeds were approximately $14.4m. The lender also received a five-year warrant for 122,435 shares at $3.6754 per share.
- The Services Business was sold in July 2015 and is presented as discontinued operations. The escrowed $0.5m sale proceeds were received in July 2016. The 2016 period therefore had no discontinued-operations loss, compared with $0.826m in Q3 2015 and $4.285m for the first nine months of 2015.
Outlook, management commentary and risks
- Management expected cash, cash equivalents and investments under its existing operating plan to fund operating and capital expenditure needs for at least 24 months from the filing’s assessment. It cautioned that assumptions may prove wrong and that changes to SCY-078 development plans could accelerate cash use. The company expected continuing losses and rising R&D expense and anticipated needing additional capital.
- Management reported that two Phase 2 studies had recently completed. In invasive candidiasis, oral SCY-078 achieved the targeted exposure at the 750 mg once-daily dose and was described as well tolerated; the study was small, with seven patients in that dose group. In VVC, the filing reported higher clinical cure at test-of-cure and, in the per-protocol population, an 88% versus 65% cure rate at four months and 4% versus 15% recurrence for SCY-078 and fluconazole, respectively.
- Management said two drug-interaction studies showed no meaningful interaction with rosiglitazone and no change in tacrolimus maximum blood levels, with only a minor effect on tacrolimus exposure. These are company-reported clinical findings, not regulatory approval or proof of commercial efficacy.
- At the time of filing, management expected intravenous SCY-078 Phase 1 results in November 2016, an FDA discussion in Q1 2017, a study in refractory or intolerant invasive fungal infections to begin in Q4 2016, and a further invasive-candidiasis Phase 2 study to begin in Q1 2017; top-line results were expected by year-end 2017. These were forward-looking expectations.
- Risks include clinical and regulatory failure or delay, continued funding needs and possible shareholder dilution, and loan covenants that restrict certain activities. A loan default could accelerate repayment and allow the lender to pursue collateral. The company also cited reliance on R-Pharm reimbursements and third-party development services, and potential milestone and royalty obligations under licenses.
Important facts for investors to verify
- Whether SCY-078’s clinical findings are replicated in larger, later-stage trials and support regulatory approval.
- Actual cash burn, financing needs and runway as development plans and spending evolve.
- Loan covenant compliance, liquidity requirements, interest expense and repayment schedule.
- Future warrant fair-value changes, potential dilution from outstanding warrants and equity plans, and the status of the R-Pharm receivable and reimbursements.
- Whether management’s stated clinical, FDA-meeting and data timelines were achieved; the filing’s forecasts are not guarantees.