SCYNEXIS, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context
SCYNEXIS is a development-stage anti-infectives company focused on SCY-078, an oral and intravenous candidate for serious fungal infections. On July 21, 2015, it completed the sale of its contract research and development Services Business to Accuratus, a strategic shift intended to focus resources on SCY-078. The Services Business is presented as discontinued operations for the periods shown.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Continuing-operations revenue | $0.064 | $0.065 | $0.129 | $0.130 |
| R&D expense, net of reimbursements | $3.282 | $1.823 | $7.069 | $3.143 |
| SG&A expense | $3.275 | $2.255 | $5.485 | $3.461 |
| Loss from continuing operations | $6.492 | Income of $1.671 | $12.423 | Income of $1.403 |
| Loss from discontinued operations | $3.005 | Income of $0.562 | $3.458 | Income of $1.242 |
| Net loss | $9.497 | Net income of $2.233 | $15.881 | Net income of $2.645 |
| Basic net loss per share | $0.78 | Net income per share of $0.38 | $1.53 | Net income per share of $0.26 |
- Q2 continuing revenue was essentially the $64,000 amortization of an upfront R-Pharm payment; SCYNEXIS reported no product sales.
- R&D increased primarily from SCY-078 Phase 2 and IV-formulation development. Net reported expense reflects R-Pharm reimbursements of $0.538 million for Q2 and $0.732 million for the six-month period.
- Cash and cash equivalents were $57.057 million at June 30, up from $32.243 million at December 31, 2014. Current assets were $64.645 million and current liabilities $7.051 million.
- Six-month operating cash use was $12.819 million; investing cash use was $0.527 million; financing provided $38.160 million, mainly from the April 2015 follow-on offering. That offering generated approximately $38.0 million net proceeds.
- The company had no debt at June 30, 2015. Management estimated cash would fund operating expenses and capital needs into the first half of 2017, based on its operating plan; it cautioned that assumptions may prove incorrect and cash could be used faster.
Material changes and unusual items
- Operating expenses rose: six-month R&D increased 125% and SG&A increased 59% versus 2014. The company attributed SG&A growth in part to compensation, stock-option modifications, and public-company costs.
- The April offering issued 5,376,622 shares at $7.70 each. Shares outstanding were 13,903,832 at June 30, compared with 8,512,103 at year-end 2014.
- Discontinued operations recorded a $1.350 million impairment charge and $1.053 million of severance and exit costs in the first half. The Services Business generated $6.849 million revenue and a $3.458 million loss for the six months.
- The Services Business sale had an aggregate purchase price of $3.875 million, subject to a $0.824 million working-capital adjustment; $0.500 million was held in escrow. Net cash received at closing was $2.549 million. Management estimated net proceeds after selling costs and potential Services Business compensation costs at approximately $1.1 million.
- Accuratus assumed the post-closing Durham facility lease, but SCYNEXIS committed to at least $3.3 million of contract research and development services from Accuratus over 18 months. The company also entered a Jersey City sublease with base rent of about $25,000 monthly, increasing 3% annually.
- SCYNEXIS recorded $0.466 million in Q2 expense for previously performed services related to modified options; total incremental option-modification cost was estimated at $0.819 million. A retention plan for continuing-operations employees could involve up to approximately $1.161 million in cash payments.
Outlook, commentary, and risks
- Management expected to complete the ongoing oral SCY-078 Phase 2 invasive Candida study and report top-line data in the first half of 2016. Enrollment was slower than anticipated; sites were added and the protocol amended, with further U.S. and non-U.S. sites and protocol changes under consideration.
- The first Phase 1 study of IV SCY-078 was planned for Q4 2015. A Phase 2 study of oral SCY-078 for vulvovaginal candidiasis was also planned for Q4 2015, with top-line results expected in the first half of 2016. These are forward-looking plans, not guaranteed outcomes.
- Oral SCY-078 had FDA Qualified Infectious Disease Product and fast track designations. The company planned to seek these designations for the IV formulation; designation or approval was not assured.
- Management expected R&D spending to rise and anticipated losses for at least several years. The company said it would need substantial additional funding to complete development and potentially commercialize SCY-078; future equity financing could dilute shareholders.
- Key risks include clinical enrollment delays or unfavorable trial results, regulatory uncertainty, reliance on third-party providers (including Accuratus for development services), the need for further capital, and potential competition and commercialization challenges.
- Leadership changes included the CFO’s June resignation and the President’s July resignation. The filing also describes severance, retention, and option-acceleration arrangements connected with departures, the sale, and relocation.
Most important facts for investors to verify
- Whether SCY-078 trials met enrollment, timing, safety, and efficacy objectives, and whether the stated 2016 data targets were achieved.
- Actual cash burn and runway after the sale, relocation, Accuratus service commitment, and employee-related payments; confirm whether further financing was needed.
- Final sale proceeds, working-capital adjustment, escrow recovery, selling costs, and total post-closing compensation and option-modification expense.
- Whether Accuratus delivered the contracted development services on acceptable terms and whether a replacement provider was required after the 18-month term.
- Progress and cost of the Jersey City relocation, including lease and retention-plan obligations, and the effects of management turnover.