Skye Bioscience, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited report covers the quarter and six months ended June 30, 2023. Skye is a clinical-stage pharmaceutical company developing therapies that modulate the endocannabinoid system, including SBI-100 Ophthalmic Emulsion (SBI-100 OE) for glaucoma. The company has not generated revenue from its planned principal operations.
Financial performance and condition
| Metric | Q2 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $1.79 million | $2.97 million |
| General and administrative expense | $1.21 million | $3.12 million |
| Operating loss | $2.84 million | $5.94 million |
| Net loss | $3.11 million | $8.28 million |
| Net cash used in operating activities | Not provided separately for the quarter | $6.05 million |
- Cash and cash equivalents were $553,443 at June 30, 2023, down from $1.24 million at December 31, 2022; restricted cash was $4,591.
- Working capital deficit was $7.92 million, total liabilities were $10.03 million, and stockholders’ deficit was $7.79 million. The balance sheet reported a $6.24 million estimated legal contingency.
- Investing activities provided $5.53 million, primarily from the VDL sale; financing activities used $168,720, primarily for insurance-loan repayments.
- No revenue-based margins are meaningful because the company reported no revenue. At June 30, the related-party credit agreement had been converted and extinguished; remaining financing obligations included a $90,615 insurance-premium loan payable and operating lease liabilities totaling $274,040.
Changes versus the prior comparable period
- Q2 net loss narrowed to $3.11 million from $3.42 million in Q2 2022. Operating loss also declined, to $2.84 million from $3.22 million.
- Q2 R&D expense rose 25% to $1.79 million, mainly due to clinical-trial costs, manufacturing and testing, and higher salaries. Q2 G&A expense fell 33% to $1.21 million, reflecting lower payroll, board and professional fees.
- For the first six months, net loss increased to $8.28 million from $6.46 million, despite a modest decline in operating loss. Other expense rose substantially, primarily due to a $1.38 million debt-conversion inducement expense, $470,181 in EHT wind-down costs, and a $307,086 loss on the VDL divestiture.
- Operating cash use increased to $6.05 million from $5.82 million. VDL sale proceeds supported cash during the period, but reported cash still declined from year-end.
- Shares issued and outstanding increased from 913.5 million at year-end to 971.5 million at June 30, including shares issued in the related-party debt conversion and warrant exercise.
Outlook, commentary, risks and unusual items
- Going concern and funding: Management concluded substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It said near-term funding is necessary to continue operations and clinical studies. Cost controls included deferred employee payments, postponed nonclinical studies and contracts, and freezes on hiring and nonessential travel. Additional equity financing could dilute existing holders; availability and timing of financing are uncertain.
- Clinical outlook: Skye reported completion of planned enrollment in the SBI-100 OE Phase 1 study and said the study met its primary endpoint, with the drug described as safe and well tolerated and no serious adverse events. The FDA authorized the U.S. IND for a planned Phase 2a glaucoma study. Management expected site initiation in Q3 2023 and first patient dosing early in Q4 2023, subject to remaining preparations and site DEA permits.
- Cunning litigation: A jury verdict resulted in an estimated legal liability, including damages and interest. The company is challenging the verdict and pursuing insurance coverage. In August 2023, the court awarded $1.20 million in attorney fees and granted a stay of enforcement conditioned on posting a $9.08 million bond by August 10. The company’s insurer’s motion to dismiss Skye’s coverage suit was denied; Skye is pursuing up to $5 million of coverage, less the deductible. Outcomes and recoveries remain uncertain and could materially affect liquidity.
- Subsequent financing: On July 24, 2023, Skye obtained a $250,000 bridge loan bearing 9.5% interest, payable in 30 days, to support efforts to secure additional strategic financing.
- Asset sales and contingencies: Skye fully reserved the remaining VDL sale receivables and will recognize gains if further payments are collected. The company planned to sell AVI real estate by year-end, but timing and proceeds were uncertain. Estimated remaining EHT wind-down costs were $179,660.
- Other risks: The company identified clinical and regulatory uncertainty, dependence on third-party manufacturers and suppliers, possible supply-chain or trial delays, and inflation and interest-rate risks. Management said inflation had not materially affected results during the periods presented.
- Management reported disclosure controls were effective at a reasonable assurance level and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Skye secured sufficient financing after the $250,000 bridge loan, and the resulting cash runway and dilution.
- Whether the required $9.08 million litigation bond was posted and the outcomes of post-trial motions, appeal, and insurance-coverage litigation.
- Progress and timing of the SBI-100 OE Phase 2a trial, including site permits, dosing commencement, and subsequent safety and efficacy results.
- Whether AVI was sold, what proceeds were realized, and whether deferred VDL sale installments were collected despite the reported reserve.
- How the legal contingency and related interest were ultimately resolved; the filing reports a $6.24 million balance-sheet liability and a subsequent $151,842 reduction associated with the attorney-fee ruling.