Business context and reporting period
This is Flex Pharma, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018—not a filing for Decoy Therapeutics Inc. Flex Pharma sold HOTSHOT, a consumer product for exercise-associated muscle cramps, and had been developing FLX-787 for neurological conditions. In June 2018, it ended Phase 2 trials in motor neuron disease (including ALS) and Charcot-Marie-Tooth disease because of oral tolerability concerns. The company was evaluating strategic alternatives, including a sale or merger, while operating with a reduced workforce.
Financial and operating highlights
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
|---|---|---|
| Total revenue | $251,000, down 39% year over year | $675,000, down 32% |
| Net loss | $2.64 million, versus $9.33 million | $19.91 million, versus $26.41 million |
| Operating cash used | Not separately presented | $20.46 million, versus $21.97 million |
All reported revenue came from HOTSHOT and related shipping; there was no drug-candidate revenue. HOTSHOT bottle sales were approximately 53,000 in the quarter and 146,000 year to date, compared with 94,000 and 229,000, respectively, in 2017. Management attributed lower sales chiefly to reduced marketing and resulting demand. Research and development expense fell 82% in the quarter to $866,000 and 8% year to date to $11.72 million. Selling, general and administrative expense fell 60% in the quarter to $1.96 million and 40% year to date to $8.65 million.
At September 30, 2018, cash and cash equivalents were $12.96 million, working capital was $10.8 million, and total liabilities were $2.89 million. The company held no marketable securities and reported no long-term debt. Nine-month cash and cash equivalents, including restricted cash, decreased by $6.22 million. Total assets were $13.94 million and accumulated deficit was $130.95 million. The filing does not provide a clear reported gross-margin figure.
Material changes, outlook and risks
- Workforce reductions of approximately 60% were completed by September 30. Management expected research and development costs to continue declining, while continuing limited R&D and HOTSHOT operations during the strategic review.
- Management said existing cash was expected to fund the current operating plan for at least 12 months from issuance of the financial statements, while cautioning that assumptions could prove wrong. The company expected continued losses and said it would need additional capital; financing might be unavailable or dilutive.
- No sale or merger was assured. If no transaction occurred, the company might continue as a consumer business or pursue dissolution and liquidation; stockholders could lose some or all of their investment.
- Restructuring charges were approximately $1.13 million for the first nine months. Potential retention and severance payments under employee arrangements could total up to approximately $2.3 million; some amounts depended on a change in control or other conditions.
- A putative securities class action sought unspecified damages over alleged misleading statements concerning FLX-787. The company denied wrongdoing, intended to defend itself, and had accrued no litigation expense as of September 30.
- Nasdaq notified the company of minimum bid-price and market-value deficiencies, with compliance periods ending February 11, 2019 and March 26, 2019, respectively. Failure to regain compliance could result in delisting.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for Flex Pharma, Inc., despite the request metadata naming Decoy Therapeutics Inc.
- Track the strategic review’s outcome, any approved transaction, and whether liquidation or continued operations are pursued.
- Assess cash burn against the stated 12-month runway, including restructuring, strategic-review and litigation-related costs, and the availability of additional financing.
- Monitor HOTSHOT sales and marketing levels, and whether any drug-development program resumes.
- Check developments in the securities lawsuit and the company’s Nasdaq listing compliance.