SCYNEXIS INC annual report, FY2014

SCYNEXIS, Inc. — FY2014 Form 10-K

Reporting period: Fiscal year ended December 31, 2014. This filing reports annual results; it does not provide a clear standalone Q4 financial summary.

Business context

SCYNEXIS is a development-stage pharmaceutical company focused on SCY-078, an oral and planned intravenous antifungal candidate for invasive fungal infections. In 2014, substantially all revenue came from contract research and development services and licensing; the company had no approved products and no product-sales revenue.

Financial results and liquidity

• Revenue increased 12.9%, while gross margin improved substantially. Research and development expense rose 89.9% to $8.3 million, primarily from SCY-078 clinical and IV-formulation development; selling, general and administrative expense rose 72.7% to $7.6 million.
• The narrower net loss principally reflects a $10.1 million noncash gain from changes in warrant derivative fair value, compared with a $7.9 million noncash loss in 2013, and the absence of 2013’s $10.8 million beneficial-conversion-feature expense. Operating loss increased, so the net-loss improvement does not indicate improved underlying operating profitability.
• Current assets were $34.7 million and current liabilities $3.8 million at year-end. The company reported no debt at December 31, 2014; it repaid $15 million of credit-facility principal, plus accrued interest, using IPO proceeds.
• The May 2014 IPO generated $54.6 million in net proceeds. Accumulated deficit was $117.5 million at year-end.

Material changes and outlook

• Merial accounted for 38% of 2014 revenue ($7.3 million). Its new two-year contract provides $7.9 million in total fees; management expected annual Merial revenue of about $4.0 million, roughly 45% below 2014’s amount under the prior agreement. Discovery and DMPK service revenue also declined $1.4 million in 2014.
• Management was exploring sale, spin-off, management buyout, or closure of the contract services business to focus resources on SCY-078. No divestiture had been completed, and the business was not classified as held for sale at year-end.
• Management expected existing cash to fund operating and capital needs into the first quarter of 2016, while warning that spending could exceed estimates and additional financing would be needed to complete development and pursue commercialization.
• The oral SCY-078 Phase 2 study enrolled its first patient in March 2015; enrollment criteria were amended to support recruitment. Complete results were expected in the first half of 2016. A first-in-human Phase 1 study of the IV formulation was planned for the second half of 2015.
• The oral formulation received Qualified Infectious Disease Product and fast-track designations. These designations may support development and review but do not ensure approval or a shortened timeline. Merck may receive up to $19 million in milestones and tiered royalties; the first Phase 2 milestone was deferred to initiation of the first Phase 3 study.
• Management cited substantial clinical, regulatory, manufacturing, reimbursement, competition, and financing risks. SCY-078 had only Phase 1 healthy-volunteer data at the time; reported adverse events were mainly gastrointestinal, with one serious liver-enzyme event considered drug-related. Drug-interaction studies showed materially higher exposure with CYP3A inhibitors.
• Leadership was in transition: Marco Taglietti was appointed CEO effective April 1, 2015, and Chief Medical Officer Carole Sable left in February 2015.

Important facts for investors to verify

• Phase 2 enrollment progress, protocol changes, safety findings, and the timing and interpretation of results.
• Cash burn and financing needs relative to management’s first-quarter 2016 runway estimate.
• Whether SCY-078’s IV formulation advances on schedule and whether drug-interaction risks affect dosing or trial eligibility.
• Actual revenue and costs under the new Merial agreement, customer concentration, and the outcome and costs of the service-business review.
• Potential dilution from future equity financing and equity compensation; the filing reported 8,512,103 common shares outstanding as of March 1, 2015.