Skye Bioscience, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Skye is a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under University of Mississippi licenses. Its candidates were preclinical or at the research stage; it reported no product revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $880,672 | $428,529 | $1,490,328 | $1,228,141 |
| General and administrative expense | $949,002 | $792,129 | $2,076,608 | $2,203,725 |
| Operating loss | $(1,829,674) | $(1,220,658) | $(3,566,936) | $(3,431,866) |
| Net loss | $(2,024,027) | $(1,420,236) | $(4,184,544) | $(3,761,896) |
| Loss per share, basic and diluted | $(0.01) | $(0.01) | $(0.01) | $(0.02) |
- Cash flow: Six-month cash used in operations was $3.02 million, versus $2.29 million in 2020. Investing used $10,170; financing provided $5.75 million, mainly from warrant exercises.
- Liquidity: June 30 cash was $5.19 million, including $4,569 restricted cash. Working capital was $3.92 million. Total assets were $5.49 million, liabilities $3.22 million, and stockholders’ equity $2.27 million. Accumulated deficit was $42.92 million.
- Debt: Related-party credit agreement advances had $2.465 million principal outstanding, bearing 7% interest and maturing October 5, 2022. The balance sheet reported $1.669 million carrying value for advances, including $1.219 million convertible debt net of discount and $450,000 non-convertible debt. Up to $13.55 million of the $20 million facility remained undrawn, but advances require approval and funding by Emerald Health Sciences and are not assured.
- Margins: Not applicable; the company had no reported revenue.
Changes versus prior comparable periods
- Q2 R&D expense more than doubled year over year, primarily from increased contract research and development, manufacturing and product costs, and consultant use. Six-month R&D expense increased 21%.
- Q2 G&A expense rose 20%, reflecting higher investor/public relations, legal, consulting, compensation, and recruiting costs. Six-month G&A decreased 6%, primarily due to lower legal fees.
- Six-month net loss increased to $4.18 million from $3.76 million. Other expense rose, mainly due to a $358,998 fair-value loss on derivative liabilities and higher interest expense; the prior-year period included a decrease in derivative-liability fair value.
- Cash rose from $2.47 million at December 31, 2020, primarily due to $5.74 million of financing proceeds, including $5.73 million from common-warrant exercises. Common shares outstanding increased from 288.1 million to 396.1 million during the six months.
Outlook, risks, and unusual items
- Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern. It expects significant losses and negative operating cash flows and stated that, without additional funding by December 2021, it would not have enough funds to continue clinical studies. Financing plans include equity or debt offerings, licensing, asset sales, grants, or other arrangements; availability is uncertain and equity financing would dilute shareholders.
- Development timing: THCVHS, the lead glaucoma candidate, remained preclinical. First-in-human Phase 1 studies in Australia were shifted to Q2 2022. The filing cites COVID-19-related lockdowns, potential supply interruptions, and possible effects on recruitment and study timelines. CBDVHS was also preclinical; the cannabinoid cocktail remained in research.
- Other unusual items: The PPP loan and accrued interest were forgiven in May 2021, producing a $117,953 gain. Derivative liabilities were $397,565 at June 30, 2021, with fair-value changes recognized in earnings.
- Subsequent financing: In July 2021, the company received $1.27 million gross from exercise of warrants, while issuing replacement warrants and placement-agent warrants; fees and expenses also applied. This transaction added potential future share dilution.
- Contingency and related parties: A former employee filed a lawsuit alleging whistleblower retaliation and other claims; the company denied the claims and is defending the action. Research services and credit financing included related parties. The related-party office sublease was scheduled to terminate August 31, 2021.
- Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway and the company’s ability to obtain funding sufficient to support operations and clinical plans; confirm whether the related-party credit facility is actually available.
- Progress toward THCVHS clinical readiness and whether the Q2 2022 first-in-human timeline is achievable, including effects of COVID-19 and supply dependencies.
- Terms, fees, and dilution from the July 2021 warrant exercise and replacement warrants, as well as subsequent share counts and warrant overhang.
- Potential financial exposure and developments in the former employee lawsuit.
- Related-party financing and research arrangements, derivative-liability valuation assumptions, and future operating costs as development spending increases.