Syndax Pharmaceuticals, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Syndax is a clinical-stage biopharmaceutical company developing entinostat, its only product candidate, for use in combination therapies. It has no approved products and generates no product sales. Financial amounts below are in U.S. dollars; statement figures are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0.305 million, all license fees | $0 |
| Research and development expense | $4.786 million | $1.723 million; up 178% |
| General and administrative expense | $4.272 million | $2.711 million; up 58% |
| Total operating expenses | $9.058 million | $4.434 million; up 104% |
| Loss from operations | $8.753 million | $4.434 million |
| Net loss | $10.330 million | $4.911 million |
| Net loss attributable to common stockholders | $12.928 million; $2.85 per share | $12.072 million; $206.30 per share |
| Operating cash flow | $(6.403) million | $11.045 million provided |
| Cash, cash equivalents and short-term investments | $133.7 million at March 31 | $86.5 million at December 31, 2015 |
Gross margin is not separately reported; revenue was license-fee revenue rather than product sales. Net loss increased 110% year over year. R&D growth primarily reflected higher clinical-trial activity, including the E2112 and ENCORE 601 trials and ENCORE 602 startup costs. G&A growth was substantially affected by stock-based compensation, including accelerated vesting related to the IPO.
Total assets were $136.3 million and total liabilities were $22.4 million at March 31, 2016. Current assets were $135.8 million versus current liabilities of $7.0 million. There was no interest-bearing debt outstanding. Deferred revenue was $16.4 million, including $1.2 million current. The company reported an accumulated deficit of $271.2 million.
Cash and cash equivalents were $23.2 million and short-term investments were $110.5 million. Management said existing cash, cash equivalents and investments were expected to fund planned operations for at least 12 months. The company cautioned it will need additional capital to fund longer-term plans and may need to reduce or delay development if financing is unavailable.
Material changes and significant transactions
- Syndax completed its IPO in March, selling 4,809,475 shares at $12.00 per share. The filing describes net proceeds of approximately $50.5 million in its discussion, while the cash-flow statement reports $53.5 million of IPO proceeds and the equity reconciliation presents $50.5 million net of offering costs. Investors should verify the proceeds and offering-cost reconciliation.
- Upon the IPO, all outstanding preferred stock converted into common stock, and the Bayer warrant liability was reclassified to additional paid-in capital. The warrant remeasurement contributed $1.7 million of expense in Q1 before reclassification.
- Operating cash flow shifted from $11.0 million provided in Q1 2015 to $6.4 million used in Q1 2016, largely because the prior-year period included the KHK upfront license payment and corresponding deferred revenue.
- Investing cash outflow was $47.1 million, primarily reflecting purchases of short-term investments funded in part by IPO proceeds. Financing cash inflow was $53.5 million.
Outlook, programs and risks
- Entinostat was being evaluated in a Phase 3 trial for advanced hormone receptor-positive breast cancer; the company reported expected progression-free-survival data no sooner than the second half of 2017 and overall-survival data no sooner than the second half of 2019. Enrollment had been slower than expected. The filing notes that the trial’s Special Protocol Assessment does not assure approval and that the current trial may not suffice for European approval.
- The company planned to initiate Phase 1b/2 trials in triple-negative breast cancer in Q2 2016 and ovarian cancer in Q4 2016, and was evaluating entinostat combinations in non-small cell lung cancer and melanoma. These are forward-looking plans, not reported results.
- Management expected R&D and G&A expenses to increase as development advances and the company operates as a public company. No specific financial guidance was provided.
- Key risks include clinical failure or delay, slow enrollment and dependence on ECOG-ACRIN and collaborators, adverse effects or inadequate combination-therapy benefit, regulatory uncertainty, competition, manufacturing and funding needs, and dependence on third parties. Entinostat is the company’s sole product candidate.
- Patent protection is a notable consideration: the licensed entinostat composition-of-matter patent was described as expiring in 2017, while a patent covering the crystalline polymorph used in development expires in 2029. The filing discusses uncertainty around patent protection and possible extensions.
- The KHK license covers Japan and Korea and may provide up to $75 million in development and commercial milestone payments, contingent on achievement. The Bayer license includes potential development and sales milestones and royalties.
- The company reported no material legal proceedings and said disclosure controls were effective as of March 31, 2016. Management had not yet been required to assess internal control over financial reporting as a newly public company.
Important facts for investors to verify
- Reconcile the IPO proceeds and offering costs across the cash-flow statement, equity statement and MD&A.
- Monitor cash burn, investment maturities and funding needs beyond management’s stated 12-month liquidity horizon.
- Track enrollment and timing of the Phase 3 breast-cancer trial, including the anticipated data dates and any changes to the protocol or regulatory path.
- Confirm initiation and progress of planned combination trials and whether collaborators continue to supply drugs and support development.
- Assess the implications of the 2017 composition-of-matter patent expiration and the scope and durability of remaining patent protection.