Skye Bioscience, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Skye is a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics; its lead candidate, THCVHS, was in preclinical development for glaucoma. Common stock trades on the OTCQB under SKYE.
Financial position and results
- Revenue: None reported; the company had not generated revenue from planned principal operations.
- Quarterly results: Q3 2021 operating expenses were $1.82 million and net loss was $1.82 million, compared with $1.54 million and $1.30 million, respectively, in Q3 2020. No meaningful margin comparison is available because the company reported no revenue.
- Nine-month results: Operating expenses were $5.39 million versus $4.97 million in 2020; net loss was $6.01 million versus $5.06 million. R&D was $1.82 million, up 15%, and G&A was $3.57 million, up 5%.
- Cash flow: Nine-month operating cash use was $4.51 million, compared with $4.27 million in 2020. Investing cash use was $0.04 million; financing provided $13.16 million.
- Liquidity: September 30 cash was $11.09 million, versus $2.47 million at December 31, 2020; working capital was $9.93 million. Management stated that additional funding would be needed to continue clinical studies and meet obligations beyond approximately September 2022.
- Debt: Related-party credit agreement principal outstanding was $2.46 million, bearing 7% interest and due October 5, 2022. Its carrying value was $1.82 million after unamortized discounts and costs. The disbursement line was closed in September 2021. The $116,700 PPP loan was forgiven, producing a $117,953 gain.
- Equity and dilution: September financing and warrant exercises generated substantial cash but increased shares outstanding. The filing reports 476,108,455 shares outstanding as of November 8, 2021.
Material changes and financing
- Cash increased primarily from warrant exercises and a September registered offering. That offering generated $6.06 million in net proceeds after issuance costs and included common shares, pre-funded warrants, and five-year warrants.
- Q3 G&A rose 25%, mainly due to investor and public relations costs, recruiting, and stock compensation associated with option modifications. Nine-month R&D rose with contract research and specialized consulting activity.
- Other expense for the nine months increased to $0.62 million from $0.09 million, reflecting a $0.17 million derivative-liability fair-value loss and higher interest expense, partly offset by PPP loan forgiveness.
Outlook, risks, and unusual items
- Going concern: The company reported recurring losses and negative operating cash flow and concluded that substantial doubt exists about its ability to continue as a going concern without additional funding. It plans to seek financing, licensing, grants, or strategic arrangements but gave no assurance funds will be available. Further equity financing could dilute shareholders.
- Development outlook: THCVHS first-in-human Phase 1 studies were shifted to Q2 2022. COVID-19-related lockdowns, trial recruitment, laboratory resources, and supply sourcing could further delay development. No financial guidance was provided.
- Pipeline and contracts: CBDVHS remained in preclinical research; a cannabinoid cocktail remained at the research stage. In a subsequent event, the company gave notice to terminate its UM 5070 license effective January 8, 2022. It also entered an October 2021 sponsored research agreement with a related-party affiliate, including a $200,000 annual retainer and royalties on specified licensing proceeds.
- Related parties: The company’s principal financing and research arrangements involved entities affiliated with Emerald Health Sciences. Dr. Avtar Dhillon’s advisory agreement ended October 14, 2021; his option awards were modified, resulting in $309,487 of stock compensation expense.
- The filing reported no material pending or threatened litigation, no material changes to previously disclosed risk factors, and effective disclosure controls at September 30, 2021.
Important facts for investors to verify
- Whether Skye can raise sufficient capital before its stated funding needs and the October 2022 related-party debt maturity.
- Progress and timing of THCVHS clinical-enabling work and the planned Q2 2022 Phase 1 start, including any continuing COVID-19 or supply-chain delays.
- Fully diluted share count and the potential dilution from outstanding warrants, options, and convertible related-party debt.
- Terms, costs, and related-party implications of the sponsored research agreement and other affiliate arrangements.
- The filing’s share-count figures are not fully consistent: the balance sheet and cover page report 476,108,455 shares, while the stockholders’ equity table reports 476,108,445 at September 30. Verify the correct figure.