Skye Bioscience, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing. The company changed its name from Emerald Bioscience, Inc. to Skye Bioscience, Inc. on January 19, 2021.
Business context
Skye is a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under licenses from the University of Mississippi. Its lead candidate, THCVHS, is a synthetic THC prodrug being developed for glaucoma; CBDVHS, a CBD analog, and a cannabinoid anti-infective program are earlier-stage. All candidates remained in preclinical development or research at year-end. The company has no approved products or established commercial sales infrastructure.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.94 million | $2.24 million |
| General and administrative expense | $4.34 million | $4.39 million |
| Total operating expenses / operating loss | $6.29 million | $6.63 million |
| Net income (loss) | $(6.56) million | $1.05 million |
| Net cash used in operating activities | $(6.05) million | $(6.03) million |
| Unrestricted cash at year-end | $2.47 million | $1.83 million |
| Working capital at year-end | $1.88 million | Not stated in the filing text provided |
| Total liabilities | $2.22 million | $1.45 million |
| Stockholders’ equity | $0.45 million | $0.55 million |
Margins are not meaningful because the company had no revenue. The 2020 net loss followed 2019 net income that was primarily driven by a non-cash $9.73 million gain from decreases in the fair value of derivative liabilities. The comparable 2020 fair-value gain was $0.44 million. Interest expense was $0.71 million in 2020, including $0.54 million of non-cash debt-discount amortization.
At December 31, 2020, related-party credit facilities included $2.01 million of convertible principal and $0.45 million of non-convertible advances; their balance-sheet carrying values were reduced by debt discounts. The company also had a $116,700 PPP loan, partly classified as current and partly non-current. The related-party facility bears 7% interest and matures October 5, 2022. The company cautions that undrawn facility capacity is not assured funding.
Changes and financing
- Operating expenses declined 5% year over year, mainly because contracted development spending fell amid limited cash and clinical-trial delays; G&A remained broadly stable.
- The company raised $6.09 million net in its August 2020 registered offering. It also received $450,000 in related-party credit advances and $116,700 under the PPP. Financing cash flows totaled $6.70 million.
- Common shares outstanding increased from 182.9 million at year-end 2019 to 288.1 million at year-end 2020. The filing reports 350.0 million shares outstanding as of February 23, 2021, following additional warrant exercises and other share activity.
- From January 1 through February 23, 2021, warrant exercises generated $3.02 million in proceeds. The company reported 95.6 million warrants outstanding as of February 23, 2021, in addition to options and other potential share issuances.
Outlook, risks and unusual items
- Management expects continued losses and cash use. It said additional funding would be needed by the second half of 2021 to commence clinical studies; without additional funding, it did not expect to have sufficient resources to meet obligations beyond one year after the financial statements were issued. The auditor’s report and management disclosures state that substantial doubt exists about the company’s ability to continue as a going concern.
- THCVHS first-in-human studies, planned in Australia for healthy volunteers and people with glaucoma or ocular hypertension, were postponed from the second half of 2020 to the third quarter of 2021. COVID-19, Australian lockdowns, recruitment, and possible supply interruptions were cited as risks. The proposed Phase 1 study is intended to assess safety and tolerability; later development depends on results and regulatory advice.
- Management reported encouraging preclinical findings for THCVHS, including IOP reduction in animal studies and activity in an ex vivo human-tissue model. These are not evidence of clinical efficacy or regulatory approval. CBDVHS also remains investigational.
- Key risks include dependence on additional capital, University of Mississippi licenses and research, third-party manufacturers and CROs, clinical and regulatory uncertainty, intellectual-property protection, controlled-substance requirements for THCVHS, and potential dilution. The stock trades on the OTCQB and the filing describes limited trading and potentially wide bid-ask spreads.
- Related-party exposure is material: Emerald Health Sciences is a major shareholder, lender and source of other services; the credit facility and consulting arrangements involve related parties. The filing also describes changes in senior leadership and severance payments during 2020.
- Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020. The auditor did not provide an opinion on internal-control effectiveness and reported no critical audit matters.
Most important facts for investors to verify
- Current cash, cash burn, financing availability and the company’s ability to fund operations and planned trials, given the going-concern uncertainty.
- Whether THCVHS clinical-enabling work is complete and whether the Phase 1 study began on the stated timetable; confirm any subsequent regulatory, safety or trial updates.
- Current debt balances, interest and maturity terms, and whether Emerald Health Sciences will fund further advances under the facility.
- Current share count and fully diluted share exposure, including outstanding warrants, options and any additional financing or share authorizations.
- Progress and terms of University of Mississippi licenses, patent protection, and related-party research or service agreements.