SCYNEXIS, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited.
Business context and reporting period
SCYNEXIS is a biotechnology company developing antifungal medicines. Its lead product, ibrexafungerp (BREXAFEMME), was approved for vulvovaginal candidiasis and recurrent vulvovaginal candidiasis. In May 2023, the company licensed ibrexafungerp rights in most territories to GSK; SCYNEXIS retained certain territories and other pipeline assets.
Financial results and liquidity
| Metric | Q3 2023 | Nine months 2023 |
|---|---|---|
| Total revenue | $1.8 million | $134.3 million |
| Net product revenue | $(0.6) million | $1.0 million |
| License agreement revenue | $2.4 million | $133.4 million |
| Research and development expense | $6.5 million | $20.3 million |
| Selling, general and administrative expense | $5.0 million | $17.3 million |
| Operating income (loss) | $(10.1) million | $95.7 million |
| Net income (loss) | $(1.8) million | $86.6 million |
| Net income (loss) per diluted share | $(0.04) | $1.78 |
Nine-month income primarily reflects the one-time recognition of $130.1 million of GSK license revenue upon transfer of the license; it should not be viewed as recurring operating earnings. Q3 operating loss was partly offset by an $7.5 million gain from remeasurement of warrant liabilities. The company reported no product gross-margin figure in the provided filing text.
At September 30, cash, cash equivalents and investments totaled $105.2 million, versus $73.5 million at December 31, 2022. Current assets were $128.6 million and current liabilities were $16.8 million. Nine-month operating cash flow was positive $67.9 million, while investing cash flow was negative $32.7 million and financing cash flow was negative $36.6 million. Operating cash flow benefited from the GSK transaction and included substantial increases in license-related contract assets and inventory.
The company used approximately $37.0 million of GSK proceeds to repay its Hercules/SVB loan in May. At quarter-end, it reported $11.8 million of convertible debt and derivative liability, $24.6 million of warrant liabilities, and no balance on the repaid loan. Stockholders’ equity was $92.0 million. Management believes resources are sufficient for at least 12 months after issuance of the financial statements, but also expects to need additional capital for continuing operations.
Material changes versus the prior comparable period
- Nine-month revenue rose to $134.3 million from $3.6 million, primarily due to the GSK license revenue; product revenue fell to $1.0 million from $3.6 million.
- Q3 net loss narrowed to $1.8 million from $29.6 million. SG&A fell 70% to $5.0 million, reflecting the end of active BREXAFEMME promotion and the prior workforce reduction.
- Nine-month SG&A declined 63% to $17.3 million, while R&D increased 5% to $20.3 million.
- Cash and investments increased from year-end, despite repayment of the loan, largely due to the GSK upfront payment and subsequent milestone proceeds.
Outlook, risks, contingencies and unusual items
- Recall and clinical hold: After identifying that a non-antibacterial beta-lactam drug substance was manufactured on equipment also used for ibrexafungerp, SCYNEXIS voluntarily recalled BREXAFEMME and paused ongoing ibrexafungerp trials. The FDA concurred with the voluntary hold and placed a clinical hold in September. No contamination has been confirmed and the company reported no related adverse-event reports.
- The hold affects the Phase 3 MARIO study and a Phase 1 lactation study. Completed FURI, CARES, VANQUISH and SCYNERGIA studies are not affected. The FDA allowed compassionate use to continue subject to physician benefit-risk assessment, patient consent and available supply. SCY-247 is unaffected.
- The company recorded a $3.8 million product-recall reserve. It did not impair its $13.1 million of raw-material inventory, but says an FDA determination that the inventory cannot be used could require a material future impairment.
- The recall and hold create uncertainty around the timing and achievement of GSK milestones. A $19.3 million GSK-related contract asset was recorded; the company considers it collectible based on its assessment, but could have to reverse revenue or impair the asset if circumstances change. Other potential license milestones and royalties are subject to uncertainty and, where applicable, were constrained from revenue recognition.
- SCYNEXIS anticipates opening an IND for preclinical compound SCY-247 in the second half of 2024. No specific financial guidance was provided. Management expects continued significant R&D spending and lower SG&A following the cessation of BREXAFEMME promotion.
- A securities class action was filed November 7, 2023, alleging misleading statements and inadequate manufacturing oversight related to the cross-contamination risk. It seeks unspecified damages; the company had not accrued a liability as of September 30.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2023.
Important facts for investors to verify
- Updates from the FDA and GSK on the clinical hold, recall, manufacturing mitigation plan and any implications for retained inventory.
- Whether the $19.3 million contract asset remains collectible and whether GSK development milestones can be achieved under the revised timeline.
- Recall-related returns, costs and reserve adequacy, as well as any inventory impairment or further financial-statement effects.
- Cash use and financing needs against management’s stated 12-month liquidity assessment, including the potential effect of the class action.
- Potential dilution: the filing reports 40.6 million common shares reserved for future issuance, in addition to 37.2 million issued and outstanding at quarter-end.