SCYNEXIS, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless noted. SCYNEXIS is a clinical-stage biotechnology company developing antifungal therapies, led by SCY-078. It had no product sales; reported revenue was primarily amortization of an upfront R-Pharm payment.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.064 | $0.064 | $0.193 | $0.193 |
| Research and development, net | $4.459 | $4.890 | $12.927 | $16.293 |
| Selling, general and administrative | $2.004 | $1.880 | $6.425 | $6.086 |
| Net loss | $(8.401) | $(11.228) | $(17.470) | $(26.540) |
| Basic and diluted loss per share | $(0.31) | $(0.48) | $(0.67) | $(1.53) |
- Margins: Not meaningful for assessing commercial performance given negligible collaboration revenue and no product sales.
- Cash flow: Nine-month operating cash use was $19.398 million, versus $24.799 million in 2016. Investing cash use was $16.183 million, largely from net purchases of short-term investments; financing provided $8.674 million, primarily from equity sales. Cash and cash equivalents declined $26.907 million to $8.749 million.
- Liquidity: Cash, cash equivalents and short-term investments totaled $47.709 million at September 30, 2017, compared with $58.586 million at year-end 2016. Current assets were $48.723 million and current liabilities $6.675 million.
- Debt: The Solar term loan had $15.0 million of principal outstanding, with $14.552 million presented as current and long-term loan payable net of discount and issuance costs. It bears interest at LIBOR plus 8.49%, matures September 2020, and has a $0.750 million final fee. Interest-only payments were scheduled through March 2018, followed by principal amortization.
- Equity: The company issued 3.708 million shares under its shelf registration during the first nine months, generating $8.638 million net proceeds. Shares outstanding increased to 28.336 million from 24.609 million at December 31, 2016.
Changes versus prior comparable periods
- Nine-month net loss narrowed by $9.070 million, principally reflecting lower operating expenses and a $2.809 million gain on warrant-liability remeasurement, compared with a $4.469 million loss in 2016. The warrant remeasurement is non-cash and sensitive to share-price assumptions; Q3 2017 included a $1.638 million loss on remeasurement.
- Nine-month R&D expense fell $3.366 million, mainly due to lower clinical development activity and manufacturing costs; this was partly offset by higher other R&D expense. Management attributed the lower clinical costs in part to reduced IV-formulation activity and completion of earlier studies.
- Nine-month SG&A rose $0.339 million, including increased business-development activity and stock-based compensation, partly offset by lower consulting costs.
- Cash and investments declined by approximately $10.9 million from December 2016. The company received $8.6 million net from its at-the-market equity facility during the nine-month period, including $3.6 million in Q3.
Outlook, risks and contingencies
- Management said existing cash and investments were expected to fund operating expenses and capital requirements into the second quarter of 2019, based on its then-current operating plan. It cautioned that assumptions may prove incorrect and that capital could be used sooner. The company expects continued losses and rising R&D costs and anticipates needing additional funding.
- SCY-078 oral development continued in the DOVE Phase 2 dose-finding study for vulvovaginal candidiasis and the FURI study for difficult-to-treat invasive fungal infections. Top-line DOVE results were expected in mid-2018. The company planned to initiate the global CARES study for Candida auris in Q4 2017.
- The FDA clinical hold on new studies of IV SCY-078 followed three thrombotic events in healthy volunteers. SCYNEXIS was gathering data to request removal of the hold; there was no assurance the FDA would lift it. The company anticipated an additional Phase 1 study before a planned Phase 2 study, then expected to commence in 2018. The hold did not affect oral SCY-078 studies.
- Management believed FURI and/or CARES data might support eligibility for the FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs, but this outcome was uncertain.
- A purported stockholder class action filed in March 2017 alleges securities-law violations relating to the IPO and subsequent trading. The company disputes the claims and intends to defend itself; it had not accrued a liability because a loss was not determined to be probable and reasonably estimable.
- Potential Merck milestone payments under the SCY-078 license could total $19.0 million, plus tiered royalties if products are commercialized. Other licensing agreements could require up to $2.3 million in milestone payments. The loan agreement includes covenants and minimum-liquidity requirements.
- The company reported effective disclosure controls as of September 30, 2017, and no material changes to internal control over financial reporting during the quarter. It reported no material changes to the risk factors in its 2016 Form 10-K.
Important facts for investors to verify
- Whether SCY-078 oral trial timelines and results meet expectations, including DOVE’s mid-2018 readout and CARES initiation.
- Progress toward resolving the IV clinical hold, the FDA’s requirements, and the resulting cost and timing implications.
- Cash consumption, the stated runway into Q2 2019, and the timing and terms of any further financing or collaboration.
- Loan covenant compliance, upcoming principal payments, interest expense, and the final fee.
- Developments in the stockholder litigation and any change in the company’s assessment of potential loss.
- The effect of warrant-liability remeasurement on reported earnings and the potential dilution from outstanding warrants and equity awards.