SCYNEXIS, INC. Operating results for the year endedDecember 31, 2022 , are not necessarily indicative of results that may occur in future fiscal years. Some of the statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis. Words such as "expects," "will," "anticipates," "targets," "intends," "plans," "believes," "seeks," "estimates," "potential," "should," "could," variations of such words, and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed under the caption "Special Note Regarding Forward Looking Statements" and in "Risk Factors" and elsewhere in this Annual Report on Form 10-K. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this Annual Report.
Overview
SCYNEXIS, Inc. is pioneering innovative medicines to overcome and prevent difficult-to-treat and drug-resistant infections. We are developing our lead product candidate, ibrexafungerp, as a broad-spectrum, intravenous (IV)/oral agent for severe, hospital-based indications. InJune 2021 andDecember 2022 , we announced that theU.S. Food and Drug Administration (FDA) approved BREXAFEMME (ibrexafungerp tablets) for treatment of patients with vulvovaginal candidiasis (VVC), also known as vaginal yeast infection, and for the reduction in the incidence of recurrent vulvovaginal candidiasis (RVVC), respectively. InOctober 2022 , we announced that were actively pursuing aU.S. commercialization partner to out-license BREXAFEMME in order to refocus our resources on the clinical development of ibrexafungerp for severe, hospital-based indications, while keeping BREXAFEMME on the market and available to patients, and we have ceased actively promoting BREXAFEMME. Ibrexafungerp, the first representative of a novel class of antifungal agents called triterpenoids, is a structurally distinct glucan synthase inhibitor and has shown in vitro and in vivo activity against a broad range of human fungal pathogens such as Candida and Aspergillus genera, including multidrug-resistant strains, as well as Pneumocystis, Coccidioides, Histoplasma and Blastomyces genera. Candida and Aspergillus genera are the fungi responsible for approximately 85% of all invasive fungal infections inthe United States (U.S. ) andEurope . To date, we have characterized the antifungal activity, pharmacokinetics, and safety profile of the oral and IV formulations of ibrexafungerp in multiple in vitro, in vivo, and clinical studies. The FDA has granted Qualified Infectious Disease Product (QIDP) and Fast Track designations to ibrexafungerp for the indications of VVC (including the prevention of recurrent VVC), invasive candidiasis (IC) (including candidemia), and invasive aspergillosis (IA), and has granted Orphan Drug designations for the IC and IA indications. TheEuropean Medicines Agency has granted Orphan Medicinal Product designation to ibrexafungerp for IC. These designations may provide us with additional market exclusivity and expedited regulatory paths.
Corporate Strategy Update
InOctober 2022 , we announced a new corporate strategic direction by refocusing our resources on the further clinical development of ibrexafungerp for severe, hospital-based indications with both the oral and liposomal IV formulations, as multiple ongoing Phase 3 studies are progressing for a potential first approval in hospital indications in 2024 and a Phase 2 study of the IV formulation of ibrexafungerp is planned for 2023. Additionally, we concluded the partnership with our contracted commercial sales partner,Amplity Health (Amplity ), onNovember 30, 2022 , and we completed a workforce reduction primarily in the commercial function. OnMarch 30, 2023 , we entered into a license agreement (the License Agreement) with GlaxoSmithKline Intellectual Property (No. 3) Limited (GSK). Pursuant to the terms of the License Agreement, we granted GSK an exclusive (even as to us and our affiliates), royalty-bearing, sublicensable license for the development, manufacture, and commercialization of ibrexafungerp, including the approved product BREXAFEMME, for all indications, in all countries other thanGreater China and certain other countries already licensed to third parties (the GSK Territory). If the existing licenses granted to or agreements with third parties are terminated with respect to any country, GSK will have an exclusive first right to negotiate with us to add those additional countries to the GSK Territory. We retain rights to all other assets, with GSK receiving a right of first negotiation (ROFN) to any other enfumafungin-derived compounds or products that we may control. The consummation of the transactions under the License Agreement is subject to the satisfaction of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act); provided, that either we or GSK may terminate the License Agreement if expiration or termination of the applicable waiting period under the HSR Act has not occurred within nine months of the signing of the License Agreement. The parties expect the transactions contemplated by the License Agreement to close in the second quarter of 2023. 49 --------------------------------------------------------------------------------
Under the terms of the License Agreement, we will receive an upfront payment of
•
regulatory approval milestone payments of up to
•
commercial milestone payments of up to
•
and sales milestone payments of up to$242.5 million based on annual net sales, with a total of$77.5 million to be paid upon achievement of multiple thresholds up through$200 million ; a total of$65 million to be paid upon achievement of multiple thresholds between$300 million and$500 million ; and$50 million to be paid at each threshold of$750 million and$1 billion . We will be responsible for the execution and costs of the ongoing clinical studies of ibrexafungerp but will have the potential to receive up to$75.5 million in success-based development milestones, which are comprised of up to$65 million for the achievement of three interim milestones associated with our continued performance of the ongoing MARIO Study and$10.5 million for the successful completion of the MARIO Study. See further details of the License Agreement, including financial terms, as described in Note 16 of Item 8 on this Annual Report. We, Hercules Capital, Inc. (Hercules Capital) andSilicon Valley Bridge Bank, N.A. (SVB) are party to a Loan and Security Agreement dated as ofMay 13, 2021 (the Loan Agreement), pursuant to which Hercules Capital, SVB and each of the other lenders from time-to-time party to the Loan and Security Agreement (collectively, the Lenders) loaned to us$35 million . In connection with the entering into of the License Agreement, we entered into a First Amendment and Consent to Loan and Security Agreement with the Lenders pursuant to which the Lenders consented to us entering into the License Agreement and we agreed to pay to the Lenders an amount equal to the sum of (i) all outstanding principal plus all accrued and unpaid interest with respect to the amounts loaned under the Loan Agreement (approximately$35.4 million ), (ii) the prepayment fee payable under Loan Agreement ($262,500 ), (iii) the final payment payable under Loan Agreement ($1,382,500 ), and (iv) all other sums, if any, that shall have become due and payable with respect to loan advances under the Loan Agreement. These payments by us will become due upon the earliest of (A) one business day following receipt by us of the$90 million upfront payment payable to us under the License Agreement, (B)June 1, 2023 , or (C) the termination of the License Agreement. Dr.Marco Taglietti , our former President and Chief Executive Officer, retired onDecember 31, 2022 and stepped down from the Board of Directors.David Angulo , M.D.,who had served as Chief Medical Officer for the past seven years, became President and Chief Executive Officer and joined the Board of Directors, effectiveJanuary 1, 2023 . Additionally,Ivor Macleod joined as Chief Financial Officer onOctober 24, 2022 .Mr. Macleod has more than thirty years of experience in the life sciences industry, including most recently as Chief Financial Officer of Athersys, Inc. The role of Chief Commercial Officer was eliminated inNovember 2022 , andChristine Coyne ,who had served in this leadership role sinceMay 2021 , transitioned from us to pursue other opportunities.
BREXAFEMME Update
InJune 2021 , the FDA approved BREXAFEMME for use in women with VVC. This approval was based on positive results from two Phase 3, randomized, double-blind, placebo-controlled, multi-center studies (VANISH-303 and VANISH-306), in which oral ibrexafungerp demonstrated statistically superior efficacy compared to placebo and a favorable tolerability profile in women with VVC. The FDA granted BREXAFEMME five years of exclusivity extension under the Generating Antibiotic Incentives Now (GAIN) Act, which will be added to any other applicable exclusivity periods, such as the five years of new chemical entity (NCE) exclusivity, for a combined ten-year period of regulatory exclusivity. BREXAFEMME also is protected by multiple patents, including a composition-of-matter patent covering the ibrexafungerp molecule. With patent term extension, this patent is expected to expire in 2035, providing an expected 13 years of protection from generic competitors in theU.S. InDecember 2022 , we announced that the FDA approved a second indication for BREXAFEMME for the reduction in the incidence of RVVC, with the potential for peakU.S. sales combined for the treatment of VVC and RVVC estimated over$400 million . OnMarch 30, 2023 , we entered into the License Agreement with GSK. Pursuant to the terms of the License Agreement, we granted GSK an exclusive (even as to us and our affiliates), royalty-bearing, sublicensable license for the development, manufacture, and commercialization of ibrexafungerp, including the approved product BREXAFEMME, for all indications, in the GSK Territory.
Ibrexafungerp Update
Enrollment is continuing in our prospective, randomized, double-blind, global
Phase 3 study to evaluate the efficacy, safety and tolerability of oral
ibrexafungerp as a step-down therapy for patients with IC including candidemia
following IV echinocandin therapy in the hospital compared to currently
available therapies (the MARIO study). Eligible patients with IC will receive
treatment with IV echinocandin and will then be switched to either oral
ibrexafungerp or a standard of care option, either oral fluconazole or best
available therapy for subjects with infections caused by fluconazole
non-susceptible strains, once
50
--------------------------------------------------------------------------------step-down criteria are met. Approximately 220 patients will be enrolled and randomized in the study, and we expect topline results in the first half of 2024 and a potential approval by the end of 2024.
The primary objective of the study is to determine whether treatment of IC with IV echinocandins followed by oral ibrexafungerp is as effective as treatment with IV echinocandins followed by oral fluconazole (or BAT), the current standard of care. The primary end point of the study will be all-cause mortality at 30 days after initiation of antifungal therapy. Approximately 35,000 cases of IC in theU.S. per year are caused by the Candida isolates that are resistant to azoles, a population for which ibrexafungerp could provide a much-needed oral alternative. We achieved a target enrollment of 200 patients in our Phase 3 FURI study investigating the potential of ibrexafungerp as a treatment for fungal infections that are refractory or intolerant to other antifungals, including infections caused by Candida auris (C. auris), and anticipate study completion activities in the first half of 2023 with a Data Review Committee review and topline data in the first half of 2024. We also achieved a target enrollment of 30 patients in our Phase 3 CARES study, focused on patients with infections caused by C. auris which will follow similar completion and reporting timing to the Phase 3 FURI study. The data from the MARIO study along with data from FURI and CARES studies are intended to be supportive of an NDA submission in 2024 with an anticipated first approval for an indication in the hospital setting later in 2024. If the License Agreement closes, such NDA submission would be made by GSK and any resulting approval would be held by GSK. We completed our Phase 1 randomized, double-blind, placebo-controlled single and multiple ascending dose study evaluating the safety, tolerability, and pharmacokinetics of the liposomal IV formulation of ibrexafungerp in 64 healthy subjects with treatment durations of up to seven days. The liposomal IV formulation of ibrexafungerp was designed to optimize tolerability and address dose-limiting infusion site irritation adverse events observed with previous formulations. The liposomal IV formulation of ibrexafungerp was generally well tolerated with no serious adverse events reported. The most common adverse events were mostly mild (few moderate) reactions at the infusion site. The dosing was successfully progressed until the target exposure was achieved (i.e., exposure associated with efficacy from animal models). If the License Agreement does not occur, we are planning to begin a Phase 2 study of the liposomal IV formulation in 2023. We have completed the enrollment of SCYNERGIA, although the number of patients is smaller than initially projected. The prioritization of hospital resources toward addressing COVID-19 has impacted the ability of many institutions to focus on screening and enrolling patients into some clinical trials, including SCYNERGIA. We expect to provide topline data for SCYNERGIA in the first half of 2023. In the second quarter of 2022, enrollment began in a new Phase 3b, open-label, multicenter study (VANQUISH) to evaluate the efficacy, safety and tolerability of oral ibrexafungerp as a treatment for complicated VVC in patientswho have failed treatment with fluconazole, based on mycological and clinical outcomes. The VANQUISH study will enroll approximately 150 complicated VVC patientswho will receive 600 mg of oral ibrexafungerp for one, three or seven consecutive days determined by their underlying complicating condition, including immunocompromised state. Complicated patients include patients with recurrent VVC, those with VVC caused by non-albicans Candida species and those with diabetes, immunocompromising conditions (e.g., HIV), or immunosuppressive therapy (e.g., corticosteroids). The VANQUISH study will be conducted in approximately 25 centers in theU.S. and we are targeting to have data from this study in the first half of 2024. In the fourth quarter of 2022, we announced that a$3.0 million National Institutes of Health (NIH) grant was awarded toCase Western Reserve University researchers to study our second generation fungerp (SCY-247). SCY-247 is a broad-spectrum, antifungal under development by us and has as a potential oral and IV systemic therapeutic option for multiple drug-resistant pathogens. The grant is intended to further characterize the potential of SCY-247 to fight Candida auris, a multidrug-resistant pathogen named as an "urgent threat" by theCenters for Disease Control (CDC ) and included in the "critical priority group" on theWorld Health Organization (WHO ) fungal priority pathogens list (FPPL). Previous preclinical investigations with SCY-247 have reported potent antifungal activity in in vitro studies, favorable pharmacokinetic profile and promising efficacy in mice models of IC. We plan to continue progressing the development of SCY-247 as a next generation fungerp in the fight against life-threatening fungal diseases. Liquidity We have operated as a public entity since we completed our initial public offering inMay 2014 , which we refer to as our IPO. We also completed a follow-on public offering of our common stock inApril 2015 and public offerings of our common stock and warrants inJune 2016 ,March 2018 ,December 2019 ,December 2020 , andApril 2022 . Our principal source of liquidity is cash, cash equivalents, and short-term investments which totaled$73.5 million as ofDecember 31, 2022 and we have the availability to issue up to$46.2 million of our common stock under our at-the-market facility withCantor Fitzgerald & Co. (Cantor) andLadenburg Thalmann & Co. Inc. (Ladenburg). We received$30.0 million in 2021 and received$5.0 million in 2022 under our Loan Agreement withHercules andSilicon Valley Bank . InMarch 2023 , in connection with the entering into of the License Agreement with GSK, we, Hercules and SVB entered into a First Amendment and Consent to Loan and Security Agreement pursuant to which the lenders under the Loan Agreement consented to us entering into the License 51 -------------------------------------------------------------------------------- Agreement and we agreed to pay to the lenders an amount equal to the sum of (i) all outstanding principal plus all accrued and unpaid interest with respect to the amounts loaned under the Loan Agreement (approximately$35.4 million ), (ii) the prepayment fee payable under Loan Agreement ($262,500 ), (iii) the final payment payable under Loan Agreement ($1,382,500 ), and (iv) all other sums, if any, that shall have become due and payable with respect to loan advances under the Loan Agreement. These payments by us will become due upon the earliest of (A) one business day following receipt by us of the$90 million upfront payment payable to us under the License Agreement, (B)June 1, 2023 , or (C) the termination of the License Agreement. See "Liquidity and Capital Resources" below for amounts sold under the ATM with Cantor and Ladenburg, and the amounts sold under our common stock purchase agreement withAspire Capital which expired inOctober 2022 . We have incurred net losses since our inception, including the year endedDecember 31, 2022 . As ofDecember 31, 2022 , our accumulated deficit was$422.3 million . We expect we will continue to incur significant research and development expense as we continue to execute our research and drug development strategy. Consistent with our operating plan, we also expect that we will continue to incur significant selling, general and administrative expenses to support our public reporting company operations and ongoing operations, but that our selling, general and administrative expenses will decrease as we have ceased the active promotional activities associated with BREXAFEMME for the VVC indication. As a result, we will need additional capital to fund our operations, which we may obtain through one or more of equity offerings, debt financings, other non-dilutive third-party funding (e.g., grants), strategic alliances and licensing or collaboration arrangements. We may offer shares of our common stock pursuant to our effective shelf registration statements, including under our ATM.
Components of Operating Results
Revenue
Revenue primarily consists of product sales of BREXAFEMME and a non-refundable upfront payment received under our license agreement with Hansoh.
Cost of Product Revenue
Cost of product revenue consists primarily of distribution, freight expenses, royalties due to Merck, and other manufacturing costs associated with BREXAFEMME. Prior to the regulatory approval of BREXAFEMME onJune 1, 2021 , we expensed as research and development the costs associated with the third-party manufacture of BREXAFEMME.
Research and Development Expense
Research and development expense consists of expenses incurred while performing research and development activities to discover, develop, or improve potential product candidates we seek to develop. This includes conducting preclinical studies and clinical trials, manufacturing and other development efforts, and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consists of:
•
costs related to executing preclinical studies and clinical trials, including development milestones, drug formulation, manufacturing and other development;
•
salaries and personnel-related costs, including benefits and any stock-based compensation for personnel performing research and development functions;
•
fees paid to clinical research organizations (CROs), vendors, consultants and
other third parties
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other costs in seeking regulatory approval of our products; and
•
allocated overhead.
Ibrexafungerp was the only key research and development project during the periods presented. We expect to continue to incur significant research and development expense for the foreseeable future as we continue our effort to develop ibrexafungerp, and to potentially develop our other product candidates, subject to the availability of additional funding.
The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation. This includes personnel in executive, accounting and finance, commercial, human resources, business development, medical affairs, and administrative support functions. Other expenses include facility-related
52
--------------------------------------------------------------------------------costs not otherwise allocated to research and development expense, professional fees for accounting, auditing, tax and legal services, consulting costs for general and administrative purposes, information systems maintenance and marketing efforts.
Other Expense (Income)
Substantially all of our other expense (income) during the periods reported consists of costs associated with:
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fair value adjustments to our warrant and derivative liabilities;
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interest expense;
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amortization of debt issuance costs and discount;
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other income associated with research and development tax credits;
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interest income associated with our held-to-maturity short-term investments and money market account; and
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the expense recognized for the extinguishment of debt.
Income Tax Benefit
To date, we have not been required to payU.S. federal income taxes because of our current and accumulated net operating losses. For the year endedDecember 31, 2022 , our income tax benefit recognized consists primarily of an income tax benefit associated with the sale of our NOLs and research and development credits.
Results of Operations for the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021, and period-to-period percentage change (dollars in thousands): Years Ended December 31, 2022 2021 Period-to-Period Change Revenue: Product revenue, net$ 4,988 $ 1,113 3,875 348.2 % License agreement revenue 103 12,050 (11,947 ) (99.1 )% Total revenue 5,091 13,163 (8,072 ) (61.3 )% Operating expenses: Cost of product revenue 628 312 316 101.3 % Research and development 27,259 23,773 3,486 14.7 %
Selling, general and administrative 62,961 49,916
13,045 26.1 % Total operating expenses 90,848 74,001 16,847 22.8 % Loss from operations (85,757 ) (60,838 ) (24,919 ) 41.0 % Other (income) expense: Loss on extinguishment of debt - 2,725 (2,725 ) (100.0 )% Amortization of debt issuance costs and discount 1,589 1,303 286 21.9 % Interest income (1,415 ) (24 ) (1,391 ) 5795.8 % Interest expense 5,198 2,660 2,538 95.4 % Other income (3 ) (13 ) 10 (76.9 )% Warrant liabilities fair value adjustment (22,301 ) (30,365 ) 8,064 (26.6 )% Derivative liabilities fair value adjustment (1,316 ) (1,170 ) (146 ) 12.5 % Total other income (18,248 ) (24,884 ) 6,636 (26.7 )% Loss before taxes (67,509 ) (35,954 ) (31,555 ) 87.8 % Income tax benefit 4,700 3,088 1,612 52.2 % Net Loss$ (62,809 ) $ (32,866 ) $ (29,943 ) 91.1 % Revenue. For the year endedDecember 31, 2022 , revenue consists primarily of product sales of BREXAFEMME, for which we began commercialization in the second half of 2021. For the year endedDecember 31, 2021 , revenues consists primarily of a non-refundable upfront payment received under our license agreement with Hansoh. Cost of Product Revenues. For the year endedDecember 31, 2022 , cost of product revenue consists primarily of distribution, freight, and royalty costs associated with BREXAFEMME. Prior to the regulatory approval of BREXAFEMME onJune 1, 2021 , we expensed$3.4 million as research and development expense the costs associated with the third-party manufacture of BREXAFEMME which was recognized primarily in 2020. We expect that these quantities of BREXAFEMME previously expensed prior toJune 1, 2021 , will be sold by us or GSK over approximately the next 12 months. 53 -------------------------------------------------------------------------------- Research and Development. For the year endedDecember 31, 2022 , research and development expenses increased to$27.3 million from$23.8 million for the year endedDecember 31, 2021 . The increase of$3.5 million , or 14.7%, was primarily driven by an increase of$3.0 million in clinical development expense, an increase of$1.0 million in preclinical expense, an increase of$0.5 million in both salary and stock compensation expense, offset by a decrease of$1.3 million in chemistry, manufacturing, and controls (CMC) expense, and a$0.2 million decrease in other research and development expense. The$3.0 million increase in clinical development expense for the year endedDecember 31, 2022 , was primarily driven by an increase of$5.3 million in expense associated with the costs for the MARIO study which was initiated in the fourth quarter of 2021, an increase of$1.3 million in expense associated with the VANQUISH study, offset in part by a$3.4 million decrease in expense associated with the CANDLE Phase 3 study which was substantially complete in the first quarter of 2022. The$1.0 million increase in preclinical expense was primarily associated with the expense recognized for certain preclinical studies associated with the IV liposomal formulation conducted in the current period. The$0.5 million increase in both salary and stock compensation expense is primarily driven by the increase in employees in comparison to the prior period and by the increase in restricted stock unit grants made in the first quarter of 2022, respectively. The$1.3 million decrease in CMC expense for the year endedDecember 31, 2022 , was primarily driven by a$0.9 million decrease in expense for third-party drug product manufacturing in the current period. Selling, General and Administrative. For the year endedDecember 31, 2022 , selling, general and administrative expenses increased to$63.0 million from$49.9 million for the year endedDecember 31, 2021 . The increase of$13.0 million , or 26.1%, was primarily driven by a$8.6 million increase in commercial related expense, an increase of$1.6 million in salary and payroll related costs, and an increase of$1.5 million in professional fees, all primarily due to the costs recognized to support the commercialization of BREXAFEMME, an increase of$1.0 million in stock compensation expense, and an increase of$1.9 million primarily in severance expense associated with our reduction in workforce, offset in part by a decrease of$0.9 million in medical affairs expense and a$0.7 million decrease in business development expense due to the Hansoh license agreement entered into in 2021.
Loss on Extinguishment of Debt. For the year ended
Amortization of Debt Issuance Costs and Discount. For the years endedDecember 31, 2022 and 2021, we recognized$1.6 million and$1.3 million in amortization of debt issuance costs and discount. The 2022 and 2021 debt issuance costs and discount for ourMarch 2019 convertible notes primarily consisted of an allocated portion of advisory fees, issuance costs, and the initial fair value of the derivative liability. The 2022 and 2021 debt issuance costs and discount for our Loan Agreement with Hercules Capital, Inc. andSilicon Valley Bank (the Loan Agreement) comprised issuance and commitment costs, customary closing and final fees, and the fair value of the warrants issued in conjunction with the Loan Agreement. Interest Income. For the years endedDecember 31, 2022 and 2021, we recognized$1.4 million and$24,000 , respectively, in interest income associated with our money market account and short-term investments. The increase in interest income was primarily due to the increase in the interest rate on our money market account. Interest Expense. For the years endedDecember 31, 2022 and 2021, we recognized$5.2 million and$2.7 million , respectively, in interest expense associated with our Loan Agreement and convertible debt. The increase in interest expense was primarily driven by the increase in the interest rate associated with the Loan Agreement entered into inMay 2021 .
Other Income. For the years ended
Warrant Liabilities Fair Value Adjustment. For the years endedDecember 31, 2022 and 2021, we recognized gains of$22.3 million and$30.4 million , respectively, for the fair value adjustment for warrant liabilities primarily due to the decrease in our stock price during the periods. Derivative Liabilities Fair Value Adjustment. For the years endedDecember 31, 2022 and 2021, we recognized gains of$1.3 million and$1.2 million , respectively, in the fair value adjustment related to the derivative liabilities primarily due to the decrease in our stock price during the periods. Income Tax Benefit. For the year endedDecember 31, 2022 , we recognized a$4.7 million income tax benefit associated with the sale of a portion of our NOLs and research and develop1ent credits. For the year endedDecember 31, 2021 , we recognized a$4.1 million income tax benefit associated with the sale of a portion of our NOLs and research and development credits and$1.1 million of tax withholding expense primarily associated with the upfront payment received from Hansoh. 54 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
As ofDecember 31, 2022 , we had cash, cash equivalents, and short-term investments of approximately$73.5 million , compared to cash and cash equivalents of$104.5 million as ofDecember 31, 2021 . The decrease in our cash, cash equivalents, and short-term investments was primarily due to the selling, general and administrative expenses in part to support the commercial launch of BREXAFEMME and the continued development costs associated with ibrexafungerp, offset in part due to the$41.8 million in net proceeds we raised from our public offering of our common stock and warrants inApril 2022 . We have incurred net losses since our inception, including the year endedDecember 31, 2022 . As ofDecember 31, 2022 , our accumulated deficit was$422.3 million . We anticipate that we will continue to incur losses for at least the next several years. As a result, we will need additional capital to fund our operations, which we may obtain through one or more of equity offerings, debt financings, or other non-dilutive third-party funding (e.g., grants), strategic alliances and licensing or collaboration arrangements. We may offer shares of our common stock pursuant to our Form S-3 shelf registration statements. During the year endedDecember 31, 2022 , we sold 137,610 shares of our common stock and received net proceeds of$0.7 million under our at-the-market (ATM) facility, sold 425,000 shares of our common stock and received net proceeds of$1.6 million under our common stock purchase agreement withAspire Capital , and inFebruary 2022 , we received a cash receipt of$4.7 million from a third party for the sale of a portion of our unused New Jersey Net Operating Losses (NOLs) and research and development credits.
Cash Flows
The following table sets forth the significant sources and uses of cash for the
years ended
Years Ended December 31,
2022 2021
Cash, cash equivalents, and restricted cash,
$ 104,702 $ 93,314 Net cash used in operating activities (79,883 ) (54,560 ) Net cash used in investing activities (27,389 ) (1,172 ) Net cash provided by financing activities 48,602
67,120
Net (decrease) increase in cash, cash equivalents, and restricted cash
(58,670 ) 11,388
Cash, cash equivalents, and restricted cash, December 31$ 46,032 $ 104,702 Operating Activities The$25.3 million increase in net cash used in operating activities for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 , was primarily due to the increase in selling, general and administrative expenses to support the commercial launch of BREXAFEMME and the continued development costs associated with ibrexafungerp. In the prior comparable period, we received a cash receipt of$10.0 million from Hansoh, as consideration for the licenses under our agreement with Hansoh inFebruary 2021 , that offset selling, general and administrative expenses to support the commercial launch of BREXAFEMME and the continued development costs associated with ibrexafungerp and ongoing operations. Consistent with our operating plan, we also expect that we will continue to incur significant selling, general and administrative expenses to support our public reporting company operations and ongoing operations, but that our selling, general and administrative expenses will decrease as we wind down the promotional activities associated with BREXAFEMME for the VVC indication. Net cash used in operating activities of$79.9 million for the year endedDecember 31, 2022 , primarily consisted of the$62.8 million net loss adjusted for non-cash charges that included the gain on change in fair value of the warrant liabilities of$22.3 million and stock-based compensation expense of$3.7 million , the gain on change in fair value of the derivative liabilities of$1.3 million , and the amortization of debt issuance costs and discount of$1.6 million , plus a net favorable change in operating assets and liabilities of$0.8 million . The net favorable change in operating assets and liabilities consisted primarily of an increase in accrued expenses, other liabilities and other of$2.3 million due to the increase of$2.4 million in other liabilities associated with the long term deferred fees due toAmplity , a decrease in prepaid expenses, other assets deferred costs and other of$1.6 million primarily due to a$1.1 million decrease in prepaid inventory, offset in part due to a decrease in accounts payable of$1.5 million and an increase in accounts receivable of$1.2 million . Net cash used in operating activities of$54.6 million for the year endedDecember 31, 2021 , primarily consisted of the$32.9 million net loss adjusted for non-cash charges that included the gain on change in fair value of the warrant liabilities of$30.4 million and stock-based compensation expense of$2.1 million , the gain on change in fair value of the derivative liabilities of$1.2 million , the loss on extinguishment of debt of$2.7 million , and the amortization of debt issuance costs and discount of$1.3 million , plus a net favorable change in operating assets and liabilities of$3.1 million . The net favorable 55 -------------------------------------------------------------------------------- change in operating assets and liabilities consisted of an increase in accounts payable and accrued expenses of$7.7 million , offset in part by an increase in prepaid expenses, other assets, and deferred costs, accounts receivable, and inventory of$4.6 million . The$7.7 million increase in accounts payable and accrued expenses was primarily due to the increase in accounts payable of$2.6 million as ofDecember 31, 2021 and an increase of$3.4 million for other liabilities associated with the long term deferred fees due toAmplity . The$4.6 million increase in prepaid expenses, other assets, and deferred costs, accounts receivable, and inventory is primarily due to an increase in inventory of$5.3 million , and an increase in accounts receivable of$0.9 million , offset in part by a decrease of$2.9 million in other assets for a receivable that was fully collected inFebruary 2021 . Investing Activities
Net cash used in investing activities of
Net cash used in investing activities of
Financing Activities
Net cash provided by financing activities of$48.6 million for the year endedDecember 31, 2022 , consisted primarily of the gross proceeds of$45.0 million from theApril 2022 public offering, the$2.2 million in gross proceeds from common stock issued under our ATM and common stock purchase agreement, and the$5.0 million received from the Loan Agreement, offset in part by payments of offering costs and underwriting discounts and commissions of$3.6 million . Net cash provided by financing activities of$67.1 million for the year endedDecember 31, 2021 , consisted primarily of (a) gross proceeds from common stock of$32.8 million from the exercise of outstanding warrants in addition to$5.7 million in gross proceeds from common stock sold under our ATM and Aspire facilities, partially offset by related underwriting discounts and commissions and offering expenses totaling$0.2 million , and (b) during the period we received$30.0 million under our Loan Agreement, offset by$1.3 million in payments of loan payable issuance costs associated with the Loan Agreement.
Future Cash Needs and Funding Requirements
To date, we have generated minimal revenue from product sales. We do not know if or when we will be able to generate significant revenue from product sales. In addition, we expect to incur expenses in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We anticipate that we will need substantial additional funding in connection with our continuing future operations. As discussed in Note 1 to the financial statements included in this Annual Report on Form 10-K, we have incurred significant losses and negative cash flows from operations and have limited capital resources to fund ongoing operations which raises substantial doubt about our ability to continue as a going concern. We received$30.0 million in 2021 and received$5.0 million in 2022 under our Loan Agreement withHercules andSilicon Valley Bank . InMarch 2023 , in connection with the entering into of the License Agreement with GSK, we, Hercules and SVB entered into a First Amendment and Consent to Loan and Security Agreement pursuant to which the lenders under the Loan Agreement consented to us entering into the License Agreement and we agreed to pay to the lenders an amount equal to the sum of (i) all outstanding principal plus all accrued and unpaid interest with respect to the amounts loaned under the Loan Agreement (approximately$35.4 million ), (ii) the prepayment fee payable under Loan Agreement ($262,500 ), (iii) the final payment payable under Loan Agreement ($1,382,500 ), and (iv) all other sums, if any, that shall have become due and payable with respect to loan advances under the Loan Agreement. These payments by us will become due upon the earliest of (A) one business day following receipt by us of the$90 million upfront payment payable to us under the License Agreement, (B)June 1, 2023 , or (C) the termination of the License Agreement. We are continually evaluating our operating plan and assessing the optimal cash utilization for our ibrexafungerp development strategy. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses necessary to complete the development of product candidates.
Our future capital requirements will depend on many factors, including:
•
our ability to close the transactions contemplated by the License Agreement with GSK;
•
the progress, costs, and the clinical research and development of ibrexafungerp;
•
the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;
•
the ability of our product candidates to progress through clinical development successfully;
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our need to expand our research and development activities;
•
the costs associated with securing, establishing and maintaining commercialization and manufacturing capabilities;
•
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
•
our need and ability to hire additional management and scientific and medical personnel;
•
our need to implement additional, as well as to enhance existing, internal systems and infrastructure, including financial and reporting processes and systems; and
•
the economic and other terms, timing and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of net proceeds from equity offerings, debt financings, or other non-dilutive third-party funding (e.g., grants), strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, similar to our Loan Agreement or the convertible senior notes we sold inMarch 2019 andApril 2020 , if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through sales of assets, other third-party funding, strategic alliances and licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Critical Accounting Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted inthe United States , or GAAP. The preparation of our consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our assumptions and estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements for the year ended
Revenue Recognition
Product Revenue, Net
We account for revenue in accordance with Accounting Standards Codification
(ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). Under ASC
Topic 606, an entity recognizes revenue when its customer obtains control of
goods and services, in an amount that reflects the consideration that the entity
expects to be entitled in exchange for those goods and services. We perform the
following five steps to recognize revenue under ASC Topic 606: (i) identify the
contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. We only recognize
revenue when it is probable that we will collect the consideration to which we
are entitled in exchange for the goods or services that will be transferred to
the customer. The transaction price for product sales is reduced by variable
consideration related to certain gross to net (GTN) adjustments, including
chargebacks, rebates, discounts, incentives, and returns, and we will estimate
the amount of this variable consideration that should be included in the
transaction price using the expected value method.
Information from external sources is used to estimate GTN adjustments. Our
estimate of inventory at the wholesalers is based on the projected prescription
demand-based sales for our products, as well as our analysis of third-party
information, including written and oral information obtained from certain
wholesalers with respect to their inventory levels and sell-through to customers
and third-party market research data, and our internal information. The
inventory information received from
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--------------------------------------------------------------------------------wholesalers is a product of their recordkeeping process and excludes inventory held by intermediaries to whom they sell, such as retailers.
We also use information from external sources to identify prescription trends, patient demand and average selling prices. Our estimates are subject to inherent limitations of estimates that rely on third-party information, as certain third-party information was itself in the form of estimates, and reflect other limitations including lags between the date as of which third-party information is generated and the date on which we receive third-party information. Our significant GTN adjustments are further described below:
•
Voluntary Patient Assistance Programs - Through vendors, we offer copay assistance to provide financial assistance to patients for the portion of their prescription cost that is not covered by payors. The reduction in product revenue due to the copay programs is based on an estimate of claims and costs per claim that we expect to receive associated with product revenue that have been recognized. This includes potential product revenue that remains in the distribution channel at the end of a reporting period.
•
Wholesaler Fees and Trade Discounts - We offer discounts and pays certain distributor service fees primarily at contracted rates. These are recorded as a reduction in product revenue based on distributors' purchases and the applicable discount rate.
•
Chargebacks - For certain entities, pricing on BREXAFEMME is extended below wholesaler list price. Entities that purchase BREXAFEMME from wholesalers at the lower program price then remit us the difference between their acquisition cost and the lower program price, resulting in a reduction of product revenue. Accounts receivable is reduced for the estimated amount of unprocessed chargeback claims attributable to sale.
•
Commercial Rebates - We contract with commercial payors such as insurers and PBMs and offer rebates for utilization and formulary status. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue.
License Agreement Revenue
We have entered into arrangements involving the sale or license of intellectual property and the provision of other services. When entering into any arrangement involving the sale or license of intellectual property rights and other services, we determine whether the arrangement is subject to accounting guidance in ASC 606, Revenue from Contracts with Customers, as well as ASC 808, Collaborative Arrangements (Topic 808). If we determine that an arrangement includes goods or services that are central to our business operations for consideration, we will then identify the performance obligations in the contract using the unit-of-account guidance in Topic 606. For a distinct unit-of-account that is within the scope of Topic 606, we will apply all of the accounting requirements in Topic 606 to that unit-of-account, including the recognition, measurement, presentation and disclosure requirements. For a distinct unit-of-account that is not within the scope of Topic 606, we will recognize and measure the distinct unit-of-account based on other authoritative ASC Topics or on a reasonable, rational, and consistently applied policy election. In arrangements that include the sale or license of intellectual property and other promised services, we first identify if the licenses are distinct from the other promises in the arrangement. If the license is not distinct, the license is combined with other services into a single performance obligation. For the sale of intellectual property that is distinct, fixed consideration and variable consideration are included in the transaction price and recognized in revenue immediately to the extent that it is probable that there would not be a significant reversal of cumulative revenue in the future. If the sale or license of intellectual property is not distinct, revenue is deferred and recognized over the estimated period of our combined performance obligation.
Research and Development Accruals
We are required to estimate our expenses resulting from our obligations under
contracts with CROs, clinical site agreements, vendors, and consultants in
connection with conducting ibrexafungerp clinical trials and preclinical studies
and other development activities. The financial terms of these contracts are
subject to negotiations which vary from contract to contract and may result in
payment flows that do not match the periods over which materials or services are
provided to us under such contracts. Our objective is to reflect the appropriate
development and trial expenses in our consolidated financial statements by
matching those expenses with the period in which the services and efforts are
expended by our service providers.
For clinical trials, we account for these expenses according to the progress of
the trial as measured by actual hours expended by CRO personnel, investigator
performance or completion of specific tasks, patient progression, or timing of
various aspects of the trial. For preclinical development services performed by
outside service providers, we determine accrual estimates through financial
models, taking into account development progress data received from outside
service providers and discussions with our knowledgeable internal personnel and
service provider personnel. During the course of a clinical trial or preclinical
study or development project, we adjust our rate of trial or project expense
recognition if actual results differ from our estimates. We make estimates of
our accrued expenses as of each balance sheet date within our consolidated
financial
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statements based on the facts and circumstances known to us at that time. Our
understanding of the status and timing of services performed relative to the
actual status and timing of services performed may vary and may result in our
reporting changes in estimates in any particular period. We have not experienced
any significant adjustments to our estimates to date.
Stock-Based Compensation
We record the fair value of stock options issued as of the grant date as compensation expense. We recognize compensation expense over the requisite service period, which is equal to the vesting period.
Stock-based compensation expense has been reported in our statements of operations as follows (dollars in thousands):
Years Ended December 31,
2022 2021
Research and development $ 1,076 $ 631
Selling, general and administrative 2,436 1,457
Total $ 3,512 $ 2,088
On December 31, 2022 , the aggregate intrinsic value of outstanding options to
purchase shares of our common stock was zero, based upon the $1.56 closing sales
price per share of our common stock as reported on the Nasdaq Global Market on
that date.
Determination of the Fair Value of Stock-based Compensation Grants
We calculate the fair value of stock-based compensation arrangements using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including volatility of our common stock, the expected term of our stock options, the risk free interest rate for a period that approximates the expected term of our stock options, and the fair value of the underlying common stock on the date of grant. In applying these assumptions, we considered the following factors:
•
we estimate expected volatility based on the volatility of our own common stock trading history and implied volatility;
•
the assumed dividend yield is based on our expectation of not paying dividends on our underlying common stock for the foreseeable future;
•
we determine the average expected life of stock options based on the simplified method in accordance withSEC Staff Accounting Bulletin Nos. 107 and 110. We expect to use the simplified method until we have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term;
•
we determine the risk-free interest rate by reference to implied yields
available from
•
we recognize forfeitures as they are incurred.
The assumptions used in the Black-Scholes option-pricing model for the years
ended
Employee Stock Options Years Ended December 31,
2022 2021
Weighted average risk-free interest rate 2.45 % 0.64 %
Weighted average expected term (in years) 6.04 5.15
Weighted average expected volatility 73.80 % 62.10 %
Non-Employee Stock Options Years Ended December 31,
2022 2021
Weighted average risk-free interest rate 3.18 % 0.74 %
Weighted average expected term (in years) 5.63 5.79
Weighted average expected volatility 74.20 % 69.56 %
Warrant Liabilities
We account for the outstanding warrants associated with the March 2018 , December
2019 , December 2020 , and April 2022 public offerings as well as the Loan
Agreement warrants associated with the remaining unfunded tranches as
liabilities measured at fair value. The fair values of these warrants have been
determined using the Black-Scholes valuation model. We determine the risk-free
interest rate by reference to implied yields available from U.S. Treasury
securities and utilize the remaining term of the warrant as the expected term.
We estimate expected volatility using the historical volatility of our
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common stock given we have sufficient history to support the expected terms of
the warrants and implied volatility. See Note 2 to our consolidated financial
statements on this Annual Report for further details.
Convertible Debt and Derivative Liabilities
For the convertible notes, we account for the bifurcated embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, as long-term derivative liabilities in our consolidated balance sheet. The derivative liabilities are remeasured at each reporting period using the binomial lattice model with changes in fair value recorded in the consolidated statements of operations in other (income) expense. We used the binomial lattice valuation model to value the derivative liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as stock price, contractual terms, dividend yield, risk-free rate, adjusted equity volatility, credit rating, market credit spread, and estimated yield. See Note 2 to our consolidated financial statements on this Annual Report for further details.
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