GSK - Scynexis: A Disappointing Q1 Earnings And Cooling GSK Catalyst - We Maintain Neutral Rating

2023-05-19 16:57:45 ET

Summary

• SCYX's 1Q23 earnings highlights steadily underwhelming ibrexafungerp sales, with substantial growth expected in 2024/2025 once GSK begins promotion.
• Phase 3 MARIO trial data, pivotal for potential label expansion, is anticipated in 1H'24. The study focuses on invasive candidiasis patients.
• The completed Phase 3 FURI and CARES trials will release data in 1H'24, guiding an sNDA submission for refractory and invasive hospital infections.
• Despite sluggish Brexa sales, SCYX's strong financial position (~$55m cash buffer) could sustain the company until potential profitability post-hospital indications approval.

Q1 earnings key takeaways

SCYNEXIS ( SCYX ) reported their 1Q23 results , with the highlight being the impending collaboration with GlaxoSmithKline ( GSK ) for their lead antifungal asset, ibrexafungerp. The collaboration focuses on the commercialization and development of ibrexafungerp in fungal infections. The deal, totaling under $593M, includes a $90M upfront payment in 2Q, around $260M in development-related milestones in 2024, and ~5-15% in royalty receivables.

Regarding the sales ramp of Brexafemme (ibrexafungerp tablets), the sales ramp of the asset in the community setting was steady and disappointing ($1.1M in 1Q'23), as we predicted in our previous analysis . Furthermore, we maintain a cautious view around the upcoming sales print for the next few quarters as we are unsure whether GSK relaunching the product would move the needle as the drug is still priced significantly above the fluconazole, and market access hurdles will remain a key overhang in the community setting (brand is not the issue here). We expect a meaningful increase would only happen around 2024/2025 once GSK begins its promotion and when the company's hospital-based indication trial data starts reading out, and label expansion takes place.

Pipeline related updates

Phase 3 MARIO trial , involving around 220 patients globally, is set to release data in 1H'24. This study, focusing on invasive candidiasis patients, could potentially present the most important clinical data for Ibrexa in terms of commercial potential. If the results are positive, it is expected to lead to a label expansion and be positioned as an oral antifungal that matches the potency of IV echinocandins (that comes with tons of uncomfortable injection site reactions and potential infection risks).

Regarding the phase 3 FURI and CARES trials, the enrollment has been completed, and data is expected to be disclosed in 1H'24. Management suggested that all study completion activities will conclude by 1H'23. The top-line data from these studies, including MARIO, are intended for a supplementary New Drug Application submission in 1H'24 for refractory and invasive hospital infections, with GSK submitting the NDA and approval anticipated by the end of 2024.

On a positive note, the phase 3b VANQUISH study has completed enrollment ahead of the YE'23 projection, and data from the study is now anticipated by 3Q'23. This should set up another sNDA submission by 1Q'24, with the FDA decision expected in 1Q'25, and GSK is expected to lead the regulatory filing.

The management noted that the phase 2 SCYNERGIA trial had a slower patient enrollment than anticipated, and is now data should be expected by 1H'23.

Risks

1. Warrant Overhang : The issued warrants and pre-funded warrants , with a low strike price and long duration, could lead to an imminent dilution of shares, making SCYX unattractive at the current moment.

2. Commercialization Risks : SCYX's success is heavily dependent on its main product, ibrexafungerp. If the drug fails to gain market traction or faces issues with its sales ramp, the stock could suffer.

3. Regulatory Hurdles : Any unforeseen delays or unfavorable results in the upcoming clinical trials could adversely impact the regulatory approval process and the company's valuation.

4. Financial Health : Despite a significant cash buffer, if the company doesn't reach profitability within the expected timeframe, it might face financial distress, which could negatively affect the stock price.

Conclusion

All things considered, we maintain a 'Hold' rating due to a) the ongoing underwhelming sales of Brexa in community settings, expected to persist for the foreseeable future, and b) the diminishing impact of the GSK catalyst, which we believe is already factored into the price. Additionally, the uncertainty (or unlikelihood) around potential M&A occurring prior to the expected invasive fungal infection trial readout in 2024/2025 leaves the stock devoid of any significant catalysts. However, we are encouraged by the company's robust financial position, which we believe provides a sufficient cash buffer (~$ 55m ) to sustain the company's burn rate for approximately 2-3 years-potentially even until profitability is achieved after the approval of hospital indications.

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