SCYX - Scynexis: New rVVC Label And Black-Boxed Warning Maintaining A Sell Rating

Summary

• Scynexis has performed terribly during 2022 due to continued disappointment in earnings and sales ramp.
• New labels, including black-boxed warnings, could further hamper the slow commercial adoption of VVC indication, especially in the retail setting.
• We do not believe rVVC will add too much to the sales ramp as it only accounts for 10-20% of the VVC market, and rVVC patients are probably already captured.
• Warrant overhang will continue to haunt SCYX moving forward, making it uninvestable due to the potential risk of dilution that can kill the stock price.
• We maintain a sell rating and remain on the sideline.

New approval in rVVC is positive news but not enough to move the needle

Last December (Dec 1st), Scynexis (SCYX) announced that the FDA approved the second indication for BREXAFEMME (ibrexafungerp tablets), recurrent Vulvovaginal Candidiasis (rVVC or yeast infection). The approval is based on SCYX's pivotal phase 3 CANDLE data that demonstrated a statistically significant superiority of ibrexafungerp vs. placebo, the drug meeting primary and key secondary endpoints. This means that BREXAFEMME now has two approved indications, VVC and RVVC. Although we believe this is positive news for the company, but we don't expect this approval to move the needle because a) rVVC accounts for only 13-19% of the total VVC patients, and b) a significant portion of the rVVC population is already captured through off-label prescribing.

A new black-boxed warning doesn't bode well for the commercial adoption of Brexa

The new black-boxed warning around fetal development doesn't bode well for sales ramp as younger female patients are extremely sensitive about this topic. Of note, although the current standard of care also comes with a warning around pregnancy, it is not a complete black-boxed warning like ibrexafungerp.

Brexa's key indication is in systemic fungal infection, but it lacks meaningful near-term catalysts until the year-end of 2024

We believe the refractory fungal infection opportunity could be a key value driver for SCYX due to a) longer duration of treatment (1 day in rVVC vs. 90-180 day regimen) and b) straightforward go-to-market path through hospital formulary inclusion. Although we have a high degree of conviction in Brexa's approval in invasive fungal infection in the hospital setting based on encouraging interim data from the phase 3 FURI and CARES trials, we would be more selective on an entry point considering meaningful catalysts are not expected until YE'24 at the earliest.

Warrant overhang, 60% dilution is a high probability making SCYX uninvestable at the moment

The USD45M warrant and pre-funded warrant (issued on April 2022 ) have a relatively low strike price ($3.45/share) and long-duration term (7 years), which creates an overhang for SCYX as it suggests an imminent dilution could be on the horizon. Furthermore, the fully exercised warrants would add 26.6M shares which represents a 61% increase in the number of shares outstanding. As such, we would wait for a better entry point after the remaining warrants and pre-funded warrants are fully exercised.

Risks

Clinical risk: as rIFI trials are still ongoing and can fail and plague the whole pipeline expansion story; commercial risk, as the company is a first-time launcher with a big pharma partner; and financing risk, as the company is not cashflow positive yet.

Conclusion

Until the approval of rIFI indication (hospital-based systemic infections), we believe it is cogent for investors to stay on the sidelines and monitor the sales ramp. We expect meaningful catalysts in the hospital setting around 2024-2025 at the earliest. Net net, we don't expect the additional rVVC indication to add too much to the sales ramp trajectory and further warrant overhang makes investing in SCYX extremely difficult. Furthermore, the unexpected black-boxed warning doesn't bode well for SCYX's further commercial success. However, due to the low valuation after the 76% sell-off during 2022, we do not recommend investors short the stock as there could be a potential unforeseen risk of a short squeeze due to i) lack of liquidity or ii) potential M&A or big pharma partner. The current short interest is around 3%, according to Barron.

For further details see: