SCYNEXIS (SCYX)

[dabonenose]

Scynexis: Another Buy Opportunity On The Recent Pullback

May 15, 2017 10:24 AM ET|1 comment| About: SCYNEXIS, Inc. (SCYX), Includes: CDTX
Bhavneesh Sharma, MBA
Bhavneesh Sharma, MBA
Registered investment advisor, research analyst, newsletter provider, contrarian
PREMIUMVasuda Healthcare Analytics

(2,528 followers)
Summary

The initiation of phase 2 trial for intravenous SCY-078, the company's novel antifungal candidate, in invasive candidiasis indication could be delayed till 2018.

Investors are assigning a negative value to the R&D pipeline.

We are reiterating our Buy rating on the common stock with first price target of $8.

We added to our Scynexis (NASDAQ:SCYX) long position last week. Last week's sell-off occurred in response to the news that the company expects the initiation of phase 2 trial for SCY-078, the company's novel antifungal candidate, to be delayed till 2018. On the other hand, this could just delay the start of this phase 2 trial by 6-12 months from what investors were expecting, which would mean the stock doesn't deserve the sell-off.

For a background on this issue, Scynexis is developing SCY-078, a novel glucan synthase inhibitor (licensed from Merck) for the treatment of various antifungal infections. Currently, invasive fungal infections like invasive candida and invasive aspergillus infections are treated by daily iv echinocandin therapy for about 7-10 days and once the blood cultures are cleared, the patient is discharged home on oral fluconazole for several weeks. However, fungal resistance to fluconazole and even echinocandins is rising. The company earlier conducted phase 2 trial of iv echinocandin followed by oral SCY-078 750 mg daily (as step-down therapy replacing fluconazole since candida species are increasingly developing resistance to fluconazole). This phase 2 trial confirmed the higher response rate (86%) for oral SCY-078 compared to oral fluconazole (71%). Oral SCY-078 arm had mild gastrointestinal events (29%) which were lower than the fluconazole arm (43%). An open-label trial (FURI trial) testing this treatment regimen is expected to start patient enrollment in Q2, 2017. SCY-078 (both IV and oral forms) have Fast Track and Orphan Drug designations from the FDA for the treatment of invasive candida and invasive aspergillus infections.

Scynexis is also attempting to test a one-all regime with intravenous form of SCY-078 (replacing iv echinocandin) followed by oral SCY-078 as a step-down therapy. This treatment regimen makes sense since some fungal species may even be resistant to echinocandins and SCY-078 has shown efficacy against even echinocandin-resistant fungal infections. In the phase 1 trial in healthy volunteers, three mild to moderate thrombotic events were seen. The thrombotic events were not confirmed directly due to the drug and the rate of these thrombotic events was similar to that reported for intravenous catheters. The company has tested oral SCY-078 in over 300 patients so far without any thrombotic events. Anyway, the FDA placed a hold on any further clinical trials of iv SCY-078 till more safety data is provided. Scynexis plans to test the iv dose regimen in healthy volunteers first. If cleared by the FDA, the company plans to start phase 2 trial of iv, followed by the oral SCY-078 regimen in invasive candidiasis in 2018. Investors were probably anticipating that this phase 2 trial will start enrollment in 2017, which could explain last week's sell-off.

We consider the sell-off irrational. We value the common stock at $2.57 even if assigning zero value to the pipeline (including non-operating losses, extra cash reserves, etc) using diluted stock count. The stock is currently trading even below this value, thus investors are assigning negative value to the pipeline. The company had $54.8 million in cash reserves at end of Q1, 2017 (enough till early 2019) and has only $19.4 million in debt. We remain optimistic about the safety of iv form of SCY-078. On the other hand, the news has not affected the planned clinical trials of oral SCY-078 (FURI trial) which still represents a large market (98,000 cases per year in the US alone per year) as step-down therapy replacing oral fluconazole in invasive fungal infections. While Cidara Therapeutics (NASDAQ:CDTX), another open position, has gained a time-lead in the treatment of invasive fungal infections (its phase 2 trial is expected to deliver results in Q4, 2017), CD-101 is still a long-acting echinocandin (with convenience of use since it is administered iv once weekly) and some fungal species may have resistance to it (which SCY-078 can overcome). SCY-078 also showed activity against Candida Auris, another emerging fungal threat which has 70% mortality. This species is resistant to azoles (fluconazole) and 5-10% cases may even be resistant to echinocandins.



(Scynexis: microbiologocal spectrum)

Moreover, Cidara Therapeutics has shelved its vulvovaginal candidiasis, VVC program after a phase 2 trial of topical CD-101 failed in February this year. Scynexis has already shown clinical efficacy over oral fluconazole in this indication (4-month cure rate of 88% vs. 65% for oral fluconazole; 4% relapse rate in the test arm vs. 15% for oral fluconazole). While the company's focus appears to be on invasive fungal infections and no plans for phase 3 trial in VVC have been announced, this indication could add significant value to the stock's valuation (2.3 million cases/year in the US alone with 40% having one or more relapse).

Investors who bought Scynexis stock after the news of the FDA hold first broke on March 2 - and the stock fell to $2.47/share - were rewarded, as the stock price subsequently rebounded to $3.11 (about 26% gain within 10-12 days). We consider this to be a similar buy opportunity.

Provided below is our revised estimate for the stock price fair value under different scenarios:

1. Zero value to the pipeline: $2.57/share

2. SCY-078 commercialized only in invasive candidiasis (US, EU), 60% probability, 25% peak penetration= $6.61/share

3. SCY-078 commercialized only in VVC (US, EU), 65% probability, 25% peak penetration= $3.74/share

4. SCY-078 commercialized in both invasive candidiasis and VVC indications (US, EU), similar probability and market penetration as above=$7.77/share

In conclusion, we consider Scynexis stock under-valued at present and an excellent contrarian buying opportunity. We are reiterating our Buy rating with first price target of $8. Patient investors will be rewarded by buying the stock at this level.

Risks in the investment:

It is possible that the ongoing clinical trials may fail, that regulatory agencies might not approve the products, that unexpected side effects might be seen in the future, that clinicians might not widely prescribe the products or that insurers might not reimburse them. Competing products from other companies might gain significant market share in the planned clinical indications. The company may also need to raise additional capital in future.

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Disclosure: This article represents my own opinion and is not a substitute for professional investment advice. It does not represent solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment.

Disclosure: I am/we are long SCYX, CDTX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

About this article:Expand
Bhavneesh Sharma, MBAPREMIUMVasuda Healthcare Analytics

(2,528 followers)
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Bhavneesh Sharma, MD, MBA

Founder, Vasuda Healthcare Analytics

https://seekingalpha.com/article/4073253-scynexis-another-buy-opportunity-recent-pullback?auth_param=gcdk:1chjejt:73ec3f9dbc4449ba62910f24f704ec43&uprof=9