Scynexis: A Proven Drug With Much-Needed Market Analysis

Summary

  • Scynexis adopted Merck’s MK-3118 synthetic enfumafungin derivative.
  • The drug shows equivalent or better activity to standard of care in many instances.
  • However, it’s not better in ALL instances.
  • The FDA would likely pass the drug if P2 and P3 succeed, but how much money can Scynexis make?

Structure

  • Background – What is SCY-078, does it work, is there a need?
  • Pipeline structure – Where have trials been and where are they headed?
  • Oral formulation for vaginal yeast infection and P2 results
  • Oral formulation for step-down therapy
  • IV formulation for invasive candida (minimal)
  • Summary

Background

Scynexis (NASDAQ:SCYX) has been developing an abandoned drug from Merck (NYSE:MRK) for some time. After I present the data, it will be clear why Merck abandoned this project (but additionally food for thought on why Scynexis can still survive).

The drug has changed names from MK-3118 to SCY-078 and has a long trail of promising pre-clinical or in-vitro data from Merck.

First, we need to understand some background on the diseases this drug is meant to treat which are fungal infections. These fall into two umbrella categories – life threatening “invasive candida” and vaginal yeast infections.

  1. Invasive candida is a problem largely in immuno-compromised people usually due to age, immuno-suppressive drugs, or immuno-suppressive diseases.
  2. Vaginal yeast infections are usually easy to treat, however “chronic” or “recurrent” yeast infections are often resistant to treatment

Both of these areas of disease have a fear-factor associated with increased rates of drug-resistant fungal infections. That is where SCY-078 and Scynexis in general come into play.

First, let’s look at historical data to understand how scary the idea of drug-resistant fungal infections are.

Figure 1 – Invasive candida infections per year in selected areas.

What you should notice is that largely, the numbers don’t seem to be increasing. In fact, most metrics would indicate the rates are in obvious decline. This is likely due to increased precautions and understandings of fungal infections (I would hope). So the rates overall are decreasing, but what about resistance within those occurrences?

Figure 2 – Drug resistance rates per year of Candida glabrata

Notice this is only one species. I do not have data for all Candida, but additionally know that each species has multiple strains.

This isn’t as straight forward, but I’d place my money both on trend, and general knowledge of how resistance works in an evolutionary sense, and wager that these rates are definitely going to increase as time goes on.

So the stage is set: although we are getting less likely to deal with fungal infections, those infections are increasingly resistant to age-old drug treatments. We may need a backup.

Now, I am not an anti-fungal expert, but I am sure someone who is will tell you there are already a few backups, but the dominant classes of antifungals are:

  1. Azoles (Fluconazole as example)
  2. Echinocandins
  3. Allyl amines (Terbinafine as example)

And here’s where things open up for SCY-078.

  • Azoles, since they are used most frequently, are developing resistance the quickest.
  • Echinocandins work quite well to many azole-resistant drugs, but aren’t orally available in most cases.
  • Allyl amines don’t work exceptionally well in comparison to the other two.

So, Merck came along and they developed their drug MK-3118. Let’s look at the data.

Figure 3Minimum Inhibitory Concentration (MIC) of 3 drugs in fluconazole-resistant Candida. Green indicates better than Caspofungin, black is equal.

Looking at Figure 3, in 16 cases of 34 (47%), MK-3118 performed as good or better in inhibiting growth of the candida strains listed. Without any analysis, let’s look at another figure.

Figure 4 – similar to figure 3, MK-3118 in comparison to caspofungin in strains that have mutations that likely confer drug resistance. Yellow highlighting indicates that MK-3118/SCY-078 performed better.

In this case, we’re looking at specific mutations in the FKS gene of these Candida species. The FKS gene is important for echinocandin (caspofungin) susceptibility or resistance. Here 17 of 31 (55%) showed increased susceptibility to MK-3118/SCY-078 in comparison to caspofungin.

What do we have so far? If we extrapolate that these strains of Candida are good representations of infections or resistance that occur in reality, then we’re looking at an overall efficacy increase of 2-fold for our drug over the competing echinocandin Caspofungin (and much more in the case of fluconazole).

What’s most important to note about this is that Caspofungin is significantly less active when taken orally. SCY-078 is orally active.

So I think we now have fully set the stage for why you should start to look at SCY-078 as a positive investment thesis.

Pipeline Structure

Brace yourself it’s…

… fairly small. (Taken from their website 7-4-2016)

We’ve got three branches:

  1. Oral for invasive candida (what we talked about above)
  2. Oral for vaginal yeast infection
  3. IV formulation

Nothing complicated here.

Oral Formulation for Invasive Candida

This is the next catalyst for this stock, and should be releasing data at any time. This is absolutely the most important prong of the stock’s trident (but we need to look at #2 to fully understand, so keep reading).

As outlined above, there are two things that are synergistically pushing for SCY-078 to become a validated drug in the clinical setting:

  1. Activity against resistant strains
  2. Oral bio-availability

The next question is where is its place in the clinical setting? The company doesn’t seem fully decided on that and will be completely hinged on the data coming forth here.

One route would be to completely over take the standard of care and make this drug an orally available alternative to IV injections of echinocandins or fluconazole. Unlikely to occur (see #2).

Second route would be to provide this drug as an oral-step down therapy. The idea is you treat the infection with the standard of care, and after the infection has stabilized, to minimize any emergent, resistant strains from taking over (i.e. the SoC allowed for a few resistant survivors), you give the patient SCY-078 and wean them off it slowly. This makes it incredibly unlikely that the infection will persist. Highly likely.

Third route would be to provide both drugs simultaneously. This would hit the Candida with two toxins, making it incredibly difficult for the organism to survive. However, this would require a Phase I for simultaneous dosage safety.Unlikely.

My prediction relies on #2, so I’ll get to it in the summary.

Oral Formulation for Vaginal Yeast Infection

Quickly, the results came in recently (and shortly after, the company made a public offering of shares).

Figure 5Results of Phase II against yeast infection, in comparison to standard of care, Fluconazole.

As can be seen here, SCY-078 proved as good or better than Fluconazole. However, since therapeutic cure is defined as patients who achieve both clinical cure and mycological eradication at test of cure visit, it’s the most telling parameter – and it showed identical results to that of the SoC.

The market reacted negatively to this as I can show you here:

Even though the drug performed as well as the standard of care, the stock has dropped nearly 50% as of pre-data release and has been channeling in the 2.10-2.30 range most recently.

What we can take away from this is investors expected the drug to performbetter than the standard of care. Although this would be nice, this is not the design of the drug. Let’s wrap up this study and I’ll get into the summation.

Since there exists vaginal yeast infections that are recurrent (about 2.5% of the female population, or about 5% of all women who get yeast infections), there is a market for this drug since the drug will likely treat these recurrent or chronic conditions. *Note that the company has not proven this!

However, since the drug is not better than the standard of care, that dream of a billion-dollar market was slashed away and investors seem to have lost a lot of hope.

But there is a place for the company…

Summary

So what we have here is

  • Clear efficacy of the drug, similar to standard of care.
  • Oral availability in a field of drugs where this is a rarity.
  • A highly bearish investor crowd.
  • Phase II data incoming.

What do we do?

The smartest thing, in almost any scenario is we wait for that Phase II data.

The most likely outcome is that our drug shows similar efficacy, if not slightly less in treating invasive candida – since the cohort has nothing to do with fluconazole resistance – it’s just people who have invasive candida (and haven’t failed echinocandin previously).

So the likely response to this on the market is going to be negative.

If the results show similar efficacy to the standard of care, this is a good indication, but your personal timeline comes into question. It won’t be until P3 data and FDA approval that the stock moves appreciably.

If they are terribly lower (i.e. 50% response for SoC and <45% for SCY-078)this gets into choppy water, and it’s unclear to me how much profit an FDA approval would end up netting the company.

If the results are much better than SoC, then this company will likely get bought out and I will be buying this stock immediately.

With all that said – where’s the financial analysis? How much money will they make?

Here’s why I don’t care:

If the drug shows efficacy equal to or greater than the SoC, and substantial data exists that it has a niche ability to fight off infections via an oral route that other drugs have trouble, the FDA will side with the CDC and WHO and realize that this drug is required to exist. That creates a price tag able to accommodate the drug’s creator and thus I’m not worried about their financial status after efficacy (I put my money in the hands of management, sales, and patient adoption).

By the way, what was Brexit?

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in $SCYX over the next 72 hours.

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.



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