scyx-10q_20220331.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to

Commission File Number 001-36365

SCYNEXIS, Inc.

(Exact name of registrant as specified in its charter)

Delaware		56-2181648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Evertrust Plaza, 13^th Floor Jersey City, New Jersey		07302-6548
(Address of principal executive offices)		(Zip Code)

(201)-884-5485

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	SCYX	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2022, there were 32,579,491 shares of the registrant’s Common Stock outstanding.

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SCYNEXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

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		Page

PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	3
	Notes to the Condensed Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II OTHER INFORMATION		29

Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30

Signatures		31

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	95,210		$	104,484
Prepaid expenses and other current assets		3,919			3,569
Accounts receivable, net		1,628			861
Inventory		1,149			463
Total current assets		101,906			109,377
Other assets		5,543			6,122
Deferred offering costs		124			150
Restricted cash		218			218
Property and equipment, net		61			113
Intangible assets, net		961			1,056
Operating lease right-of-use asset (See Note 7)		2,749			2,801
Total assets	$	111,562		$	119,837
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,130		$	7,848
Accrued expenses		4,523			5,698
Other liabilities, current portion (See Note 6)		174			—
Warrant liabilities		40			—
Operating lease liability, current portion (See Note 7)		77			70
Total current liabilities		12,944			13,616
Other liabilities (See Note 6)		4,102			3,345
Warrant liabilities		7,921			18,062
Convertible debt and derivative liability (See Note 6)		10,817			11,607
Loan payable		33,713			28,745
Operating lease liability (See Note 6)		3,138			3,204
Total liabilities		72,635			78,579
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, authorized 5,000,000 shares as of March 31, 2022 and December 31, 2021; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 29,221,158 and 28,705,334 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		32			32
Additional paid-in capital		403,825			400,705
Accumulated deficit		(364,930	)		(359,479	)
Total stockholders’ equity		38,927			41,258
Total liabilities and stockholders’ equity	$	111,562		$	119,837

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2022			2021
Revenue:
Product revenue, net	$	687		$	—
License agreement revenue		—			12,050
Total revenue		687			12,050
Operating expenses:
Cost of product revenues		99			—
Research and development		5,735			6,948
Selling, general and administrative		14,591			6,696
Total operating expenses		20,425			13,644
Loss from operations		(19,738	)		(1,594	)
Other expense (income):
Loss on extinguishment of debt		—			2,725
Amortization of debt issuance costs and discount		390			256
Interest income		(13	)		(7	)
Interest expense		1,059			214
Other income		(13	)		—
Warrant liabilities fair value adjustment		(10,030	)		(1,296	)
Derivative liabilities fair value adjustment		(980	)		90
Total other (income) expense		(9,587	)		1,982
Loss before taxes		(10,151	)		(3,576	)
Income tax (benefit) expense		(4,700	)		1,100
Net loss	$	(5,451	)	$	(4,676	)
Net loss per share attributable to common stockholders – basic
Net loss per share – basic	$	(0.17	)	$	(0.18	)
Net loss per share attributable to common stockholders – diluted
Net loss per share – diluted	$	(0.18	)	$	(0.23	)
Weighted average common shares outstanding – basic and diluted
Basic		32,051,228			25,802,700
Diluted		33,189,428			26,523,920

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(5,451	)	$	(4,676	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		155			27
Stock-based compensation expense		922			398
Amortization of debt issuance costs and discount		390			256
Change in fair value of warrant liabilities		(10,030	)		(1,296	)
Change in fair value of derivative liabilities		(980	)		90
Noncash operating lease expense for right-of-use asset		52			49
Loss on extinguishment of debt		—			2,725
Changes in operating assets and liabilities:
Prepaid expenses, accounts receivable, inventory, and other		(1,429	)		1,736
Accounts payable, accrued expenses, other liabilities, and other		383			(68	)
Net cash used in operating activities		(15,988	)		(759	)
Cash flows from investing activities:
Purchase of intangible assets		(9	)		(200	)
Net cash used in by investing activities		(9	)		(200	)
Cash flows from financing activities:
Proceeds from common stock issued		2,164			—
Payments of offering costs and underwriting discounts and commissions		(451	)		(62	)
Proceeds from loan payable		5,000			—
Proceeds from employee stock purchase plan issuances		10			6
Repurchase of shares to satisfy tax withholdings		—			(15	)
Net cash provided by (used in) financing activities		6,723			(71	)
Net decrease in cash, cash equivalents, and restricted cash		(9,274	)		(1,030	)
Cash, cash equivalents, and restricted cash at beginning of period		104,702			93,314
Cash, cash equivalents, and restricted cash at end of period	$	95,428		$	92,284
Supplemental cash flow information:
Cash paid for interest	$	1,099		$	420
Cash received for interest	$	12		$	5
Noncash financing and investing activities:
Common stock issued for settlement of senior convertible notes	$	—		$	7,452
Purchased intangible assets included in accounts payable and accrued expenses	$	—		$	178
Deferred offering and issuance costs included in accounts payable and accrued expenses	$	26		$	—
Deferred offering costs reclassified to additional-paid-in capital	$	27		$	—
Reclass of warrant liability to additional paid in capital	$	71		$	—
Reclass of deferred asset associated with issuance of loan payable to debt discount	$	206		$	—

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	Description of Business and Basis of Preparation

Organization

SCYNEXIS, Inc. (“SCYNEXIS” or the “Company”) is a Delaware corporation formed on November 4, 1999. SCYNEXIS is a biotechnology company, headquartered in Jersey City, New Jersey, and is pioneering innovative medicines to potentially help millions of patients worldwide in need of new options to overcome and prevent difficult-to-treat and drug-resistant infections. The Company is developing its lead product candidate, ibrexafungerp, as a broad-spectrum, intravenous (“IV”)/oral agent for multiple fungal indications in both the community and hospital settings. In June 2021, the U.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 the Company has commenced the commercialization of BREXAFEMME in the U.S.

The Company has incurred significant losses and negative cash flows from operations since its initial public offering in May 2014 and expects to continue to incur losses and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of $364.9 million at March 31, 2022 and limited capital resources to fund ongoing operations. These capital resources primarily comprised cash and cash equivalents of $95.2 million at March 31, 2022. While the Company believes its capital resources are sufficient to fund the Company’s on-going operations for a period of at least 12 months subsequent to the issuance of the accompanying unaudited condensed consolidated financial statements, the Company's liquidity could be materially affected over this period by, among other things: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to its development of ibrexafungerp; (4) its ability to commercialize BREXAFEMME and; (5) any other unanticipated material negative events or costs. One or more of these events or costs could materially affect the Company’s liquidity. If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan. The accompanying unaudited interim condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany balances and transactions are eliminated in consolidation.

New Jersey Technology Business Tax Certificate Transfer (NOL) Program

The New Jersey Technology Business Tax Certificate Transfer (NOL) program, administered by the New Jersey Economic Development Authority, enables approved biotechnology companies to sell their unused net operating losses (“NOLs”) and research and development tax credits to unaffiliated, profitable corporate taxpayers in the State of New Jersey. For the three months ended March 31, 2022, the Company recognized a $4.7 million income tax benefit for the sale of a portion of the Company’s unused New Jersey NOLs and research and development credits.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying unaudited interim condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and judgements include: revenue recognition including gross to net estimates and the identification of performance obligations in licensing

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arrangements, determination of the fair value of stock-based compensation grants; the estimate of services and effort expended by third-party research and development service providers used to recognize research and development expense; and the estimates and assumptions utilized in measuring the fair values of the warrant and derivative liabilities each reporting period.

2.	Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2021, except as described below.

Basic and Diluted Net Loss per Share of Common Stock

The Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic net loss per common share for the three months ended March 31, 2022 and 2021 was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Per ASC 260, Earnings Per Share, the weighted average number of common shares outstanding utilized for determining the basic net loss per common share for the three months ended March 31, 2022 includes the outstanding pre-funded warrants to purchase 3,200,000 shares of common stock issued in the December 2020 Public Offering. Diluted net loss per common share for the three months ended March 31, 2022 and 2021 was determined as follows (in thousands, except share and per share amounts):

	Three Months Ended March 31,
	2022			2021
Net loss	$	(5,451	)	$	(4,676	)
Dilutive effect of warrant liability		—			(1,323	)
Dilutive effect of convertible debt		(584	)		—
Net loss allocated to common shares	$	(6,035	)	$	(5,999	)

Weighted average common shares outstanding – basic		32,051,228			25,802,700
Dilutive effect of warrant liability		—			721,220
Dilutive effect of convertible debt		1,138,200			—
Weighted average common shares outstanding – diluted		33,189,428			26,523,920

Net loss per share – diluted	$	(0.18	)	$	(0.23	)

The following potentially dilutive shares of common stock have not been included in the computation of diluted net loss per share for the three months ended March 31, 2022 and 2021, as the result would be anti-dilutive:

	Three Months Ended March 31,
	2022		2021
Outstanding stock options		2,050,094		1,371,606
Outstanding restricted stock units		981,841		96,974
Warrants to purchase common stock associated with June 2016 public offering		—		421,867
Warrants to purchase common stock associated with March 2018 public offering – Series 2		798,810		798,810
Warrants to purchase common stock associated with December 2019 Public Offering		—		4,472,205
Warrants to purchase common stock associated with December 2020 Public Offering - Series 2		6,800,000		6,800,000
Warrants to purchase common stock associated with Loan Agreement		198,819		—
Warrants to purchase common stock associated with Solar loan agreement		—		12,243
Common stock associated with March 2019 Notes		—		1,138,200
Warrants to purchase common stock associated with Danforth		50,000		—
Total		10,879,564		15,111,905

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November

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2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which revised the effective dates for ASU 2016-13 for public business entities that meet the SEC definition of a smaller reporting company to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. As a smaller reporting company, the Company is currently evaluating the impact ASU 2016-13 will have on its unaudited interim condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in and Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 reduce the number of accounting models for convertible debt instruments and revises certain guidance relating to the derivative scope exception and earnings per share. The amendments in ASU 2020-06 are effective for public business entities that meet the definition of a SEC filer and a smaller reporting company for fiscal years beginning after December 15, 2023, and interim periods within those years. As a smaller reporting company, the Company is currently evaluating the impact ASU 2020-06 will have on its unaudited interim condensed consolidated financial statements.

3.	Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	March 31, 2022		December 31, 2021
Prepaid research and development services	$	753	$	247
Prepaid insurance		206		505
Other prepaid expenses		2,956		2,813
Other current assets		4		4
Total prepaid expenses and other current assets	$	3,919	$	3,569

Inventory

Inventory consisted of the following (in thousands):

	March 31, 2022		December 31, 2021
Raw materials	$	5,486	$	5,162
Work in process		3		3
Finished goods		115		127
Total inventory	$	5,604	$	5,292

As of March 31, 2022 and December 31, 2021, the Company’s inventory consisted of $4.5 million and $4.8 million, respectively, of raw material that is not expected to be sold in one year and is classified as long term within other assets on the unaudited interim condensed consolidated balance sheet.

5.	Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	March 31, 2022		December 31, 2021
Accrued research and development expenses	$	1,210	$	1,498
Accrued employee bonus compensation		505		2,012
Other accrued expenses		1,893		1,352
Accrued co-pay rebates		915		836
Total accrued expenses	$	4,523	$	5,698

6.	Borrowings

Loan Agreement

On May 13, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), as administrative agent and collateral agent (in such capacity, the “Agent”) and a lender, and Silicon Valley Bank, as a lender (“SVB,” and collectively with Hercules, the “Lenders”) for an aggregate principal amount of $60.0 million (the “Term Loan”). Pursuant to the Loan Agreement, the Term Loan is available to the Company in four tranches, subject to certain terms and conditions.

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Under the terms of the Loan Agreement, the Company received an initial tranche of $20.0 million from the Lenders on the Closing Date. The second tranche of the Term Loan, consisting of up to an additional $10.0 million, became available to the Company upon receipt of approval from the FDA of ibrexafungerp for the treatment of vaginal yeast infections (the “First Performance Milestone”) and was fully funded in June 2021. The third tranche of the Term Loan, consisting of an additional $5.0 million, became available to the Company upon (a) the First Performance Milestone and (b) the achievement of the primary endpoint from the Phase 3 study of ibrexafungerp in patients with recurrent vulvovaginal candidiasis, and was fully funded in March 2022. The fourth tranche of the Term Loan, consisting of up to an additional $25.0 million, will be available to the Company from January 1, 2022 through December 31, 2023 in $5.0 million increments, subject to certain terms and conditions, including in maintaining a ratio of total outstanding Term Loan principal to net product revenues for BREXAFEMME below a certain specified level for a given draw period. The Company estimated the fair value of the loan payable using a credit spread valuation model and Level 3 inputs which included an implied secured spread, risk free rate, and secured yield of 9.63%, 2.44%, and 12.07%, respectively. At March 31, 2022 and December 31, 2021, the fair value of the loan payable is $33.1 million and $29.2 million, respectively.

The Term Loan will mature on March 3, 2025 (the “Maturity Date”); provided that, the Maturity Date shall be automatically extended to May 1, 2025 subject to the occurrence of certain conditions set forth in the Loan Agreement. The Term Loan bears interest at a variable annual rate equal to the greater of (a) 9.05% and (b) the Prime Rate (as reported in the Wall Street Journal) plus 5.80% (the “Interest Rate”). The Company may make payments of interest only through November 1, 2023, which may be extended to May 1, 2024 upon the achievement of the First Performance Milestone prior to November 1, 2023, and which is further extendable in quarterly increments until the Maturity Date, subject to continued compliance with the financial covenant of the Loan Agreement (the “interest-only period”). After the interest-only period, the principal balance and related interest will be required to be repaid in equal monthly installments and continuing until the Maturity Date.

The Loan Agreement contains customary closing fees, prepayment fees and provisions, events of default, and representations, warranties and covenants, including a financial covenant requiring the Company to maintain certain levels of trailing three-month net product revenue solely from the sale of ibrexafungerp commencing on June 30, 2022. The financial covenant will be waived at any time in which the Company maintains unrestricted and unencumbered cash in accounts maintained with SVB equal to at least 50.0% of the total outstanding Term Loan principal amount, subject to certain requirements.

Future principal debt payments on the currently outstanding loan payable as of March 31, 2022 are as follows (in thousands):

2021	$	—
2022		—
2023		—
2024		23,874
2025		11,126
Total principal payments		35,000
Final fee due at maturity		1,383
Total principal and final fee payment		36,383
Unamortized discount and debt issuance costs		(2,670	)
Less current portion		—
Loan payable, long term	$	33,713

April 2020 Note Purchase Agreement

On April 9, 2020, the Company entered into the April 2020 Note Purchase Agreement with Puissance Life Science Opportunities Fund VI (“Puissance”) and issued and sold to Puissance $10.0 million aggregate principal amount of its April 2020 Notes, resulting in net proceeds of approximately $9.5 million after deducting $0.5 million for an advisory fee and other issuance costs.

In January 2021, Puissance converted the remaining $6.0 million of the April 2020 Notes for 959,080 shares of common stock. Upon conversion of the $6.0 million of the April 2020 Notes, the Company recognized a $2.7 million extinguishment loss which represents the difference between the total net carrying amount of the convertible debt and derivative liability of $4.8 million and the fair value of the consideration issued of $7.5 million.

March 2019 Note Purchase Agreement

On March 7, 2019, the Company entered into a Senior Convertible Note Purchase Agreement (the “March 2019 Note Purchase Agreement”) with Puissance. Pursuant to the March 2019 Note Purchase Agreement, on March 7, 2019, the Company issued and sold to Puissance $16.0 million aggregate principal amount of its 6.0% Senior Convertible Notes due

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2025 (“March 2019 Notes”), resulting in $14.7 million in net proceeds after deducting $1.3 million for an advisory fee and other issuance costs.

As of March 31, 2022 and December 31, 2021, the Company’s March 2019 Notes consists of the convertible debt balance of $10.4 million and $10.2 million, presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.3 million, and the bifurcated embedded conversion option derivative liability of $0.4 million and $1.4 million, respectively. In connection with the Company’s issuance of its March 2019 Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging, at its initial fair value of $7.0 million as the interest make-whole provision is settled in shares of common stock. The convertible debt and derivative liability associated with the March 2019 Notes are presented in total on the accompanying unaudited condensed consolidated balance sheets as the convertible debt and derivative liability. The derivative liability will be remeasured at each reporting period using the binomial lattice model with changes in fair value recorded in the statements of operations in other (income) expense. For the three months ended March 31, 2022 and 2021, the Company recognized gains of $1.0 million and $42,000, respectively, on the fair value adjustment for the derivative liability. For the three months ended March 31, 2022 and 2021, the Company recognized $0.2 million and $0.3 million, respectively, in amortization of debt issuance costs and discount related to the March 2019 Notes.

The Company estimated the fair value of the convertible debt and derivative liability for the March 2019 Notes using a binomial lattice valuation model and Level 3 inputs. At March 31, 2022 and December 31, 2021, the fair value of the convertible debt and derivative liability for the March 2019 Notes is $10.9 million and $12.3 million, respectively.

The March 2019 Notes were issued and sold for cash at a purchase price equal to 100% of their principal amount, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), due to the March 2019 Notes being issued to one financially sophisticated investor. The March 2019 Notes bear interest at a rate of 6.0% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning September 15, 2019. The March 2019 Notes will mature on March 15, 2025, unless earlier converted, redeemed or repurchased. The March 2019 Notes constitute general, senior unsecured obligations of the Company.

The holder of the March 2019 Notes may convert their March 2019 Notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 into shares of the Company’s common stock. The initial conversion rate is 73.9096 shares of common stock per $1,000 principal amount of March 2019 Notes, which is equivalent to an initial conversion price of approximately $13.53 and is subject to adjustment in certain events described in the March 2019 Note Purchase Agreement. The Holder upon conversion may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate if the holder elects to convert its March 2019 Notes in connection with such a corporate event. Subject to adjustment in the conversion rate, the number of shares that the Company may deliver in connection with a conversion of the March 2019 Notes, including those delivered in connection with an interest make-whole payment, will not exceed a cap of 81 shares of common stock per $1,000 principal amount of the March 2019 Notes.

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On or after March 15, 2022, the Company has the right, at its election, to redeem all or any portion of the March 2019 Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. The redemption price will be 100% of the principal amount of the March 2019 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If a “fundamental change” (as defined in the March 2019 Note Purchase Agreement) occurs, then, subject to certain exceptions, the Company must offer to repurchase the March 2019 Notes for cash at a repurchase price of 100% of the principal amount of the March 2019 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

Other Liabilities

In February 2021, the Company partnered with Amplity Inc. (“Amplity”) for the commercial launch of ibrexafungerp for the treatment of VVC. Under the terms of the 5-year agreement, the Company will utilize Amplity’s commercial execution expertise and resources for sales force, remote engagement, training, market access and select operations services. The Company will maintain full ownership of ibrexafungerp and control of all strategic aspects of the launch. Amplity is deferring a portion of its direct service fees (“Deferred Fees”) in the first two years (2021 and 2022), up to a cap, which the Company will repay over three years starting in 2023. As of March 31, 2022 and December 31, 2021, Deferred Fees of $4.1 million and $3.3 million, respectively, are recognized as long term other liabilities in the unaudited interim condensed consolidated balance sheet and represent a debt obligation.

The Deferred Fees will accrue until the earlier of (i) the cap is reached or (ii) December 31, 2022. The Deferred Fees will accrue interest at annual rate of 12.75% and will be compounded quarterly, at the end of each quarter. Interest expense is recognized using the effective interest method. The Company will repay the Deferred Fees plus accrued interest in quarterly installments at the end of each calendar quarter beginning in 2023. The total amount of Deferred Fees plus accrued interest as of December 31, 2022, will serve as the basis for repayment (the “Repayment Basis”), which shall be repaid in equal installments at the end of a given quarter calculated as follows: 15% of the Repayment Basis will be repaid in 2023; 50% of the Repayment Basis will be repaid in 2024; and 35% of the Repayment Basis will be repaid in 2025. As of March 31, 2022, the Company is obligated to repay $0.7 million in 2023, $2.1 million in 2024, and $1.5 million in 2025.

Amplity has the potential to earn a performance-based success fee (“Success Premium”) in the 2023-2025 time frame by exceeding certain revenue targets. The Company identified the Success Premium as a derivative under ASC 815 that qualified for a scope exception given the revenue targets are considered the predominant underlying of the Success Premium. For the three months ended March 31, 2022 and 2021, there was no expense recognized associated with the Success Premium, respectively.

7.	Commitments and Contingencies

Leases

On March 1, 2018, the Company entered into a long-term lease agreement for approximately 19,275 square feet of office space in Jersey City, New Jersey, that the Company identified as an operating lease under ASC 842 (the “Lease”). The lease term is eleven years from August 1, 2018, the commencement date, with total lease payments of $7.3 million over the lease term. The Company has the option to renew for two consecutive five-year periods from the end of the first term and the Company is not reasonably certain that the option to renew the Lease will be exercised. Under the Lease, the Company furnished a security deposit in the form of a standby letter of credit in the amount of $0.3 million, which was reduced by fifty-five thousand dollars on the first anniversary of the commencement date. The security deposit will continue to be reduced by fifty-five thousand dollars every two years on the commencement date anniversary for eight years. The security deposit is classified as restricted cash in the accompanying unaudited condensed consolidated balance sheets.

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The consideration in the Lease allocated to the single lease component includes the fixed payments for the right to use the office space as well as common area maintenance. The Lease also contains costs associated with certain expense escalation, property taxes, insurance, parking, and utilities which are all considered variable payments and are excluded from the operating lease liability. The incremental borrowing rate utilized approximated the prevailing market interest rate the Company would incur to borrow a similar amount equal to the total Lease payments on a collateralized basis over the term of the Lease. The following table summarizes certain quantitative information associated with the amounts recognized in the unaudited condensed consolidated financial statements for the Lease (dollars in thousands):

	Three Months Ended March 31,
	2022			2021
Operating lease cost	$	166		$	166
Variable lease cost		(3	)		(2	)
Total operating lease expense	$	163		$	164

Cash paid for amounts included in the measurement of operating lease liability	$	174		$	170

	March 31, 2022			December 31, 2021
Remaining Lease term (years)	7.34				7.59
Discount rate		15	%		15	%

Future minimum lease payments for the Lease as of March 31, 2022 are as follows (in thousands):

	March 31, 2022
2022	$	354
2023		715
2024		730
2025		744
2026		759
Thereafter		2,030
Total	$	5,332

The presentations of the operating lease liability as of March 31, 2022 are as follows (in thousands):

	March 31, 2022
Present value of future minimum lease payments	$	3,215

Operating lease liability, current portion	$	77
Operating lease liability, long-term portion		3,138
Total operating lease liability	$	3,215

Difference between future minimum lease payments and discounted cash flows	$	2,117

License Arrangement with Potential Future Expenditures

As of March 31, 2022, the Company had a license arrangement with Merck Sharp & Dohme Corp., or Merck, as amended, that involves potential future expenditures. Under the license arrangement, executed in May 2013, the Company exclusively licensed from Merck its rights to ibrexafungerp in the field of human health. In January 2014, Merck assigned the patents related to ibrexafungerp that it had exclusively licensed to the Company. Ibrexafungerp is the Company's lead product candidate. Pursuant to the terms of the license agreement, Merck was originally eligible to receive milestone payments from the Company that could total $19.0 million upon occurrence of specific events, including initiation of a Phase 3 clinical study, new drug application, and marketing approvals in each of the U.S., major European markets, and Japan. In addition, Merck is eligible to receive tiered royalties from the Company based on a percentage of worldwide net sales of ibrexafungerp. The aggregate royalties are mid- to high-single digits.

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In December 2014, the Company and Merck entered into an amendment to the license agreement that deferred the remittance of a milestone payment due to Merck, such that no amount would be due upon initiation of the first Phase 2 clinical trial of a product containing the ibrexafungerp compound (the “Deferred Milestone”). The amendment also increased, in an amount equal to the Deferred Milestone, the milestone payment that would be due upon initiation of the first Phase 3 clinical trial of a product containing the ibrexafungerp compound. In December 2016 and January 2018, the Company entered into second and third amendments to the license agreement with Merck which clarified what would constitute the initiation of a Phase 3 clinical trial for the purpose of milestone payment. In January 2019, a milestone payment became due to Merck as a result of the initiation of the VANISH Phase 3 VVC program and was paid in March 2019. On December 2, 2020, the Company entered into a fourth amendment to the license agreement with Merck. The amendment eliminates two cash milestone payments that the Company would have paid to Merck upon the first filing of an NDA, triggered by the FDA acceptance for filing of the Company’s NDA for ibrexafungerp for the treatment of VVC, and first marketing approval in the U.S. Such cash milestone payments would have been creditable against future royalties owed to Merck on net sales of ibrexafungerp. With the amendment, these milestones will not be paid in cash and, accordingly, credits will not accrue. Pursuant to the amendment, the Company will also forfeit the credits against future royalties that it had accrued from a prior milestone payment already paid to Merck. All other key terms of the license agreement are unchanged.

Clinical Development Arrangements

The Company has entered into, and expects to continue to enter into, contracts in the normal course of business with various third parties who support its clinical trials, preclinical research studies, and other services related to its development activities. The scope of the services under these agreements can generally be modified at any time, and the agreement can be terminated by either party after a period of notice and receipt of written notice.

8.	Stockholders’ Equity

Authorized, Issued, and Outstanding Common Stock

The Company’s authorized common stock has a par value of $0.001 per share and consists of 100,000,000 shares as of March 31, 2022, and December 31, 2021; 29,221,158 and 28,705,334 shares were issued and outstanding at March 31, 2022, and December 31, 2021, respectively.

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The following table summarizes common stock share activity for the three months ended March 31, 2022 and 2021 (dollars in thousands):

	Three Months Ended March 31, 2022
	Shares of Common Stock		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity
Balance, December 31, 2021		28,705,334	$	32	$	400,705	$	(359,479	)	$	41,258
Net loss		—		—		—		(5,451	)		(5,451	)