SCYNEXIS: Why RBC Capital Has It As 'Outperform' With Huge Potential Upside

| About: SCYNEXIS, Inc. (SCYX)

Summary

SCYNEXIS is a small and "off the radar" antifungal concern that gets little attention from the analysis community or the press.

Although speculative, the company has substantial potential. So much so, that RBC Capital has it as a "Outperform, Speculative Risk" with a $15 price target, ~400% above current trading levels.

Today we are making a previous exclusive article available with a full investment analysis on SCYNEXIS for aggressive investors within a well-diversified biotech portfolio.

The concern continues to see insider buying in the stock.

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Given the opening week of the NFL playoff season was largely a snooze fest, I had plenty of time to go through an over 250 page biotech outlook report from RBC Capital last weekend.

One small company within the report that caught my eye was SCYNEXIS (NASDAQ:SCYX). This tiny antifungal concern gets little coverage by analysts or the media. The last time it was written about on SeekingAlpha was in mid-September and the last analyst activity on it was over two months ago.

However, it was put into the Insiders Forum portfolio in late September both due to its risk/reward profile and insider buying. Although the stock has done little since that time, insiders continue to be buyers with the Chief Medical Officer and CEO picking up nearly $100,000 in combined shares just before the holidays.

The stock has a market capitalization of just south of $100 million and the stock sells for just over $3.50 a share currently. However, its lead compound "SCY - 078" has huge upside potential. RBC is modeling an over 60% chance of approval of this drug candidate. It sees peak worldwide sales of approximately $2 billion and a launch in the United States in 2019. It has an "Outperform, Speculative Risk" on the name with a $15 price target.

Given how little coverage this small cap concern receives and the huge potential upside (Current median analyst price target is $13), I have decided to make my original exclusive article available to the SeekingAlpha community. I offer it up for consideration for aggressive growth investors within a well-diversified biotech portfolio.

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Excerpts from September 28th Article:

For our 14th selection for the Insiders Forum portfolio, we go back to the biotech sector which has served us so well to this point. Our next recommendation is SCYNEXIS (NASDAQ:SCYX).

Company Overview:

SCYNEXIS is a New Jersey pharmaceutical company focused on the development and commercialization of novel anti-infectives to address significant unmet therapeutic needs. The company had clinical and preclinical programs based on the use of cyclophilin inhibitors to treat viral diseases and provide contract research and development services, primarily in the field of animal health. The company sold their cyclophilin inhibitor platform to Cypralis, a UK-based life sciences company in early summer, to monetize this non-strategic asset and focus on development of our lead programs. Under the terms of this agreement, SCYNEXIS is eligible to receive milestone payments upon the successful progression of Cypralis drug candidates into later stages of development as well as sales royalties payable upon product commercialization

The company came public early in 2014 and currently sells for $3.95 a share with a market capitalization of just under $100 million. The stock has had a decent rally recently but is selling at about half its 52-week highs and about one third the level of its post-IPO highs.

Pipeline:

The company has an intriguing compound being developed for myriad indications.

SCY-078

This was originally a drug called MK-3118 which Merck (NYSE:MRK) gave the right to SCYNEXIS which developed it. For more details on that story, click here. This compound is a novel oral and intravenous {IV} drug for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections. SCY-078 is a novel and structurally distinct glucan synthase inhibitor that has been shown to be effective in vitro and in vivo in animal studies against a broad range of Candida and Aspergillus species, including drug-resistant strains.

The company believes that SCY-078 has the potential to play an important role in treating patients with invasive fungal infections, particularly those infected with resistant Candida and Aspergillus species.

SCYNEXIS received a Qualified Infectious Disease Product (QIDP) designation and Fast Track designation for the oral formulation of SCY-078 for the treatment of invasive candidiasis (including candidemia) and invasive aspergillosis. In 2016, the company received both QIDP and Fast Track designations for the IV formulation of SCY-078 for the same indications. The company is also developing SCY-078 as a treatment for VVC, commonly known as a "yeast infection". There are over two million cases of this affliction a year in the United States, so this is a large potential market. Two Phase II trial and one Phase I trial should have results out by the end of 2016. All of which could be potentially positive catalysts for the stock

Insider Buying:

There has been some notable insider buying in the stock by insiders of late. A director bought just under $120,000 of shares on September 15th. This followed an active May and June, where the CEO, CFO, Chief Medical Officer and several directors bought over $600,000 worth of shares in myriad transactions.

Analyst Commentary & Balance Sheet:

Analyst commentary is very positive and quite extensive for such a small cap. The median price target by analysts that cover the stock is just north of $12.00 a share currently. Since early August several analyst firms have reiterated or upgraded the stock to a Buy. On August 8th a five-star ranked analyst (TipRanks) at Needham reiterated the stock to a Buy and place a $10 price target on SCYX. A day later, a five-star ranked analyst upgraded the shares to a Buy with a $8 price target.

On August 17th, Guggenheim initiated the shares as a Buy with a $15 price target and Brean Capital reiterated its Buy rating and a $16 price target. Brean's analyst expanded on why he is very optimistic about the company:

"Last week, SCYNEXIS reported interim results from its Phase 2 trial of oral SCY-078 in patients with invasive Candida (IC) infections. This randomized, multicenter, open-label trial evaluated the PK, safety and tolerability of SCY-078 as an oral step-down following 3-10 days of IV echinocandin treatment. SCY-078 750 mg QD was identified as a safe and well-tolerated dose that achieves target exposure at steady state in more than 80% of IC patients (the primary endpoint), and the favorable tolerability versus fluconazole allows for exploration at higher doses than 750 mg QD. The interim results also confirmed the clinically meaningful antifungal activity previously demonstrated in the Phase 2 acute VVC trial. The 3 main objectives of the IC trial were; 1) a PK analysis to identify the optimal oral dose to achieve target exposure, 2) collecting safety and tolerability data; and 3) collecting elements of efficacy (despite the trial not being an efficacy trial) to further confirm the drug's antifungal activity in the target population. Taking the IC data together with positive data from its Phase 2 trial in VVC in June, we believe that the SCY-078 program is substantially de-risked. The Phase 1 intravenous SCY-078 trial will report data in November. We expect SCYNEXIS to start its registration program evaluating IV/ oral SCY-078 as planned in 4Q16 (the refractory trial) and 1H17 (the registration IC trial). Top- line data from both trials are expected by YE17."

The company raised approximately $22 million through a secondary offering in the second quarter and ended the first half of the year with just over $50 million in cash & marketable securities. Management has stated cash on hand will fund operations through the end of the third quarter of 2018.

Outlook:

I like this company as it has upcoming milestones, is well-funded, is aiming at targetable audiences, has strong analyst support and of course, has recent insider buying. Given this I am labeling SCYNEXIS an attractive risk/reward opportunity.

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Thank You & Happy Hunting

Bret Jensen

Founder, Insiders Forum

Disclosure: I am/we are long SCYX.

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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