Nature of Operations and Business Activities |
9 Months Ended |
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Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Nature of Operations and Business Activities | Nature of Operations and Business Activities Nature of Operations
Skye Bioscience, Inc. (the “Company” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage pharmaceutical company focused on the discovery, development and commercialization of novel classes of therapeutic drugs that modulate the endocannabinoid system, which has been shown to play a vital role in overall human health. Notably, the Company is developing drugs with novel mechanisms of action targeting the CB1 receptor through its own research efforts acquired intellectual property and license agreements.
On May 11, 2022, the Company entered into an Arrangement Agreement, as amended on June 14, 2022, July 15, 2022 and October 14, 2022 (the “Arrangement Agreement”) with Emerald Health Therapeutics, Inc., a corporation existing under the laws of the Province of British Columbia, Canada (“EHT”), pursuant to a plan of arrangement under the Business Corporations Act (British Columbia) (the “EHT Acquisition”) (Note 3). On November 10, 2022, the Company completed the EHT Acquisition. Each share of EHT common stock outstanding immediately prior to the effective time of the EHT Acquisition was transferred to the Company in exchange for 1.95 shares of Company common stock (the “Exchange Ratio”).
In addition, on November 10, 2022, EHT entered into a share purchase agreement with a third party for the sale of EHT's subsidiary, Verdélite Sciences, Inc. ("VDL") for an aggregate purchase price of $9,451,233, subject to certain adjustments (the “Verdélite SPA"). The sale of VDL closed on February 9, 2023 and completes the divestiture of EHT's most significant asset (Note 3).
On August 18, 2023, the Company completed a strategic transaction to acquire a clinical asset pursuant to an Agreement and Plan of Merger and Reorganization, dated as of August 15, 2023, by and among the Company, Bird Rock Bio, Inc. and Aquila Merger Sub, Inc., pursuant to which Aquila Merger Sub, Inc. merged with and into Bird Rock Bio, Inc. with Bird Rock Bio, Inc. surviving as a wholly owned subsidiary of the Company (the “BRB Acquisition”). In connection with the BRB Acquisition, Bird Rock Bio changed its name from Bird Rock Bio, Inc. to Bird Rock Bio Sub, Inc ("BRB"). In the BRB Acquisition, the Company issued to certain former stockholders of BRB an aggregate of 5,436,378 shares of the common stock of the Company, par value $0.001 per share, valued at $21,609,586 (Note 3).
As of September 30, 2023, the Company has devoted substantially all its efforts to securing product licenses, carrying out its own research and development, preparing for and conducting clinical trials, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.
Liquidity and Going Concern
The Company has incurred operating losses and negative cash flows from operations since inception and as of September 30, 2023, had working capital of $1,567,627 and an accumulated deficit of $99,962,619. As of September 30, 2023, the Company had unrestricted cash in the amount of $5,126,245. For the three and nine months ended September 30, 2023 and 2022, the Company incurred losses from operations of $24,705,766 and $2,922,282, and $30,648,916 and $9,028,662, respectively. For the three and nine months ended September 30, 2023 and 2022, the Company incurred net losses of $24,945,834 and $3,127,283, and $33,224,854 and $9,589,960, respectively. The Company expects to continue to incur significant losses through the end of 2023 and expects to incur significant losses and negative cash flows from operations in the future.
The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. During the nine months ended September 30, 2023, management implemented cost cutting measures to extend its cash runway while searching for additional financing. These measures have included the deferral of payments to employees, the postponement of certain nonclinical studies, a hold on non-essential travel and hiring, and the deferral of certain operational contracts. On August 18, 2023, the Company entered into the Convertible Note Financing and PIPE Financing which provided the Company with the necessary funds to continue operations into the first quarter of 2024 and to post an appeal bond to stay the execution of the judgment in the Cunning Lawsuit. However, the Company will still need to obtain near-term financing to continue its two planned Phase 2 clinical studies. The Company's ability to raise funds at favorable terms, market conditions, and the uncertainty of our ability to successfully resolve the Cunning Lawsuit give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
During the quarter ended September 30, 2023, the Company met its operational funding requirements through its cost-cutting measures, including the termination of certain consulting agreements and the PIPE Financing and Convertible Note Financing. The Company will continue the liquidation of EHT's assets, including the sale of the real estate held by Avalite Sciences, Inc. ("AVI"). However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms in sufficient time for us to continue operations, or at all. If the Company raises additional funds by issuing equity securities, dilution to existing stockholders would result.
In January 2023, the Company was subject to an unfavorable outcome in a lawsuit with a former employee which resulted in the recognition of an estimated legal contingency of $6,212,319. The Company strongly believes that this case was incorrectly decided as to liability, the amount of compensatory damages, and the appropriateness and amount of punitive damages. The Company is vigorously challenging the verdict in the Ninth Circuit Court of Appeals and is pursuing reimbursement under its existing insurance policies. However, the outcome of the litigation and the amount recoverable under the Company's existing insurance policies, if any, is inherently uncertain (Note 12). Concurrent with the PIPE Financing the Company obtained a stay on execution of the judgement in such litigation by posting an appeal bond in the amount of $9,080,202. For a further description of this litigation, see Note 12, "General Litigation and Disputes - Wendy Cunning vs. Skye Bioscience, Inc." to the accompanying Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Concurrent with the Cunning Lawsuit, the Company brought a lawsuit against its D&O carrier, Partner Re, challenging the previous denial of coverage and seeking damages and an order that Partner Re is obligated to reimburse the Company for the defense fees and costs incurred in the defense of the Cunning Lawsuit and requiring Partner Re to indemnify the Company for any settlement or judgment in the Cunning Lawsuit. On April 17, 2023, Partner Re filed a motion to dismiss the Company's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). On June 20, 2023, the judge issued a final ruling in favor of the Company and denied Partner Re's motion to dismiss the lawsuit. In the ruling, the Court rejected Partner Re's primary basis for denying coverage. Based on this outcome, the Company is pursuing up to $5,000,000 in coverage less the deductible, to cover legal expenses incurred and the final verdict or settlement. For a further description of this litigation, see Note 12, "General Litigation and Disputes - Skye Bioscience, Inc. vs. Partner Re Ireland Insurance" to the accompanying Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
On February 16, 2023, Emerald Health Sciences ("Sciences"), a related party (Note 11) exercised all of its outstanding warrants and agreed to offset the remaining principal balance plus accrued interest outstanding under the Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) by the aggregate exercise price of $282,905 before converting the remaining balance of the Amended Credit Agreement in the amount of $1,597,236 (Notes 5 & 6). As of September 30, 2023, Sciences has no outstanding warrants or debt with the Company.
On July 24, 2023, the Company entered into a loan agreement in the principal amount of $250,000 (the “Bridge Loan”). The Bridge Loan was obtained in order to provide bridge financing for the business to secure additional strategic financing. On August 18, 2023, the Bridge Loan was cancelled and converted into a $250,000 investment in the PIPE Financing (Note 7).
Concurrent with the BRB Acquisition (Note 3), the Company entered into a Securities Purchase Agreement with three investors for net proceeds of $11,734,947. The Company allocated 2,989,981 shares of common stock to the PIPE Financing and issued 2,325,537 warrants with an exercise price of $5.16. The warrants may be exercised at any time after issuance and have a ten year expiration (Note 7). The PIPE Financing provided the Company with the necessary funds to commence its Phase 2 SBI-100 OE clinical study and appeal the Cunning Lawsuit. The investors pursuant to the PIPE Financing are subject to a one-year lock-up from the date of closing prohibiting their sales of common stock and warrants.
It is possible that the Company may encounter issues relating to supply chain inefficiencies, a lack of production or laboratory resources, global economic and political conditions, pandemics or cyberattacks that could cause business disruptions and clinical trial delays which will need to be managed in the future. The factors to take into account in going concern judgements and financial projections include travel bans, restrictions, government assistance and potential sources of replacement financing, financial health of service providers and the general economy.
The Company does not believe that inflation has had a material impact on its operating results during the periods presented. However, inflation has had, and may continue to have, an impact on general and administrative costs such as professional fees, employee costs and travel costs, and may in the future adversely affect the Company's operating results. In addition, increased inflation has had and may continue to have an effect on interest rates. Increased interest rates may adversely affect the terms under which the Company can obtain any potential additional funding.
Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of SBI-100 OE and nimacimab is conducted in the United States and Europe. Formulation of both products for clinical trial use relies on regulatory-accepted excipients that can be sourced from countries outside the United States. Since the COVID-19 pandemic, global supply chain disruptions have become more common and the Company may encounter future issues related to sourcing materials and excipients for both the formulation and manufacturing process.
After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
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