On May 1, 2019 Flex Pharma, Inc. (NASDAQ: FLKS), reported its financial results for the three months ended March 31, 2019 (Press release, Flex Pharma, MAY 1, 2019, View Source [SID1234535500]).
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On January 3, 2019, Flex Pharma (the "Company") and Salarius Pharmaceuticals, LLC ("Salarius") entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, among other things, Falcon Acquisition Sub, LLC, a wholly owned subsidiary of the Company, will merge with and into Salarius, with Salarius continuing as a wholly owned subsidiary of the Company and the surviving company. The Company has filed a registration statement on Form S-4 with the Securities and Exchange Commission (the "SEC") that provides additional information related to the merger. The Company is holding a special meeting of its stockholders on June 14, 2019, in order to obtain the necessary stockholder approvals to complete the merger and related matters. The merger is expected to close in the first half of 2019. The Company continues to sell HOTSHOT, its consumer product that helps to prevent and treat exercise associated muscle cramps.
The Merger Agreement (i) values Flex Pharma at $10.5 million, subject to adjustment, on a dollar-for-dollar basis, based on Flex Pharma’s net cash balance at the closing of the merger compared to a target net cash of $3.3 million, and (ii) values Salarius at $36.6 million, subject to adjustment, on a dollar-for-dollar basis, based on the sale of Series A Preferred Units pursuant to subscription agreements that Salarius entered into prior to the Merger Agreement compared to the target sale of $7.0 million of Series A Preferred Units.
Under the Merger Agreement, immediately following the effective time of the merger, Flex Pharma’s current stockholders will own approximately 19.9% of the combined company, on a partially-diluted basis, and Salarius’ current members will own approximately 80.1% of the combined company, on a partially-diluted basis.
In addition, at or prior to the closing of the merger, Flex Pharma will pay a dividend of or distribute one right per share of the Company’s common stock to its stockholders of record as of a date and time determined by the Company’s board of directors. Each right will entitle such stockholders to receive a warrant to purchase shares of Flex Pharma’s common stock ("Warrant") six months and one day following the closing date of the merger.
The aggregate value of all of the Warrants to be issued to Flex Pharma’s stockholders generally represents the difference between (i) Flex Pharma’s value per the Merger Agreement and (ii) the value of Flex Pharma’s common stock that Flex Pharma’s current stockholders will have in the combined company.
"We continue to believe that a merger with Salarius is the best opportunity for significant near- and long-term value creation for Flex stockholders. Salarius’ lead compound, Seclidemstat, is currently enrolling patients in an open-label Phase 1 dose escalation/dose expansion study in Ewing sarcoma and Salarius is also preparing to initiate additional studies in advanced solid tumors, including prostate, breast and ovarian cancers. We believe that Salarius could be poised to address significant unmet needs in oncology and we look forward to completing the merger with Salarius," stated William McVicar, Ph.D., Flex Pharma’s President and Chief Executive Officer.
First Quarter 2019 Financial Results
Cash Position: As of March 31, 2019, Flex Pharma had cash and cash equivalents of $7.3 million. The Company held no marketable securities at March 31, 2019. During the three months ended March 31, 2019, cash and cash equivalents decreased by $2.5 million.
Total Revenue: Total revenue for the three months ended March 31, 2019 was approximately $105,000.
Cost of Product Revenue: Cost of product revenue for the three months ended March 31, 2019 was approximately $47,000. There were no inventory write-offs during the three months ended March 31, 2019.
R&D Expense: Research and development expense for the three months ended March 31, 2019 was approximately $2,000.
SG&A Expense: Selling, general and administrative expense for the three months ended March 31, 2019 was $2.3 million, including merger related costs of $1.2 million. Selling, general and administrative expense for this period also included personnel costs (including salaries and stock-based compensation costs), fulfillment costs related to HOTSHOT, legal and professional costs, and external consultant costs.
Net Loss and Cash Flow: Net loss for the three months ended March 31, 2019 was ($2.2) million, or ($0.12) per share and included $0.2 million of stock-based compensation expense. As of March 31, 2019, Flex Pharma had 18,068,017 shares of common stock outstanding. The net loss for the first quarter of 2019, was primarily driven by the Company’s operating expenses related to its merger related costs, costs associated with HOTSHOT, and general and administrative costs.