Soleno Therapeutics(SLNO) - 2025 Q2 - Quarterly Report

PART I Financial Statements The company began generating product revenue from VYKAT XR in Q2 2025, leading to a net loss of $48.5 million for the first six months of 2025 due to commercial launch costs, while total assets slightly increased to $332.3 million Condensed Consolidated Balance Sheets The balance sheet reflects a slight increase in total assets to $332.3 million as of June 30, 2025, with new current assets from the VYKAT XR commercial launch Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $76,497 | $87,928 | | Marketable securities | $217,346 | $230,720 | | Total current assets | $316,789 | $293,889 | | Total assets | $332,306 | $330,972 | | Liabilities & Equity | | | | Total current liabilities | $20,943 | $18,747 | | Long-term debt, net | $49,845 | $49,828 | | Total liabilities | $92,166 | $85,859 | | Total stockholders' equity | $240,140 | $245,113 | - The company reported new current assets of Accounts Receivable ($24.6 million) and Inventory ($2.4 million) as of June 30, 2025, following the commercial launch of VYKAT XR[9] Condensed Consolidated Statements of Operations and Comprehensive Loss The company recorded its first product revenue of $32.7 million in Q2 2025, but increased selling, general, and administrative expenses led to a net loss of $48.5 million for the first six months of 2025 Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $32,657 | $— | $32,657 | $— | | Total operating expenses | $39,182 | $24,868 | $84,925 | $48,343 | | Research and development | $9,147 | $12,342 | $22,664 | $26,944 | | Selling, general and administrative | $28,238 | $10,889 | $57,497 | $19,361 | | Operating loss | $(6,525) | $(24,868) | $(52,268) | $(48,343) | | Net loss | $(4,708) | $(21,854) | $(48,481) | $(43,252) | | Net loss per share, basic and diluted | $(0.09) | $(0.57) | $(1.00) | $(1.16) | - The company began generating product revenue in Q2 2025, recording $32.7 million following FDA approval of VYKAT XR, which was accompanied by a significant increase in Selling, General and Administrative expenses to support the commercial launch[11] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $45.4 million for the first six months of 2025, while investing activities provided cash and financing activities contributed $18.9 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(45,360) | $(30,179) | | Net cash provided by (used in) investing activities | $15,022 | $(236,165) | | Net cash provided by financing activities | $18,907 | $153,687 | | Net decrease in cash and cash equivalents | $(11,431) | $(112,657) | - Net cash used in operating activities increased to $45.4 million in the first six months of 2025 from $30.2 million in the prior year period, primarily due to costs associated with the commercial launch of VYKAT XR[16] - Financing activities in the first half of 2025 provided $18.9 million, mainly from the exercise of stock options and warrants, compared to $153.7 million in the same period of 2024 which included proceeds from a common stock sale[16] Notes to Condensed Consolidated Financial Statements The notes detail the FDA approval and commercial launch of VYKAT XR, the company's liquidity position, debt agreements, and revenue recognition policies - The company's lead product, VYKAT XR, received FDA approval on March 26, 2025, for treating hyperphagia in patients with Prader-Willi syndrome (PWS), with revenue recognition beginning in Q2 2025[18] - As of June 30, 2025, the company held $76.5 million in cash and cash equivalents and $217.3 million in marketable securities, which management deems sufficient to meet obligations for at least the next twelve months[19][24] - The company has a loan agreement with Oxford for up to $200 million, with $50 million outstanding as of June 30, 2025, and an additional $50 million available upon FDA approval of VYKAT XR[20][66] - Subsequent to the quarter end, in July 2025, the company closed an underwritten public offering of common stock, raising gross proceeds of $230.0 million[23][103] - Product revenue is recognized upon transfer of control to its single specialty pharmacy customer, with net revenue including estimates for variable consideration totaling $4.3 million in provisions for the six months ended June 30, 2025[34][35][38] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to a commercial-stage entity following VYKAT XR's FDA approval, highlighting initial product revenue of $32.7 million in Q2 2025, increased SG&A expenses for launch, and strengthened liquidity from a recent $230 million public offering Results of Operations The company's results reflect the commercial launch of VYKAT XR, with new product revenue offset by significantly increased selling, general, and administrative expenses Comparison of Three Months Ended June 30, 2025 and 2024 (in thousands) | Item | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $32,657 | $— | $32,657 | 100% | | Research and development | $9,147 | $12,342 | $(3,195) | (26%) | | Selling, general and administrative | $28,238 | $10,889 | $17,349 | 159% | | Net loss | $(4,708) | $(21,854) | $17,146 | (78%) | - For Q2 2025, R&D expenses decreased by $3.2 million (26%) YoY due to lower costs for the NDA submission, while SG&A expenses increased by $17.3 million (159%) YoY, driven by hiring and program costs for the commercial launch of VYKAT XR[121][122] Comparison of Six Months Ended June 30, 2025 and 2024 (in thousands) | Item | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $32,657 | $— | $32,657 | 100% | | Research and development | $22,664 | $26,944 | $(4,280) | (16%) | | Selling, general and administrative | $57,497 | $19,361 | $38,136 | 197% | | Net loss | $(48,481) | $(43,252) | $(5,229) | 12% | - For the first six months of 2025, SG&A expenses increased by $38.1 million (197%) YoY, reflecting a $15.3 million increase in personnel costs and a $12.6 million increase in commercial launch program costs[131] Liquidity and Capital Resources The company maintains a strong liquidity position with substantial cash and marketable securities, further bolstered by available debt and a recent public offering - As of June 30, 2025, the company had $76.5 million in cash and cash equivalents and $217.3 million in marketable securities, with a working capital of $295.8 million[134] - The company has access to additional capital through its loan agreement with Oxford, with $50 million available through September 30, 2025, and further tranches available upon meeting certain milestones[135] - In July 2025, the company raised gross proceeds of $230.0 million from a public offering of common stock, further strengthening its capital position[137] - Management believes that existing cash, cash equivalents, and marketable securities are sufficient to meet working capital needs for the next twelve months[138] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its exposure to market risk during the six months ended June 30, 2025, as compared to the disclosures in its 2024 Annual Report on Form 10-K - There have been no material changes to the company's market risk exposure during the first six months of 2025[148] Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2025, due to a material weakness in IT general controls, for which a remediation plan is being implemented - Management concluded that disclosure controls were not effective as of June 30, 2025, due to a material weakness in internal control[151] - The material weakness relates to ineffective design and operation of controls over certain information technology general controls (ITGCs), including segregation of duties, program change management, and user access controls[152] - The company is implementing a remediation plan that includes hiring additional personnel, enhancing training, and improving oversight of IT controls[154][157] PART II—OTHER INFORMATION Legal Proceedings The company states that it may be party to litigation in the ordinary course of business but currently believes these matters will not have a material adverse effect - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[159] Risk Factors The company faces significant risks primarily from its dependence on the commercial success of VYKAT XR, alongside financial, operational, intellectual property, and regulatory challenges, including potential stock price volatility - The company is highly dependent on the commercial success of its sole FDA-approved product, VYKAT XR[164] - The company has a limited commercialization history, has incurred significant losses since inception, and may need additional funds to support operations[162][167] - Market acceptance of VYKAT XR by physicians, patients, and payers is critical for commercial success and is not guaranteed[187] - The company relies on sole source suppliers for manufacturing and a single specialty pharmacy for initial U.S. distribution, posing supply chain and commercialization risks[236][240] - The company faces risks from potential intellectual property infringement claims and challenges in maintaining and enforcing its own patent rights[245][251] - Ongoing regulatory obligations, healthcare reform measures like the Inflation Reduction Act, and compliance with fraud and abuse laws present significant challenges[292][307][314]