Skye Bioscience, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements (unaudited) for the three months ended March 31, 2025 and 2024, together with the notes thereto and the consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024. This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1943, as amended (the "Exchange Act") that involve substantial risks and uncertainties. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may,” “will,” “should,” “could,” “target,” “strategy,” “intend,” “project,” “guidance,” “likely,” “usually,” “potential,” or the negative of these words or variations of such words, similar expressions, or comparable terminology are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. A further list and description of risks, uncertainties and other factors that could cause actual results or events to differ materially from the forward-looking statements that we make is included in the cautionary statements herein and in our other filings with the SEC, including those set forth under Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements, other than as required by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Unless otherwise provided in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” and “Skye” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation, together with its consolidated subsidiaries. Overview We are a clinical stage biotechnology company developing next-generation molecules that modulate G-protein-coupled receptors ("GPCRs") to treat obesity, overweight, and related conditions. Our lead candidate, nimacimab, is a peripherally restricted negative allosteric modulating antibody targeting the CB1 receptor—a key GPCR involved in metabolic regulation. We are conducting CBeyond TM , a Phase 2a proof-of-concept clinical trial of nimacimab administered as a subcutaneous injectable for the treatment of obesity and overweight in the United States. The CBeyond TM study is also assessing the combination of nimacimab and a GLP-1 receptor agonist. We anticipate providing a top-line readout from the CBeyond™ study late in the third quarter or early in the fourth quarter of 2025, enabling a comprehensive view of nimacimab’s safety and efficacy profile. To obtain 52 weeks of treatment data, we are planning a trial extension that increases the originally planned 26 weeks of treatment to provide a longer-term assessment of safety, tolerability and efficacy. The protocol extension will provide for continued assessment for all four treatment arms including both the nimacimab monotherapy (primary endpoint) and the nimacimab/GLP-1 combination cohort (exploratory endpoint). The IRB has approved the open-label study extension to 52 weeks. We are finalizing the study protocol with the FDA in preparation for enrollment. The Data Safety Monitoring Committee for the CBeyond TM study has completed three regularly scheduled reviews and has recommended that the study continue in accordance with the study protocol. During the three months ended March 31, 2025, we announced preclinical data supporting our hypothesis that our highly-peripherally restricted molecule, nimacimab, is able to drive similar efficacy when compared to a less-peripherally restricted CB1 inhibitor, monlunabant, in a diet-induced obesity (DIO) murine model. The results of the preclinical DIO study demonstrated greater than 30% weight loss when nimacimab was combined with the dual GLP-1/GIP agonist, tirzepatide. Nimacimab alone demonstrated 23.5% weight loss, which is comparable to monlunabant and tirzepatide alone in this study. 15 We also shared in vitro potency data demonstrating that nimacimab’s non-competitive allosteric binding to CB1 provides potential advantages over orthosteric-binding small-molecule drugs. Binding to a different site on the receptor, nimacimab does not compete with natural CB1 agonists such as anandamide (AEA) and 2-arachidonoylglycerol (2-AG). It can block CB1 activity even with an elevated concentration of CB1 agonists, which is associated with obesity. In contrast, orthosteric-binding small molecule inhibitors must compete with CB1 agonists for binding at the receptor's orthosteric site, which was shown to negatively impact potency when tested under elevated CB1 agonist concentrations. This distinction may give nimacimab a wider therapeutic window, with suitable potency at lower doses and less side effects. Given the distinct mechanism and beneficial attributes of nimacimab as a peripheral CB1 inhibitor, within the large and heterogeneous obesity landscape we believe there is significant opportunity for nimacimab to potentially complement GLP-1 agonists and other anti-obesity drug mechanisms of action as well as to have a potential role as a monotherapy. We were incorporated under the laws of the State of Nevada on March 16, 2011, and our headquarters are based in San Diego, CA. We also maintain administrative office space in San Francisco, CA. Since our incorporation, we have devoted substantially all of our efforts to building our product portfolio through the acquisition of clinical assets and licensing agreements, carrying out research and development, building infrastructure and raising capital. Financial Overview Revenues To date, we have not generated any revenue. We do not expect to receive any revenue from our lead drug candidate, nimacimab, or any future drug candidates that we develop unless and until we obtain regulatory approval for, and commercialize, nimacimab or future drug candidates or generate revenue from collaborative agreements with third parties. Research and Development Expenses During the three months ended March 31, 2025, we incurred $7,197,257 in research and development expenses primarily related to our Phase 2a clinical trial of nimacimab for obesity and the manufacturing costs associated with future trials. During the three months ended March 31, 2024, we incurred $1,946,450 in research and development expense primarily related to our efforts in conducting our legacy Phase 2a SBI-100 OE clinical trial. We expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidate, nimacimab, or any future drug candidates, including but not limited to: • employee-related expenses, which include salaries, benefits and stock-based compensation; • payments to third party contract research organizations and investigative sites; • payments to third party manufacturing organizations and consultants; and • payments to third parties related to our discovery research and development efforts to build our pipeline. We expect to incur future research and development expenditures to support our preclinical, nonclinical, and clinical studies. Preclinical and nonclinical activities include early discovery efforts with novel molecules, laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety and efficacy. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our drug candidate, nimacimab, and any future drug candidate is highly uncertain. Our future research and development expenses will depend on the clinical success of nimacimab and any future drug candidates as well as ongoing assessments of the commercial potential of such drug candidates. In addition, we cannot forecast with any degree of certainty whether nimacimab or any future drug candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect to incur increased research and development expenses in the future as we continue our efforts towards advancing our lead program for nimacimab. General and Administrative Expenses Our general and administrative expenses have fluctuated year-over-year as we have entered into various strategic acquisitions to restructure and reposition our company. Additionally, as a business in the early stages of drug development we are in the process of scaling our operations by hiring additional employees and building the infrastructure necessary to increase efficiencies. These initiatives have resulted in additional costs related to the implementation of certain systems, insurance, facilities, legal, tax and accounting costs. As a public company, we expect to incur additional expenses related to insurance, investor relations activities, legal and other administration and professional services to comply with the rules and regulations of 16 the SEC, the Financial Industry Regulatory Authority ("FINRA") and Nasdaq. Other significant costs are expected to include legal fees relating to patent and corporate matters, business development costs and fees for consulting services. To incentivize our employees and be competitive to retain strong talent we issued additional equity awards in 2024 and 2023, which have resulted in increased stock-based compensation expense. We also expect that certain general and administrative expenses which are commensurate with headcount, will continue to increase in the future in order to support our expected increase in research and development activities, including increased salaries, technology, facilities and other related costs. Estimated Legal Contingency The estimated legal contingency relates to a material litigation matter that was related to our former management team. As of December 31, 2023, we had posted an appellate bond that was collateralized by an irrevocable letter of credit equal to, $9,080,202, approximately 150% of the liability recorded on our balance sheet. As of December 31, 2024, we were successful in our appeal of the judgement in the Ninth Circuit Court of Appeals and the case was remanded back to the District Court for a new trial, as a result of which we reduced the estimated legal contingency based on new key assumptions. The final amount of the loss and loss recoveries remains uncertain. We believe that it is at least reasonably possible that the estimated amount of the potential loss may change in the near term. As of March 31, 2025, the estimated legal contingency, including accrued legal expenses, is $1,913,003. Other Expense Other expense primarily includes a gain from the sale of the Avalite Sciences, Inc. ("AVI") building (the "AVI building") in the first quarter of 2024, and interest expense. These expenses are offset by interest income earned on our cash balances. Critical Accounting Estimates There have been no material changes in our Critical Accounting Estimates from the information provided in the "Critical Accounting Estimates" section of "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 , e xcept, for the addition of our critical accounting estimate related to the estimate for accrued legal contingencies and related expenses and loss recoveries. Recently Issued and Adopted Accounting Pronouncements See Note 1 to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements and recently adopted accounting pronouncements. While we expect certain recently adopted accounting pronouncements to impact our disclosures in future periods, the impact upon adoption was not significant to our current estimates and operations. Results of Operations For the three months ended March 31, 2025 and 2024 Research and Development Expenses Below is a summary of our research and development expenses during the three months ended March 31, 2025 and for the same period in 2024: Three Months Ended March 31, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Research and development expenses $ 7,197,257 $ 1,946,450 $ 5,250,807 270 % Research and development expenses for the three months ended March 31, 2025, increased by $5,250,807 as compared to the same period in 2024 . The net increase in research and development expenses was primarily due to: • Clinical trial costs increased by $1,266,302 due to increased site and patient costs related to our Nimacimab Phase 2a clinical study, offset by decrease in costs to complete our glaucoma study. • Contract manufacturing costs increased by $2,532,130 from drug substance and product costs related to resupplying our extended Phase 2a study for nimacimab and process intensification and dose optimization work, labeling and packaging related to nimacimab's future studies. • Discovery research and development increased $623,020 from increased work to interrogate nimacimab's mechanism of action and for life cycle management. 17 • Salaries and stock-based compensation increased by $526,168 due to increased headcount and the recognition of stock based compensation expense. • Consulting costs increased by $149,980 to support our nimacimab program • Depreciation expense on equipment increased by $95,035. General an d Administrative Expenses Below is a summary of our general and administrative expenses during the three months ended March 31, 2025, and for the same period in 2024: Three Months Ended March 31, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 General and administrative expenses $ 4,562,305 $ 4,205,800 $ 356,505 8 % General and administrative expenses for the three months ended March 31, 2025, increased by $356,505 as compared to the same period in 2024 . The increase in general and administrative expenses was primarily due to: • Salaries and stock-based compensation decreased by $136,137 primarily due to less stock-based compensation expense from the vesting of performance based restricted stock units which vested during the three months ended March 31, 2024, offset by an increase in cash compensation. • Consulting and advisory fees increased by $89,902 from the use of finance consultants and board member compensation. • Investor relations, marketing and communications expenses increased by $373,571 due to primarily to a market evaluation study for nimacimab and increased investor communications activities. Other (Income) Expense Below is a summary of our other (income) expense for the three months ended March 31, 2025 and for the same period in 2024: Three Months Ended March 31, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Interest expense $ 1,452 $ 436,936 (435,484) (100) % Interest income (619,054) (427,554) (191,500) 45 % Gain from the sale of asset — (1,145,141) 1,145,141 (100) % Other (income) expense (40,641) 1,040 (41,681) (4008) % Total other (income) expense $ (658,243) $ (1,134,719) $ 476,476 (42) % For the three months ended March 31, 2025, we had a reduction of other income of $476,476 primarily due to: • Gain on sale of asset for $1,145,141 during the period ended March 31, 2024 which did not recur in the current period. • Reduction of interest expenses for $435,484 due to the reduction of debt compared to the corresponding period of prior year. • Increases in interest income and other income of $233,181 due to the increased interest from our short-term investments yields. 18 Liquidity and Capital Resources Liquidity We have incurred operating losses and negative cash flows from operations since our inception, and as of March 31, 2025, we had working capital of $57,708,321, an accumulated deficit of $142,052,991, and stockholders’ equity of $59,250,314. We had unrestricted cash and cash equivalents and short-term investments in the amount of $59,223,949 as of March 31, 2025, as compared to $68,415,741 as of December 31, 2024. For the three months ended March 31, 2025 and 2024, the Company incurred losses from operations of $11,759,562 and $6,152,250, respectively. For the three months ended March 31, 2025 and 2024, the Company incurred net losses of $11,103,319 and $5,019,531, respectively. In January 2024 and March 2024, we completed two private placement equity transactions (the "January and March PIPE Financings") with institutional accredited investors in which we raised combined net aggregate proceeds of $83,556,563. We expect that the net proceeds raised from the January and March PIPE Financings, will allow us to fund our clinical trial for obesity through top-line Phase 2a data, complete process intensification manufacturing activities along with drug substance and product manufacturing work needed for future studies, plan for our Phase 2b dose ranging study and provide us with the ability to expand upon our metabolic program with our other research and development efforts. In May 2024 we entered into the ATM Agreement under which the Company may sell up to $100,000,000 of shares of common stock through the Sales Agent. The Company has not sold any shares under the ATM Agreement as of the date hereof and is not obligated to, and cannot provide any assurances that the Company will make any sales of the shares under the ATM Agreement. In August 2024, the holder of the Convertible Note exercised their conversion option and converted the principal balance of $5,000,000 into 968,973 shares of our common stock. During the fourth quarter of 2024, we were successful in our appeal in the Ninth Circuit of the judgment of a material litigation matter, which has been remanded to the District Court for a new trial, and the bond related to the judgement was exonerated, allowing us to recover $9,000,000 in restricted cash. Additionally, in a related case with our insurance carrier, we collected $2,000,000 during the fourth quarter of 2024. The recovered funds have been reallocated to further our clinical pipeline and extend our cash runway. The Company’s unaudited condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Based on its current operational requirements, the Company believes that its current cash will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: • the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities; • our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; • the timing of, and the costs involved in, obtaining regulatory approvals for nimacimab or any future drug candidates; • the number and characteristics of the drug candidates we seek to develop or commercialize; • the cost of manufacturing clinical supplies, and establishing commercial supplies of our drug candidates, both in the U.S. and internationally; • the cost of commercialization activities if our current or future drug candidates are approved for sale, including marketing, sales and distribution costs; • the expenses needed to attract and retain skilled personnel; • the costs associated with being a public company; • the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval; • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation; and 19 • the impact of any of the foregoing of macroeconomic events, including inflation, fluctuating interest and exchange rates, and market volatility as a result of trade, fiscal and regulatory policies, including tariffs. Cash Flows The following is a summary of our cash flows for the periods indicated and has been derived from our unaudited condensed consolidated financial statements which are included elsewhere in this Quarterly Report on Form 10-Q: Three Months Ended March 31, 2025 2024 Net cash used in operating activities $ (9,185,480) $ (4,708,123) Net cash (used in) provided by investing activities (12,808,962) 1,141,960 Net cash provided by financing activities — 85,652,617 Cash Flows from Operating Activities The primary use of cash for our operating activities during the period was to fund research development activities for our clinical product candidate and general and administrative activities. Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as stock-based compensation, depreciation and amortization, amortization of debt discount and the gain on sale of asset. Cash used in operating activities of $9,185,480 during the three months ended March 31, 2025, reflected a net loss of $11,103,319, partially offset by aggregate non-cash charges of $2,379,288 and included a $461,449 net cash outflow in our operating assets and liabilities. Non-cash charges included $2,201,909 for stock-based compensation expense primarily attributable to the recognition of current period expense on prior grants and $177,379 in depreciation and amortization. The net change in our operating assets and liabilities included a $1,392,326 cash outflow from the increase in our prepaid expenses and other current assets, a $284,902 net cash outflow from decrease in our accrued expenses and other current liabilities and a $1,215,779 cash inflow from the increase of our accounts payable. Cash used in operating activities of $4,708,123 during the three months ended March 31, 2024, reflected a net loss of $5,019,531, partially offset by aggregate non-cash charges of $1,597,803 and included a $1,286,395 net change in our operating assets and liabilities. Cash Flows from Investing Activities During the three months ended March 31, 2025, our cash used in investing activities related primarily to the purchase of $12,802,650 in short-term investments. During the three months ended March 31, 2024, our cash provided by investing activities related primarily to the net proceeds received in the amount of $1,145,141 from the sale of real estate . Cash Flows from Financing Activities Cash flows from financing activities primarily reflect proceeds from the sale of our securities. During the three months ended March 31, 2024, cash provided by financing activities included $85,652,617 in proceeds received in connection with the January and March PIPE Financings, net of issuance costs. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. 20