Axsome Therapeutics, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; filed November 8, 2017. Axsome is a clinical-stage biopharmaceutical company developing CNS and pain therapies. It had no approved products and generated no revenue.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $4.47 million | $5.57 million | $15.46 million | $15.39 million |
| General and administrative | $1.83 million | $1.64 million | $5.26 million | $4.52 million |
| Total operating expenses | $6.30 million | $7.21 million | $20.72 million | $19.92 million |
| Net loss | $6.43 million | $7.19 million | $21.51 million | $19.87 million |
| Net loss per share, basic and diluted | $0.27 | $0.38 | $0.97 | $1.04 |
- At September 30, cash was $31.67 million, down from $36.62 million at December 31, 2016. Total assets were $32.62 million; current assets were $32.42 million and current liabilities $8.40 million.
- Cash used in operations in the first nine months was $20.18 million, compared with $14.06 million in the comparable 2016 period. Investing used $0.01 million; financing provided $15.25 million, principally from the March stock offering.
- Term-loan principal outstanding was $10.0 million. The balance sheet reports $2.72 million current and $7.38 million long-term, net of debt discount. The loan bears interest at 4.50% plus the applicable prime rate, has an 8.5% final payment fee, and matures in November 2020.
- No gross or operating margin is meaningful because the company had no revenue. Accumulated deficit was $69.15 million.
Changes versus the comparable period
- Q3 operating expenses fell $0.91 million, primarily because costs for previously initiated trials declined; the reduction was partly offset by ADVANCE-1 startup, AXS-06 preclinical work, and manufacturing costs. Q3 net loss narrowed by $0.76 million.
- For the first nine months, operating expenses rose $0.80 million and net loss widened $1.64 million. Higher G&A, mainly intellectual-property and stock-compensation costs, and increased AXS-05/AXS-06 and manufacturing activity offset lower costs in certain ongoing trials.
- Operating cash use increased $6.12 million year over year, reflecting spending and working-capital changes. Cash at period end was $2.21 million below September 2016.
- The March 2017 offering raised approximately $14.8 million net and issued 4.30 million shares. Common shares outstanding rose to 23.67 million by November 3, 2017, from 19.16 million at year-end 2016.
Outlook, risks and unusual items
- Management estimated that September 30 cash would fund anticipated operating needs into the first quarter of 2019, but emphasized that trial timing, design, costs, and other assumptions could cause cash to run out sooner. The company expects continued losses and says significant additional financing will be needed; profitability is uncertain.
- Development programs included Phase 3 studies of AXS-05 for treatment-resistant depression and AXS-02 for CRPS and knee osteoarthritis associated with bone marrow lesions; AXS-05 was also being studied in a Phase 2/3 Alzheimer’s agitation trial. AXS-06 had completed Phase 1.
- Interim efficacy analyses for AXS-02’s CREATE-1 and COAST-1 trials were expected in late December 2017 to early January 2018. The filing cautions that interim findings may not predict final results.
- An October 2017 at-the-market sales agreement authorized up to $30 million of stock sales, with a 3% agent commission. No shares had been sold under it through November 8, 2017.
- The SVB facility allowed up to $20 million, but only the initial $10 million had been drawn. Additional $5 million tranches were conditional on clinical and financial milestones; the second required positive CREATE-1 interim results and at least $30 million in qualifying net equity proceeds. The loan is secured by company assets other than intellectual property, which is subject to a negative pledge; covenants and default provisions could constrain operations.
- A $207,114 Australian research and development tax credit related to 2016 spending was recorded in 2017; it reduced the reported loss but was not product revenue.
- Material risks include clinical-trial failure or delay, regulatory uncertainty, dependence on external manufacturers and CROs, future financing and dilution, and competition. Grunenthal challenged patents relevant to AXS-02: a limited post-grant review of the ’239 patent proceeded on written-description grounds, while petitions concerning the ’862 and ’268 patents were pending or awaiting PTAB action. The filing says outcomes are uncertain. It reports no material pending legal proceedings.
- Three exclusive licenses with Antecip, an entity owned by the CEO and board chair, cover key candidates and require specified royalties on future net sales. The relationship presents a disclosed potential conflict of interest.
Key facts for investors to verify
- Current cash runway and assumptions behind the estimate extending into Q1 2019, including expected trial spending and financing needs.
- CREATE-1 and COAST-1 interim results, subsequent trial progress, and whether loan-tranche conditions were met.
- PTAB decisions and any further patent challenges affecting AXS-02, as well as the implications for potential exclusivity and commercialization.
- Actual ATM sales, resulting dilution, and any future equity or debt financing.
- Clinical, regulatory, manufacturing, and safety developments across AXS-02, AXS-05, and AXS-06; none of the candidates had regulatory approval or generated product revenue at the reporting date.