Axsome Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Axsome is a clinical-stage CNS biopharmaceutical company with no commercial products or revenue.
Business context and pipeline
Lead candidates were AXS-02, in Phase 3 trials for CRPS and knee osteoarthritis pain associated with bone marrow lesions, and AXS-05, in a Phase 3 trial for treatment-resistant depression. The company planned further trials for AXS-02 in chronic low back pain and AXS-05 in Alzheimer’s disease agitation. First patients entered the STRIDE-1 and COAST-1 Phase 3 trials in March 2016. FDA granted AXS-02 Fast Track designation for knee osteoarthritis pain in May 2016 and provided written guidance on the proposed AXS-05 Alzheimer’s agitation development plan in April.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $5.57 million | $1.52 million | $15.39 million | $4.57 million |
| General and administrative | $1.64 million | $0.50 million | $4.52 million | $1.47 million |
| Total operating expenses / operating loss | $7.21 million | $2.02 million | $19.92 million | $6.04 million |
| Net loss | $7.19 million | $4.58 million | $19.87 million | $8.85 million |
| Basic and diluted loss per share | $0.38 | $0.41 | $1.04 | $0.80 |
At September 30, 2016, cash was $33.9 million, current assets were $34.8 million, current liabilities were $6.7 million, and stockholders’ equity was $28.2 million. Accumulated deficit was $40.3 million. The company had no convertible notes outstanding and no recurring fair-value liabilities at quarter-end. It reported no revenue, so operating margins are not meaningful.
For the first nine months, operating cash use was $14.1 million, investing cash use was $0.1 million, and financing provided $0.015 million. Cash declined $14.1 million from $48.0 million at December 31, 2015. The filing attributes higher operating cash use primarily to clinical development spending and public-company costs.
Material changes versus the prior comparable periods
- Q3 R&D rose $4.0 million year over year, primarily from the CREATE-1, STRIDE-1, and COAST-1 trials. Nine-month R&D rose $10.8 million.
- Q3 G&A increased $1.1 million and nine-month G&A increased $3.1 million, reflecting public-company fees, personnel, and stock compensation.
- Net loss increased for the nine-month period, principally alongside higher operating spending. Q3 net loss was lower than in 2015 because the prior-year quarter included a $2.4 million debt-extinguishment loss and non-cash convertible-note interest expense.
- The company restated 2015 and Q1 2016 financial statements to record a non-cash convertible-note premium in additional paid-in capital. The filing states the restatement did not affect cash, total assets, total equity, operating loss, or total cash flows.
Outlook, financing, risks, and unusual items
- Management expected September cash plus proceeds from a November 2016 debt financing to fund anticipated operating cash requirements through the end of 2017; actual runway could be shorter if trial timing, design, enrollment, or costs differ from assumptions. The company expected continued losses and said it may never achieve profitability.
- In November 2016, Axsome entered a $20 million, three-tranche term-loan agreement with Silicon Valley Bank. The initial $10 million tranche was triggered upon closing; two additional $5 million tranches were available subject to clinical and financial milestones. The loan bears interest at 4.50% plus the greater of 3.50% or the Wall Street Journal prime rate, matures in November 2020, and has a 12-month interest-only period, potentially extendable to 18 months. Warrants are also part of the agreement. Proceeds were intended to support late-stage pipeline development.
- Development risks include trial outcomes and enrollment, regulatory requirements and delays, AXS-05’s formulation change to a single tablet, manufacturing dependence, competition, and the need for further financing. AXS-02 and AXS-05 had not received marketing approval.
- Axsome disclosed an unremediated material weakness in internal control over financial reporting relating to review of non-routine complex transactions. It added a third-party financial service provider and increased external-auditor involvement, but concluded disclosure controls were ineffective at the reasonable-assurance level as of quarter-end.
- Three exclusive licenses with Antecip, an entity owned by the CEO and board chair, provide for royalties of 1.5% to 4.5% of licensed-product net sales, subject to possible reductions. The filing identifies potential conflicts of interest. No material legal proceedings were reported.
Important facts for investors to verify
- Trial progress, enrollment, safety, efficacy, and regulatory requirements for AXS-02 and AXS-05, including the status of planned indications.
- Actual drawdown, conditions, interest cost, warrant dilution, and covenant terms under the SVB loan, and whether the stated runway remains achievable.
- Whether the internal-control material weakness is remediated and whether subsequent filings report further restatements or control deficiencies.
- Future cash burn, financing needs, and potential dilution, given the absence of revenue and management’s expectation of continued losses.
- Manufacturing capacity and supply arrangements, licensing obligations and related-party governance, and the competitive and reimbursement outlook if products are approved.