Axsome Therapeutics, Inc. — Q2 2016 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company developing CNS and pain therapies. This unaudited report covers the quarter and six months ended June 30, 2016; it was filed August 9, 2016. Axsome had no approved products and generated no revenue. 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. AXS-02 development for chronic low back pain and AXS-05 development for Alzheimer’s disease agitation were planned.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | 2016: $5.30m; 2015: $1.63m | 2016: $9.82m; 2015: $3.04m |
| General and administrative expense | 2016: $1.53m; 2015: $0.46m | 2016: $2.89m; 2015: $0.97m |
| Net loss | 2016: $6.81m; 2015: $2.13m | 2016: $12.68m; 2015: $4.27m |
| Basic and diluted loss per share | 2016: $0.36; 2015: $0.19 | 2016: $0.66; 2015: $0.38 |
At June 30, cash was $38.75m, down from $48.04m at December 31, 2015. Current assets were $39.92m and current liabilities $5.10m; total liabilities consisted of current payables and accruals, with no debt reported. Accumulated deficit was $33.12m. Operating cash use was $9.26m for the first half, equipment purchases used $22,000, and financing provided no cash. Management expected available cash to fund anticipated operating needs into Q3 2017, but cautioned that trial timing and costs could shorten the runway. No meaningful operating margin is reported because the company had no revenue and incurred operating losses.
Material changes versus prior comparable periods
- First-half R&D expense rose $6.78m year over year, primarily from the CREATE-1, STRIDE-1 and COAST-1 Phase 3 programs, plus personnel and stock compensation costs.
- First-half G&A expense rose $1.91m, mainly from public-company costs, personnel and stock compensation.
- First-half net loss increased to $12.68m from $4.27m, while operating cash use increased to $9.26m from $3.27m. The weighted-average share count rose to 19.15m from 11.11m, affecting per-share comparisons.
- Cash declined by $9.28m during the first half of 2016; the comparable 2015 period included $7.07m of net financing proceeds from convertible notes.
- In May 2016, FDA granted Fast Track designation to AXS-02 for knee OA pain associated with BMLs. In April, FDA provided written pre-IND guidance on the proposed AXS-05 Alzheimer’s agitation development plan.
Outlook, risks and unusual items
- Management expected increasing expenses and operating losses, with additional financing needed to execute its plans. It warned that financing may not be available on acceptable terms or at all, and that the company may never achieve profitability.
- Clinical, regulatory, manufacturing and enrollment uncertainties could delay or prevent development or approval. The company also highlighted dependence on third-party CROs and manufacturers, including a single clinical-trial manufacturer for each lead candidate, and competition, reimbursement and commercialization risks.
- The company restated its 2015 annual and Q1 2016 financial statements to record a noncash convertible-note premium in additional paid-in capital. It reported no impact on cash, total assets, total equity, operating loss or total cash flows.
- Management concluded disclosure controls were not effective at the reasonable-assurance level because of a material weakness in review of non-routine complex transactions. Remediation efforts were underway; management’s assessment does not establish that the weakness has been fully remedied.
- Three exclusive licenses with Antecip, an entity owned by the CEO and Board Chair, require royalties on net sales of licensed products ranging from 1.5% to 4.5%, subject to specified reductions. The filing describes potential conflicts of interest. No material pending legal proceedings were reported.
Investor facts to verify
- Whether clinical trial progress, enrollment, costs and timelines remain consistent with the assumptions behind the cash runway estimate into Q3 2017.
- Whether the material weakness in financial reporting controls has been remediated and whether subsequent filings require further corrections.
- Current cash, financing plans and any resulting dilution, debt obligations or changes to development priorities.
- Updates on Phase 3 results and FDA requirements for AXS-02 and AXS-05, including additional studies, formulation considerations and regulatory pathway.
- Terms and governance of the Antecip licenses, and any developments affecting the related-party conflict or royalty obligations.