Business context and reporting period
This Form 10-Q covers the quarter and six months ended October 31, 2014—the company’s second quarter of fiscal 2015, not 2013 Q2 as stated in the request metadata. The company changed its name from Oxygen Biotherapeutics, Inc. to Tenax Therapeutics, Inc. on September 19, 2014. Its focus is developing critical-care medicines, led by levosimendan.
Financial performance and liquidity
| Metric | Three months ended Oct. 31, 2014 | Three months ended Oct. 31, 2013 | Six months ended Oct. 31, 2014 | Six months ended Oct. 31, 2013 |
|---|---|---|---|---|
| Net revenue | $0 | $55,707 | $0 | $221,512 |
| Operating expenses | $4.14 million | $2.17 million | $6.56 million | $3.93 million |
| Operating loss | $4.14 million | $2.11 million | $6.56 million | $3.70 million |
| Net loss | $4.05 million | $3.53 million | $6.23 million | $5.78 million |
| Net loss per share, basic | $0.14 | $1.23 | $0.22 | $2.94 |
Revenue was zero in the current periods after Dermacyte sales and government grant revenue ceased; accordingly, meaningful operating margins are not applicable. Quarterly R&D expense rose to $2.56 million from $0.75 million, chiefly due to levosimendan clinical development and trial close-out costs. Quarterly G&A was $1.59 million, up from $1.42 million.
At October 31, 2014, cash and cash equivalents were $14.36 million and marketable securities totaled $38.91 million, or about $53.3 million combined. Working capital was $19.33 million, down from $56.39 million at April 30, 2014. Total liabilities were $11.64 million, including a $7.96 million deferred tax liability; notes payable were zero following repayment of the remaining $300,000 note in June 2014. Total assets were $89.22 million and accumulated deficit was $142.81 million.
For the six months, operating cash use was $4.89 million, investing cash use was $39.25 million (primarily purchases of marketable securities), and financing provided $0.18 million. Cash and cash equivalents declined by $43.96 million, largely reflecting the transfer of cash into investments, rather than operating use alone. Management said available resources would fund operations through the fiscal year ending April 30, 2017, but additional financing would be needed thereafter and to support development and potential commercialization.
Material changes versus the prior comparable period
- Revenue fell to zero from product and grant revenue in the prior year.
- Operating expenses increased as development spending shifted toward levosimendan: six-month R&D rose to $3.52 million from $1.52 million. Management cited approximately $1.75 million in Phase III LCOS trial costs and a $500,000 contribution to the U.K. sepsis trial.
- Six-month net loss increased to $6.23 million from $5.78 million, although interest expense fell sharply to $46,320 from $2.07 million after convertible notes were exchanged or repaid.
- Other income included a $238,117 six-month gain from a lower fair value of warrant liabilities and investment income. Marketable securities were newly held at period-end.
Outlook, commentary, and risks
- The Phase III levosimendan trial targets reduction of morbidity and mortality in cardiac surgery patients at risk of low cardiac output syndrome. It is designed to enroll 760 patients at approximately 50 North American sites, with enrollment expected to take about 18 months. The first patient was enrolled September 18, 2014; by December 12, 19 sites were active and 13 patients enrolled.
- The company contributed approximately $500,000 to support accelerated enrollment and completion of the LeoPARDS sepsis trial and met with the FDA in November 2014 to discuss development of levosimendan for septic shock.
- On September 11, 2014, the board decided to stop the Phase II-b Oxycyte traumatic brain injury trial and consider strategic alternatives. Trial close-out began; there is no assurance a viable alternative will be found.
- The Orion levosimendan license carries $2 million and $1 million contingent U.S. and Canadian approval milestones, up to $13 million in sales milestones, and royalties. No development milestones had been met or accrued as of October 31, 2014. The study commencement deadline had been extended by Orion, and the company began the study before the extended deadline.
- The company expects continued losses for at least several years. Future financing may cause shareholder dilution, add debt covenants, or require licensing rights on unfavorable terms; clinical, regulatory, enrollment, and commercialization outcomes remain uncertain.
- No legal proceedings were reported. Management said disclosure controls were effective and reported no significant change in internal control over financial reporting. The filing reported no material change to previously disclosed risk factors, other than commencement of the levosimendan trial.
Important facts for investors to verify
- Confirm the filing period: the report is for the quarter ended October 31, 2014, fiscal Q2 2015.
- Track Phase III LCOS enrollment, site activation, trial timing, and eventual clinical and regulatory outcomes.
- Monitor cash, securities, operating cash burn, and the assumptions behind management’s runway estimate through April 30, 2017.
- Assess Oxycyte trial close-out costs and whether strategic alternatives emerge.
- Review potential dilution from outstanding options and warrants; 28,119,359 common shares were outstanding at October 31, 2014.
- Evaluate the contingent license milestones, royalties, and future financing requirements.