Tonix Pharmaceuticals Holding Corp. — Q1 2019 10-Q
Reporting period: Three months ended March 31, 2019. Tonix is a clinical-stage biopharmaceutical company with no products available for sale and no revenue. Its development programs address psychiatric and pain conditions and biodefense.
Financial performance and liquidity
- Revenue: None reported. With no commercial products or revenue, gross profit and operating margins are not meaningful.
- Operating expenses: $6.297 million, down 10% from $6.988 million in Q1 2018. Research and development was $3.896 million, down 25%; general and administrative expense was $2.401 million, up 33%.
- Net loss: $6.233 million, compared with $6.935 million in Q1 2018. Basic and diluted loss per share was $1.29 versus $8.80; weighted-average shares rose to 4.85 million from 0.79 million.
- Cash flow: Operating cash use was $8.639 million, up from $6.771 million. Investing cash use was $7,000; financing provided $70,000 from warrant exercises. Cash, cash equivalents and restricted cash ended the quarter at $16.548 million.
- Balance sheet: Cash and cash equivalents were $16.448 million; working capital was approximately $17.2 million. Total liabilities were $2.211 million, including $580,000 of operating lease liabilities. No borrowings or other financial debt are reported.
- Accumulated deficit: $194.685 million at quarter-end. Total assets were $20.022 million and stockholders’ equity was $17.811 million.
Changes versus Q1 2018 and key developments
- Net loss narrowed by $702,000, primarily as lower R&D spending more than offset higher G&A. R&D was lower mainly because a TNX-102 SL pharmacokinetic bridging study took place in Q1 2018; 2019 included increased TNX-601 formulation manufacturing expense.
- G&A increased mainly due to higher insurance premiums and investor/public relations costs.
- Operating cash use increased despite the lower net loss. Management attributed the increase primarily to Phase 3 HONOR study close-out costs, start-up costs for the Phase 3 RECOVERY study, and annual insurance premiums paid in Q1.
- Common shares outstanding increased from 3.252 million at December 31, 2018 to 6.090 million at March 31, 2019, principally after conversion of all remaining Series A preferred shares into 2.816 million common shares. The loss-per-share comparison is also affected by the increased weighted-average share count.
- Tonix adopted the lease accounting standard on January 1, 2019, recording right-of-use assets and lease liabilities. At March 31, lease liabilities totaled approximately $580,000; adoption did not materially affect results or liquidity.
Outlook, risks and contingencies
- Going concern: Management believed available resources would fund projected operating requirements through the end of 2019, but stated the company did not have enough resources to meet requirements for the one-year period from the filing date. The filing says this raises substantial doubt about the company’s ability to continue as a going concern.
- Tonix expects continuing operating losses and increased R&D spending. It may seek additional equity or debt financing, credit facilities or collaborations; funding may not be available on acceptable terms. Without additional funds, it may need to delay, reduce or eliminate programs, potentially affecting development goals and diluting existing shareholders.
- The lead candidate, TNX-102 SL (Tonmya), was in Phase 3 development for PTSD and fibromyalgia; the Alzheimer’s agitation program was Phase 2-ready and had FDA Fast Track designation. TNX-601 was pre-IND and TNX-801 was in pre-IND development. FDA approval, trial outcomes, recruitment, funding and regulatory timing remain uncertain.
- Research and development contracts carried approximately $8.7 million of commitments for future work at March 31, 2019. Future minimum operating lease payments were approximately $596,000.
- Management cited competition, financing needs, patent and litigation uncertainty, reimbursement uncertainty, reliance on third parties, and FDA approval and compliance risks. The company reported no material legal proceedings and no material changes in internal control over financial reporting.
- After quarter-end, stockholders approved a new 2019 stock incentive plan and an employee stock purchase plan; the company also granted options in May. The authorized common-share limit was increased from 15 million to 150 million in May.
Most important facts to verify
- Whether subsequent financing or collaboration proceeds improve the stated funding shortfall and going-concern uncertainty.
- Actual cash burn and remaining cash runway compared with management’s end-of-2019 estimate.
- RECOVERY and other clinical-program timelines, costs, and results, including any changes to the $8.7 million R&D commitment.
- Potential dilution from outstanding warrants, equity financing arrangements, option grants and the increased authorized share count.
- Whether trial and regulatory developments support continued investment in the company’s pipeline.