Axsome Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statement amounts below are in millions of U.S. dollars unless otherwise noted. Axsome is a commercial-stage CNS biopharmaceutical company with two marketed products, Auvelity and Sunosi, and a clinical-stage pipeline.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $57.8 | $16.8 | $199.1 | $25.7 |
| Product sales, net | $57.1 | $16.8 | $131.7 | $25.7 |
| Operating loss | $(62.1) | $(42.4) | $(133.6) | $(119.9) |
| Net loss | $(62.2) | $(44.8) | $(140.6) | $(125.9) |
| Net loss per share, basic and diluted | $(1.32) | $(1.07) | $(3.14) | $(3.17) |
- Q3 product sales comprised Auvelity $37.7 million and Sunosi $19.5 million. Nine-month product sales were Auvelity $81.0 million and Sunosi $50.7 million.
- Nine-month revenue also included a $65.7 million Pharmanovia upfront license payment and $1.6 million of Sunosi royalties; Q3 royalties were $0.7 million. The upfront license payment was recognized in Q1 and is non-recurring by nature.
- Q3 cost of revenue was $6.5 million. Nine-month cost of revenue was $18.7 million, including a $5.0 million fee-sharing expense related to the Pharmanovia upfront payment. Accordingly, nine-month revenue and gross-margin comparisons are affected by the license transaction.
- Research and development expense was $28.8 million in Q3 and $67.1 million year to date; selling, general and administrative expense was $83.2 million and $236.3 million, respectively. SG&A included substantial commercial and advertising investment; advertising expense was $28.1 million for Q3 and $76.2 million year to date.
- Cash and cash equivalents were $416.6 million at September 30, 2023, versus $200.8 million at December 31, 2022. Current assets were $511.8 million and current liabilities $114.7 million.
- Operating cash use was $114.7 million for the first nine months, compared with $88.9 million in 2022. Investing cash use was $0.6 million; financing provided $331.0 million, principally from the June/July equity offering and Hercules debt draws.
- Gross outstanding debt principal was $180.0 million; the balance-sheet carrying amount was $177.4 million. The loan matures January 1, 2028, subject to a possible extension to January 1, 2029 if specified revenue targets are met. The company reported covenant compliance at quarter-end.
- Stockholders’ equity was $269.5 million, up from $109.6 million at year-end, while shares outstanding increased from 43.5 million to 47.3 million, principally reflecting equity financing.
Material changes versus the prior comparable period
- Q3 total revenue rose to $57.8 million from $16.8 million, reflecting Auvelity’s launch in October 2022 and higher Sunosi sales. Q3 product sales increased to $57.1 million from $16.8 million.
- Nine-month total revenue increased to $199.1 million from $25.7 million, including the $65.7 million Pharmanovia upfront payment. Excluding that payment, product and royalty revenue also increased substantially.
- Losses widened: Q3 net loss increased to $62.2 million from $44.8 million, and nine-month net loss increased to $140.6 million from $125.9 million. Higher commercial spending, personnel costs and stock-based compensation were principal factors.
- Cash increased primarily due to equity issuance and additional debt proceeds, despite higher operating cash use.
Outlook, commentary and risks
- Management expects expenses to increase, particularly from commercialization of Auvelity and Sunosi and continued pipeline development. It expects R&D costs to increase moderately and SG&A to rise as marketing, promotion and market-access efforts expand.
- Management stated existing cash should fund anticipated operating requirements for at least 12 months after filing and, under its current operating plan, into cash-flow positivity. It cautioned that assumptions may prove wrong and capital could be used sooner than expected. The company expects continuing operating losses and may never achieve sustained profitability.
- Pipeline programs include AXS-05 for Alzheimer’s disease agitation and smoking cessation, AXS-07 for acute migraine, AXS-12 for narcolepsy, AXS-14 for fibromyalgia, and solriamfetol for ADHD. AXS-07 previously received an FDA complete response letter principally concerning CMC; the company states it intends to resubmit its NDA.
- Generic challenges are a material commercial risk. Axsome sued Teva over its Auvelity ANDA and Hikma and five other filers over Sunosi ANDAs. The filing identifies Sunosi new-chemical-entity exclusivity ending June 17, 2024 and Auvelity new-product exclusivity ending August 18, 2025; patent litigation outcomes and timing remain uncertain.
- A securities class action concerning AXS-07 statements was dismissed on September 25, 2023; plaintiff’s counsel later sought leave to amend. Related shareholder derivative matters are stayed. The Teva and Sunosi patent cases remain pending.
- The Hercules facility is secured by substantially all company assets, including intellectual property, and imposes cash, operating and other covenants. Its stated interest rate is 9.70% when prime is below 7%, or a formula-linked rate subject to a 10.70% cap when prime is at least 7%.
- Other significant risks include clinical and regulatory setbacks, market uptake and reimbursement, reliance on third-party manufacturers and service providers, product competition, financing needs, and potential dilution. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Auvelity and Sunosi sales growth, payer access and net revenue after rebates and discounts support the increasing commercial expense base.
- Cash burn, the assumptions behind management’s cash-runway and cash-flow-positivity statements, and available Hercules borrowing capacity and covenant requirements.
- Progress and regulatory requirements for AXS-07 resubmission and other clinical programs, including ongoing AXS-05, AXS-12 and solriamfetol trials.
- Developments in Auvelity and Sunosi generic litigation, patent protection and applicable exclusivity periods.
- Potential effects of contingent consideration, product royalties, related-party royalties to Antecip, and future equity issuance on earnings and shareholder dilution.