Business context and reporting period
Axsome Therapeutics, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The clinical-stage biopharmaceutical company develops therapies for central nervous system disorders and has no approved products or product revenue. Its portfolio includes AXS-05, AXS-07, AXS-09 and AXS-12, plus pain and primary-care candidates AXS-02 and AXS-06.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $11.0 million | $5.6 million | $18.6 million | $10.3 million |
| General and administrative | $2.4 million | $2.4 million | $5.3 million | $4.8 million |
| Net loss per financial statements | $13.8 million | $8.3 million | $24.4 million | $13.1 million |
| Basic and diluted loss per share | $0.41 | $0.32 | $0.73 | $0.51 |
At June 30, cash and cash equivalents were $53.8 million, versus $14.0 million at December 31, 2018. Total assets were $54.8 million, current liabilities $13.1 million, total liabilities $30.5 million, and stockholders’ equity $24.3 million. Accumulated deficit was $132.0 million. The company reported $20.0 million of outstanding loan principal; the $24.0 million facility’s additional $4.0 million tranche was conditional and not yet drawn. The loan bears interest at the greater of 7.5% or 2% above prime and matures in February 2023.
For the six months, operating cash use was $18.2 million, investing cash use $0.01 million, and financing cash provided $58.0 million. Financing included $44.5 million net proceeds from stock sales and $20.0 million in term-loan proceeds, offset partly by $7.2 million in principal repayments. No operating margin is meaningful because the company reported no revenue.
Changes versus the prior comparable period
Q2 R&D expense rose $5.5 million year over year; management attributed the increase chiefly to faster-than-expected MOMENTUM enrollment, preparation and initiation of trials and safety studies, and continued progress in other studies. Six-month R&D increased $8.3 million, while G&A rose $0.4 million. Operating cash use increased $3.8 million year over year, primarily reflecting higher clinical-development spending. Loss per share widened in both comparison periods. The prior-year six-month loss included $2.7 million of noncash warrant fair-value income; no warrant liability remained in 2019.
Filing inconsistency: The financial statements report six-month 2019 net loss of $24.403 million, while the MD&A results table reports $24.195 million. The filing text does not provide a clear explanation; the statements and cash-flow reconciliation show $24.403 million.
Outlook, developments and principal risks
Management said available cash was expected to fund operating requirements into the fourth quarter of 2021, subject to assumptions about clinical-trial timing and spending. Elsewhere, the notes say cash should cover anticipated requirements for at least twelve months after filing. These are differing runway statements and should be reconciled. The company expects continued losses, rising development costs and a need for additional financing; it may never achieve profitability.
- AXS-05 met the primary endpoint in the Phase 2 ASCEND MDD study and in a Phase 2 smoking-cessation study. FDA granted Breakthrough Therapy designation for AXS-05 in MDD; the company initiated the Phase 3 GEMINI MDD trial in June.
- AXS-07 Phase 3 MOMENTUM migraine-trial enrollment was reported faster than expected, and the company said it accelerated the expected topline-results timeline. The filing provides no specific results date.
- AXS-12 was in a Phase 2 narcolepsy trial. A July 25, 2019 loan amendment, after quarter-end, extended the interest-only period to 18 months (potentially 24 months if the second tranche is funded) and extended the deadline for the milestone-based $4.0 million tranche to December 31, 2019. It also raised the final payment fee from 6.0% to 6.3% of original principal.
- Key risks include clinical-trial or regulatory setbacks, inability to raise capital on acceptable terms, dilution from further stock sales, debt covenants and repayment obligations, reliance on third-party manufacturers and CROs, and uncertain product uptake, pricing and reimbursement.
- AXS-02 intellectual property faces material challenges: PTAB decisions had invalidated claims in several challenged patents, and further post-grant reviews were ongoing or instituted. The company had sought rehearing on one decision and discontinued an appeal of another. This is distinct from its statement that it had no material pending legal proceedings.
- The company reported compliance with loan covenants and effective disclosure controls, with no material change in internal control over financial reporting. It reported no material pending legal proceedings.
Investor verification priorities
- Reconcile the $24.403 million financial-statement net loss with the $24.195 million MD&A figure.
- Clarify the cash-runway assumptions behind the “at least twelve months” and “into the fourth quarter of 2021” statements.
- Check trial enrollment, timing and results disclosures for AXS-05, AXS-07 and AXS-12, and any FDA requirements for additional studies.
- Track the AXS-02 patent reviews, appeals and their effect on product rights and development plans.
- Monitor cash burn, remaining capacity under the at-the-market equity program, potential dilution, and the milestone and payment terms of the loan.