Axsome Therapeutics, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are unaudited. Axsome was a clinical-stage biopharmaceutical company with no approved products or product revenue.
Business context and pipeline
The company was developing five product candidates: AXS-05 and AXS-09 for CNS disorders; AXS-02 for targeted non-opioid pain indications; AXS-07 for acute migraine; and AXS-06 for osteoarthritis and rheumatoid arthritis, with a goal of reducing NSAID-associated ulcer risk. Key programs included Phase 3 AXS-05 trials for treatment-resistant depression (TRD) and Alzheimer’s disease agitation, and the Phase 3 COAST-1 trial of AXS-02 for knee osteoarthritis with bone marrow lesions. Axsome intended to pursue FDA approval primarily through the 505(b)(2) pathway.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $20.0 million | $21.2 million |
| General and administrative expense | $7.2 million | $6.3 million |
| Total operating expenses | $27.2 million | $27.5 million |
| Net loss | $28.9 million | $27.2 million |
| Net loss per share, basic and diluted | $1.27 | $1.42 |
| Cash used in operating activities | $26.5 million | $21.3 million |
With no revenue, operating and profit margins are not meaningful. The larger net loss reflected, among other items, higher interest and debt-discount expense and a $0.6 million warrant-liability fair-value charge. R&D declined mainly as costs of earlier trials fell, partly offset by ADVANCE-1 startup and higher personnel costs; G&A rose with intellectual-property, stock-compensation, and offering-related costs.
At year-end, cash was $34.0 million, total assets $35.6 million, current liabilities $12.2 million, and stockholders’ equity $16.7 million. Management expected cash to fund anticipated operating needs into Q3 2019, subject to assumptions and clinical spending. Operating cash burn increased year over year; financing activities provided $23.9 million, primarily from the March public offering and December registered direct offering. The company reported approximately $9.9 million of loan payable on the balance sheet; scheduled principal was $9.72 million. The SVB loan bears interest at prime plus 4.5%, matures in November 2020, and is secured by company assets other than intellectual property. The additional $10 million of potential loan advances expired after milestones were not met.
Fourth-quarter context: unaudited operating expenses were $6.44 million and net loss was $7.43 million, versus $7.63 million and $7.33 million, respectively, in Q4 2016.
Material changes and notable developments
- Net loss increased 6% from 2016, while operating expenses were slightly lower; operating cash use increased by $5.2 million.
- Shares outstanding rose from 19.16 million at year-end 2016 to 25.49 million at year-end 2017, reflecting equity financing and other share issuances. December’s offering included warrants, which were recorded as a $2.79 million current liability at year-end.
- In January 2018, an independent monitoring committee recommended continuing COAST-1 to full enrollment but stopping the AXS-02 CREATE-1 trial in complex regional pain syndrome for futility. The committee reported AXS-02 was safe and generally well tolerated in both trials.
- In February 2018, Axsome reported Phase 1 pharmacokinetic results for AXS-09: dextromethorphan levels increased with repeated dosing, and no serious adverse events were reported.
- The company entered a Duke University collaboration in December 2017 for a Phase 2 AXS-05 smoking-cessation trial.
Outlook, risks and other items
Management expected continued substantial losses and higher development and commercialization-related spending, with no significant revenue expected until a product is approved and successfully commercialized. It anticipated modestly lower R&D and G&A expense in 2018, while continuing TRD and Alzheimer’s agitation trials and planning smoking-cessation and migraine studies. These are expense expectations, not formal financial guidance.
Principal risks include clinical-trial failure or delay, patient enrollment and funding needs, reliance on contract manufacturers and research organizations, regulatory uncertainty (including whether 505(b)(2) reliance will be accepted), competition, reimbursement and pricing pressure, and potential dilution from future financing. AXS-02 also faced USPTO post-grant review challenges to several patents filed by Grünenthal; outcomes were uncertain. AXS-02 and AXS-05 license agreements are with an entity owned by the CEO and chairman, creating a disclosed related-party conflict risk. The 10-K reported no material pending legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2017; the auditor did not attest to internal controls because Axsome was an emerging growth company.
Important facts for investors to verify
- Progress, enrollment, interim analyses, safety, and final results for STRIDE-1, ADVANCE-1, and COAST-1, including timing of COAST-1 screening resumption.
- Whether available cash and any future financing can support planned trials; validate the Q3 2019 runway estimate against subsequent spending and fundraising.
- Regulatory requirements and pivotal-trial plans for each candidate, including the assumptions underlying 505(b)(2) submissions.
- Outcome and commercial relevance of the AXS-02 patent reviews, and the terms and governance of the related-party Antecip licenses.
- Debt repayment obligations, warrant-related dilution, and the effect of future equity issuance on current shareholders.