Tonix Pharmaceuticals Holding Corp. — Q2 2020 Form 10-Q
Business context and period. This clinical-stage biopharmaceutical company reported for the three and six months ended June 30, 2020. Its drug candidates remained in development; it had no commercial products and generated no revenue. Programs included TNX-102 SL for fibromyalgia and vaccine candidates for COVID-19.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $10.6 million | $3.6 million | $15.2 million | $7.5 million |
| General and administrative expense | $3.6 million | $2.4 million | $6.2 million | $4.8 million |
| Net loss | $14.2 million | $5.8 million | $21.5 million | $12.1 million |
| Net loss per common share | $0.23 | $9.42 | $0.54 | $21.77 |
Amounts are rounded; the filing presents financial statements in thousands. With no revenue, operating margins are not meaningful. Six-month operating cash use was $19.4 million, versus $13.4 million a year earlier; investing cash use was $14,000. Financing provided $63.2 million, compared with $0.5 million in the prior period. Cash and cash equivalents were $55.0 million at June 30, 2020, up from $11.2 million at year-end 2019. Working capital was approximately $53.0 million.
Total liabilities were $4.8 million, chiefly accounts payable, accruals and operating lease liabilities; the filing reports no borrowings. Accumulated deficit was $238.5 million. The company reported $19.8 million of outstanding commitments for future contract research work.
Material changes and financing
- Q2 research and development expense rose 194% year over year; management cited the Trigemina asset acquisition, timing of fibromyalgia trial milestones, and increased COVID-19 vaccine, TNX-801 and other pipeline activity. Six-month R&D expense rose 104%.
- Q2 general and administrative expense increased 50%, primarily reflecting higher legal, accounting, financial reporting and non-cash compensation costs. The six-month increase was 29%, including higher patent prosecution legal fees, insurance and compensation.
- Equity financing drove the cash increase and substantially expanded the share count. The company raised $51.1 million net from common stock and warrant sales and received $7.5 million from warrant exercises during the first half. Its ATM program permitted up to $50 million in sales; approximately 53.0 million shares generated $35.3 million gross proceeds in Q2. Common shares outstanding were 104.8 million at June 30, compared with 8.5 million at December 31, 2019; 130.3 million were reported outstanding August 7.
- The June Trigemina asset acquisition involved $1.1 million in cash payments and 2.0 million common shares valued at $1.36 million. The $2.4 million total consideration was expensed as R&D because the acquired intellectual property had no alternative future use. No related milestone payments had been accrued or paid by June 30.
Outlook, risks and unusual items
Management expected cash resources to fund projected operations through at least the end of 2020, but said they would not cover operating requirements for the one-year period from the filing date. The filing identifies substantial doubt about the company’s ability to continue as a going concern absent additional capital. Management may seek equity, debt or strategic funding; if financing is unavailable on acceptable terms, it may have to delay, reduce or eliminate programs. Further equity financing could dilute shareholders.
Management expected continued operating losses and increased R&D spending, but did not provide earnings or revenue guidance. Clinical and regulatory timelines and costs remain uncertain; trials may be delayed by COVID-19, recruitment, safety or efficacy issues, funding constraints, or regulatory decisions. The company also cited dependence on third parties, competition and uncertainty around patent protection and reimbursement. COVID-19 could disrupt operations, supply chains and the broader economy.
After quarter-end, Tonix closed a registered direct offering of 20.94 million shares at $0.50 each on July 15; expected net proceeds were approximately $9.5–$9.6 million, with the filing giving slightly different estimates. It also reported approximately $2.4 million raised from subsequent warrant exercises. Other disclosed developments included a non-binding $4 million purchase and sale agreement for a Massachusetts R&D facility, a Kansas State University vaccine option, a Columbia University COVID-19 collaboration, and plans for a new $10.3 million Phase 3 fibromyalgia trial. On August 3, Nasdaq confirmed the company had regained compliance with its minimum bid-price requirement.
For the six months, net loss available to common stockholders included $1.7 million of non-cash deemed dividends related to warrant repricing and the Series B preferred-stock conversion feature. The company reported no material legal proceedings, and management concluded disclosure controls were effective as of June 30, 2020.
Most important facts for investors to verify
- Whether available cash and post-quarter financing are sufficient for the stated operating runway, given the going-concern warning and $19.8 million in research contract commitments.
- Actual cash burn and spending by program, especially as clinical trials and vaccine development advance.
- Share-count changes, further equity or warrant issuance, and the resulting dilution; reconcile the June 30 and August 7 share counts with subsequent issuances.
- Progress, enrollment, results and regulatory milestones for TNX-102 SL and the COVID-19 vaccine candidates, including the proposed fibromyalgia Phase 3 trial.
- Terms and funding status of the Massachusetts facility agreement and other post-quarter collaborations; distinguish binding commitments from options or non-binding agreements.