Axsome Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Axsome is a commercial-stage CNS biopharmaceutical company marketing Auvelity for adult major depressive disorder and Sunosi for excessive daytime sleepiness associated with narcolepsy or obstructive sleep apnea, while developing additional CNS candidates.
Financial performance and liquidity
Amounts below are in millions of U.S. dollars, except per-share data.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $94.6 | $0 |
| Product sales, net | $28.6 | $0 |
| Operating loss | $(6.4) | $(38.3) |
| Net loss | $(11.2) | $(39.6) |
| Net loss per share, diluted | $(0.26) | $(1.03) |
| Operating cash flow | $(5.8) | $(32.7) |
- Revenue included $65.7 million of Pharmanovia license revenue, $28.6 million of product sales and $0.3 million of royalty revenue. Product sales comprised $15.7 million Auvelity and $12.9 million Sunosi, including $1.7 million ex-U.S.
- Operating expenses were $101.0 million, including $74.2 million selling, general and administrative (SG&A), $17.8 million research and development (R&D), and $7.6 million cost of revenue. SG&A included $21.4 million advertising costs. The filing does not provide a directly comparable product gross margin; cost of revenue also includes a $5.0 million fee-sharing expense tied to the Pharmanovia upfront payment.
- Cash and cash equivalents were $246.5 million at quarter-end, versus $200.8 million at December 31, 2022. Current assets were $304.4 million and current liabilities $100.7 million.
- Debt principal outstanding was $150.0 million; the balance-sheet carrying value, net of discount and including accreted final payment fee, was $147.6 million. The company drew $55.0 million under its Hercules facility during the quarter. Financing cash flow was $51.6 million, primarily reflecting the debt draw.
- Accumulated deficit was $607.6 million. Management said existing cash was expected to fund anticipated operating requirements for at least 12 months after filing; it also said cash and remaining committed term-loan capital were expected to fund operations into cash-flow positivity under the current operating plan. These are management estimates, not guarantees.
Changes versus the prior comparable period
- Revenue began to be reported following commercialization of Auvelity in October 2022 and the Sunosi acquisition and launch in 2022. The $65.7 million Pharmanovia upfront payment was the largest Q1 revenue component and makes the reported revenue and loss comparison less indicative of recurring performance. The filing’s unaudited pro forma Q1 2022 Sunosi-inclusive revenue was $13.5 million and net loss was $61.5 million.
- Net loss narrowed by $28.4 million, primarily due to the Pharmanovia upfront license revenue, partly offset by higher commercial SG&A and stock-based compensation. SG&A rose $48.5 million year over year to $74.2 million; R&D rose $5.2 million to $17.8 million.
- Operating cash use declined to $5.8 million from $32.7 million, with the Pharmanovia payment and product sales contributing to the improvement. Cash increased by $45.7 million, mainly due to the Hercules draw.
Outlook, risks and notable items
- No quantified product-sales or earnings guidance was provided. Management expects expenses to increase with commercialization of Auvelity and Sunosi and continued pipeline development, and expects ongoing operating losses; sustained profitability is not assured.
- The January 2023 Hercules amendment increased facility capacity to $350 million, extended maturity to January 1, 2028 (potentially January 1, 2029 if conditions are met), set interest at 9.7% or a formula-based rate capped at 10.7%, and raised the minimum cash requirement to $30 million. The debt is secured by substantially all assets, including intellectual property, and includes financial and other covenants. The company reported covenant compliance at March 31, 2023.
- AXS-07’s NDA received an FDA complete response letter in April 2022, principally concerning chemistry, manufacturing and controls; the filing says the company intends to resubmit. AXS-05’s ADVANCE-2 Phase 3 study in Alzheimer’s disease agitation and AXS-12’s SYMPHONY Phase 3 study in narcolepsy were ongoing.
- Teva notified Axsome of an ANDA seeking approval for a generic Auvelity. Axsome filed a patent infringement action on March 24, 2023; the filing reports no substantive proceedings had occurred by the report date. Securities class-action litigation alleging statements and omissions concerning AXS-07 CMC and its NDA remained subject to a pending motion to dismiss; related derivative actions were stayed.
- Commercial and financial risks include limited commercialization history, market access and reimbursement uncertainty, generic competition, reliance on third-party manufacturers and service providers, clinical and regulatory uncertainty, and potential need for additional financing. The filing also notes that $4.0 million was on deposit at Silicon Valley Bank when it failed; the company reported no resulting loss.
- Sunosi licensing to Pharmanovia covers Europe and certain Middle East/North Africa markets. Axsome received a non-refundable €62.0 million upfront payment, recognized in Q1, and is eligible for up to €94.5 million in sales-based and other milestones plus mid-twenties royalties on territory sales. Axsome remains responsible for manufacturing and supply.
- Related-party exposure includes a 3% royalty on Auvelity net sales payable to Antecip, an entity owned by the CEO and board chair; $0.5 million was accrued in Q1. A new 10-year One World Trade Center sublease commenced in April 2023.
Important facts for investors to verify
- How much of future revenue and cash generation comes from recurring product sales versus upfront, milestone and royalty payments; assess Auvelity and Sunosi demand, net sales adjustments and channel inventory.
- Commercial spending, especially SG&A and advertising, relative to product-sales growth, and whether the business approaches cash-flow positivity as management anticipates.
- Remaining Hercules borrowing availability, actual interest terms, covenant headroom and the impact of secured debt and end-of-term charges.
- FDA and clinical milestones, including the AXS-07 CMC resubmission and ongoing AXS-05 and AXS-12 trials.
- Outcome and potential financial or commercial impact of the Teva Auvelity ANDA litigation, securities and derivative actions, and related-party royalty arrangements.