Axsome Therapeutics, Inc. — Q3 2018 Form 10-Q
Business context and period. This clinical-stage biopharmaceutical company reported for the quarter and nine months ended September 30, 2018. Its CNS and pain/primary-care pipeline includes AXS-05, AXS-07, AXS-09, AXS-12, AXS-02 and AXS-06. It had no approved products and generated no revenue.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $6.04 million | $4.47 million | $16.34 million | $15.46 million |
| General and administrative expense | $2.20 million | $1.83 million | $7.05 million | $5.26 million |
| Total operating expense | $8.24 million | $6.30 million | $23.40 million | $20.72 million |
| Net loss | $8.28 million | $6.43 million | $21.37 million | $21.51 million |
| Loss per share, basic and diluted | $0.31 | $0.27 | $0.83 | $0.97 |
Margins are not meaningful because the company had no revenue. Nine-month operating cash use was $20.26 million, versus $20.18 million in 2017. Investing cash use was $0.03 million; financing provided $1.49 million, including stock-sale proceeds and loan repayments. Cash declined $18.80 million to $15.22 million at September 30. The cash-flow statement includes $1.1 million received in connection with the October offering.
At September 30, total assets were $16.13 million, current assets $15.94 million, current liabilities $10.94 million, and stockholders’ equity $0.74 million. The balance sheet showed current and long-term loan payables of $3.29 million and $4.44 million, respectively. Outstanding loan principal was $7.22 million; scheduled maturity is November 2020. The loan is secured by company assets other than intellectual property, which is subject to a negative pledge.
Changes versus comparable periods
- Q3 net loss increased by $1.85 million year over year as operating expenses rose 31%, led by increased clinical-development spending. Nine-month net loss was slightly lower than in 2017.
- Nine-month reported results included $2.69 million of noncash income from a decrease in the fair value of warrant liabilities; this item improved reported net loss relative to operating performance.
- Research and development spending shifted toward AXS-05 and AXS-07 and the STRIDE-1, ADVANCE-1 and ASCEND studies. AXS-02 spending fell as previously initiated trials wound down.
- Cash fell from $34.02 million at December 31, 2017 to $15.22 million at September 30, 2018. Total stockholders’ equity fell from $16.72 million to $0.74 million.
Outlook, commentary and material risks
- Management estimated available cash, including approximately $8.8 million net proceeds from an October 1, 2018 registered direct offering, would fund anticipated operating needs into Q1 2020. The estimate depends on clinical-trial timing and spending assumptions; management also said additional financing would be needed to execute its plans.
- The October offering sold 2,966,667 shares at $3.00 per share. The company also had an at-the-market sales agreement allowing up to $30 million in stock sales, subject to its terms.
- The company expects continued operating losses and substantial development costs and may never become profitable. Key uncertainties include trial outcomes, regulatory approval, enrollment, manufacturing and the availability and terms of future financing. Additional equity financing could dilute shareholders.
- AXS-02’s CREATE-1 trial in CRPS was discontinued for futility following an independent monitoring committee review. COAST-1 in knee osteoarthritis continued, but screening had been paused; the company said it did not plan to resume screening and enrollment until after the STRIDE-1 final readout. The STRIDE-1 interim futility review recommended continuing the AXS-05 trial and reported that the candidate appeared safe and well-tolerated based on interim information.
- Other updates included enrollment beginning in the AXS-05 MDD and smoking-cessation studies, and AXS-09 meeting its primary endpoint in a Phase 1 study. In October, the company announced FDA Orphan Drug Designation for AXS-12 in narcolepsy and a new Axsome Pain and Primary Care business unit for AXS-02, AXS-06 and related assets.
- Intellectual-property proceedings are a significant risk: the PTAB’s June 2018 final written decision found claims of the ’239 patent invalid for lack of written description. Other post-grant reviews concerning AXS-02-related patents were pending or initiated. The filing also identifies risks from clinical failure, 505(b)(2) regulatory uncertainty, competition, reliance on third parties, and potential conflicts relating to licenses from an entity owned by the CEO.
- No material legal proceedings were reported. Management concluded disclosure controls and procedures were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm the company’s cash runway against actual spending, subsequent financing and clinical-trial schedules; distinguish September 30 cash from the October offering proceeds.
- Track final STRIDE-1 results and the timing and enrollment status of COAST-1, ADVANCE-1, ASCEND and other pipeline trials.
- Review the status and implications of the PTAB challenges to AXS-02-related patents, including the invalidated ’239 patent claims and other pending proceedings.
- Assess the dilution and financing implications of the October offering, the at-the-market facility, outstanding options and warrants, and the SVB loan repayment terms.
- Separate recurring operating performance and cash burn from noncash warrant remeasurement income when evaluating reported losses.