Axsome Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods unless noted.
Business context
Axsome develops central nervous system therapies and began reporting product revenue after acquiring U.S. rights to Sunosi from Jazz Pharmaceuticals in May 2022. Its portfolio included approved products Sunosi and Auvelity, plus development-stage candidates AXS-07, AXS-12 and AXS-14. Auvelity was approved by the FDA in August 2022 and became commercially available in the U.S. in October 2022, after quarter-end.
Key financial results
| Metric | Q3 2022 | Nine months 2022 | Comparable 2021 |
|---|---|---|---|
| Net product sales | $16.8 million | $25.7 million | $0 |
| Cost of product sales | $1.9 million | $2.9 million | $0 |
| Research and development | $14.9 million | $43.3 million | $13.2 million / $44.3 million |
| Selling, general and administrative | $40.9 million | $97.8 million | $20.2 million / $47.8 million |
| Net loss | $44.8 million | $125.9 million | $34.9 million / $96.4 million |
| Basic and diluted loss per share | $1.07 | $3.17 | $0.93 / $2.57 |
- Q3 sales were Sunosi only; no Auvelity product sales were recorded in the period. Reported cost of sales implies gross profit of approximately $14.9 million before intangible amortization and other operating expenses.
- Q3 SG&A rose $20.7 million year over year, primarily from Sunosi and Auvelity commercial preparation, sales-force onboarding, marketing and higher stock compensation. Nine-month R&D declined $1.0 million, mainly because prior-year spending included NDA fees.
- At September 30, cash and cash equivalents were $227.5 million, versus $86.5 million at December 31, 2021. Current assets were $252.4 million and current liabilities $60.3 million.
- For the first nine months, operating cash use was $88.9 million; investing cash use was $53.5 million, including the $53.0 million Sunosi acquisition; financing provided $283.5 million. Financing included approximately $231.8 million in net equity proceeds and $45.0 million in loan proceeds.
- Long-term loan carrying value was $93.9 million; gross outstanding principal was $95.0 million. The loan bears a floating rate of at least 8.95%, subject to a 10.70% cap. The company reported compliance with financing covenants.
- Accumulated deficit was $535.1 million. Common shares outstanding increased from 37.8 million at December 31, 2021 to 43.4 million at September 30, 2022.
Material changes and unusual items
- The Sunosi acquisition involved $53.0 million cash consideration and $36.1 million of initially estimated contingent consideration. At quarter-end, contingent consideration was valued at $34.4 million, including a $0.9 million fair-value gain and $0.8 million in payments. The purchase-price allocation remained preliminary.
- The acquisition added $63.8 million of developed-technology intangible assets, amortized over ten years, and $11.9 million of goodwill. Nine-month results included $2.5 million of intangible amortization.
- Sunosi U.S. sales carry a high-single-digit royalty to Jazz for the current indication and a mid-single-digit royalty for future indications. Assumed obligations to SK and Aerial include tiered royalties and up to $165 million in revenue milestones and $1 million in development milestones.
- Stock-based compensation was $27.0 million for the first nine months, compared with $14.9 million in 2021.
Outlook, commentary and risks
- Management said available cash plus remaining committed capital under its term-loan facility was expected to fund operations into 2025 under its current plan, including commercialization of Sunosi and Auvelity. Separately, the liquidity note states existing cash is expected to cover anticipated operating cash needs for at least twelve months after filing. These statements use different funding assumptions; runway depends on spending, product sales and access to financing.
- The company expects expenses and operating losses to continue and rise as it commercializes products and advances its pipeline; it may never achieve sustained profitability. It stated that additional financing may be needed and may not be available on acceptable terms.
- On April 29, 2022, FDA issued a Complete Response Letter for AXS-07 for acute migraine. The filing says the principal issues were chemistry, manufacturing and controls, with no identified efficacy or safety concerns and no request for new clinical trials. Axsome planned to resubmit the NDA in Q3 2023.
- Auvelity’s U.S. launch occurred after quarter-end. Sunosi’s ex-U.S. asset closing was expected in Q4 2022. The filing also reported that Sunosi met the primary endpoint in the SHARP study in October 2022.
- Key risks include regulatory and manufacturing delays, clinical-trial outcomes, product uptake and reimbursement, competition, reliance on third-party manufacturers and service providers, financing and loan covenants, and possible dilution from equity issuance. Management cited potential COVID-19, geopolitical and market disruption, but reported no material foreign-currency or inflation impact to date.
- Legal matters include a securities class action alleging misstatements concerning AXS-07 CMC practices and its NDA, and a related shareholder derivative action stayed pending the class action. The company said other than these matters it was not party to material pending legal proceedings.
- The company reported effective disclosure controls and procedures; it noted ongoing internal-control process changes related to the Sunosi acquisition.
Important facts for investors to verify
- Sunosi sales trends, channel inventory and receivables concentration: all September 30 accounts receivable arose from the company’s single third-party logistics provider.
- Auvelity launch performance, payer coverage and any subsequent revenue or commercial-spending disclosures.
- Progress on AXS-07 CMC remediation and the planned NDA resubmission, alongside clinical and regulatory milestones for AXS-05, AXS-12 and AXS-14.
- Actual cash runway against management’s stated 2025 outlook, remaining loan availability and compliance with cash, revenue and other covenants.
- Final Sunosi acquisition accounting and the sensitivity of contingent consideration, which is based on unobservable valuation assumptions, as well as royalties and milestone obligations.
- Developments in the securities and derivative litigation, and the potential effect of future equity issuance and equity compensation on shareholder dilution.