Axsome Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 11, 2020. Axsome is a clinical-stage biopharmaceutical company developing treatments for central nervous system disorders. It had no approved products and generated no revenue.
Financial results and liquidity
- Revenue and margins: No revenue was reported. Gross profit and operating margins are therefore not meaningful.
- Operating expenses: R&D was $27.5 million, up $19.9 million from $7.6 million a year earlier; G&A was $5.0 million, versus approximately $2.8 million. Total operating expenses were $32.5 million, compared with $10.4 million.
- Loss: Net loss was $32.5 million, or $0.88 per share, versus $10.6 million, or $0.32 per share. Accumulated deficit was $208.4 million.
- Cash flow: Operating cash use was $23.3 million, compared with $9.5 million. Investing cash use was $9,000; financing provided $0.6 million. Cash declined $22.7 million during the quarter.
- Liquidity: Cash and cash equivalents were $197.3 million, down from $220.0 million at December 31, 2019. Current assets were $197.6 million and current liabilities $26.1 million, implying working capital of about $171.5 million.
- Debt: The 2019 term loan had $20.0 million of principal outstanding; balance-sheet loan payables totaled about $20.1 million, including the accrued final payment fee and net of debt discount. It bears interest at the greater of 7.5% or prime plus 2%, is secured by substantially all assets other than intellectual property, and matures February 2023. The company reported compliance with loan covenants.
Changes and notable items
- R&D spending rose substantially, reflecting activity across clinical programs and a one-time Pfizer license charge. The company recorded $10.2 million of R&D expense for the Pfizer agreement: $7.2 million for shares issued and $3.0 million in cash.
- In January 2020, Axsome licensed Pfizer data and intellectual property for reboxetine (AXS-12) and esreboxetine (AXS-14) in the U.S. Pfizer may receive up to $323 million in regulatory and sales milestones, plus tiered royalties; it also has a right of first negotiation for certain strategic transactions involving these candidates.
- AXS-05 had completed pivotal MDD trials and met the primary endpoint in the ADVANCE-1 Alzheimer’s disease agitation trial; the filing reported the latter result in April, after quarter-end. STRIDE-1 in treatment-resistant depression met key secondary endpoints but not its primary endpoint. AXS-07 met co-primary endpoints in two Phase 3 migraine trials; the filing reported the INTERCEPT result in April, after quarter-end. AXS-12 and AXS-14 were in development for narcolepsy and fibromyalgia, respectively.
- Quarterly R&D costs by program included $9.3 million for AXS-05, $6.0 million for AXS-07, $5.6 million for AXS-12, and $5.1 million for AXS-14.
Outlook, risks and contingencies
- Management expects continued losses and substantial development spending; profitability depends on regulatory approvals and successful commercialization. The filing gives conflicting cash runway estimates: the liquidity note says existing cash should cover anticipated operating needs for at least 12 months after filing, while MD&A says at least two years. Both estimates depend on assumptions, and spending could be faster than expected.
- COVID-19 could disrupt trial enrollment and follow-up, site and employee operations, manufacturing, and regulatory review. Axsome reported measures including telemedicine visits, remote site monitoring and remote data entry, but said the pandemic’s effects remained uncertain.
- Key risks include clinical failure or delay, regulatory uncertainty (including reliance on the 505(b)(2) pathway), safety findings, third-party manufacturing and CRO dependence, competition, reimbursement and pricing pressure, financing needs, and intellectual-property challenges. The company noted potential conflicts from Antecip licenses because Antecip is owned by its CEO and board chair.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Reconcile the stated 12-month versus two-year cash runway estimates and review the assumptions underlying each.
- Confirm the comparative 2019 expense and loss figures: the financial statements report G&A of $2.818 million and net loss of $10.640 million, while the MD&A results table gives $2.819 million and $10.641 million, respectively.
- Track cash burn, upcoming term-loan principal payments, debt covenants, and whether additional financing is required.
- Verify clinical, regulatory, and NDA timelines and outcomes for AXS-05, AXS-07, AXS-12, and AXS-14, including COVID-related delays and post-quarter developments.
- Review the Pfizer agreement’s milestone, royalty, and strategic-transaction provisions, and assess the related-party Antecip arrangements and disclosed patent risks.