Axsome Therapeutics, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Axsome is a clinical-stage biopharmaceutical company developing CNS treatments. It had no approved products and generated no revenue.
Key financial metrics
| Metric | Q1 2016 / March 31, 2016 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0; no revenue generated since inception |
| Research and development expense | $4.53 million | $1.42 million in Q1 2015 |
| General and administrative expense | $1.36 million | $0.52 million in Q1 2015 |
| Total operating expenses / operating loss | $5.88 million / $(5.88) million | $1.93 million / $(1.93) million in Q1 2015 |
| Net loss | $(5.87) million; $(0.31) per share | $(2.14) million; $(0.19) per share in Q1 2015 |
| Operating cash used | $3.95 million | $1.16 million in Q1 2015 |
| Cash | $44.08 million | $48.04 million at December 31, 2015 |
| Current liabilities | $3.91 million | $2.63 million at December 31, 2015 |
| Accumulated deficit | $24.65 million | $18.79 million at December 31, 2015 |
Margins are not meaningful because the company had no revenue. The filing reports no debt outstanding at March 31, 2016; convertible notes had converted into common stock upon the November 2015 IPO. Cash used in investing activities was $11,000, and there was no financing cash flow in Q1 2016.
Material changes versus Q1 2015
- Net loss increased to $5.87 million from $2.14 million, principally reflecting higher clinical-program spending and public-company costs.
- R&D expense rose $3.11 million, driven by clinical trials, personnel costs, and stock-based compensation. G&A expense increased $0.84 million, primarily from costs of operating as a public company.
- Operating cash use increased by $2.79 million. The company attributed the increase to clinical-program spending and higher G&A costs.
- Weighted-average shares rose to 19.15 million from 11.11 million, mainly reflecting the IPO and conversion of convertible notes completed in 2015.
Business developments, outlook, and risks
- AXS-02 was in Phase 3 studies for CRPS and knee osteoarthritis pain associated with bone marrow lesions; a Phase 3 study for chronic low back pain associated with Modic changes was planned. AXS-05 was in a Phase 3 trial for treatment-resistant depression; a Phase 2/3 Alzheimer’s agitation study was planned.
- In March 2016, the company enrolled the first patients in the AXS-05 STRIDE-1 trial and the AXS-02 COAST-1 trial. In April, FDA provided written pre-IND guidance on the proposed AXS-05 Alzheimer’s agitation development plan. In May, FDA granted Fast Track designation for AXS-02 in knee osteoarthritis pain, according to the MD&A.
- Management estimated that $44.1 million of cash would fund anticipated operating cash requirements into the third quarter of 2017. This estimate depends on clinical-trial timing and other assumptions; the company expects to need substantial additional financing and warned that financing may not be available on acceptable terms.
- The company expected increasing expenses and losses, and stated it might never achieve profitability. Clinical-trial outcomes, enrollment, regulatory requirements, manufacturing, competition, reimbursement, and the ability to raise capital are major uncertainties.
- AXS-05’s Phase 3 formulation combines dextromethorphan and bupropion in one tablet, whereas prior Phase 1 testing used separate tablets; the filing warns that the formulation change could affect pharmacokinetics and development.
- AXS-02 and AXS-05 are licensed from Antecip, an entity owned by the CEO and board chair. The agreements require royalties of 4.5% for AXS-02, 3.0% for AXS-05, and 1.5% for AXS-04 on net sales, subject to specified reductions. No payments had been required to date; termination could cause licensed rights to revert.
- The filing identifies 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.
Important facts for investors to verify
- Confirm the cash-runway assumptions against planned trial scope, timing, and spending, and assess the timing and terms of any additional financing.
- Track enrollment, design, regulatory feedback, and results for the Phase 3 AXS-02 and AXS-05 programs, including the impact of AXS-05’s combined-tablet formulation.
- Reconcile the filing’s Fast Track references: the MD&A says the May 2016 designation was for AXS-02 in knee osteoarthritis pain, while the risk factors also refer to an AXS-02 CRPS Fast Track designation.
- Review the related-party license terms, royalty obligations, and governance safeguards given the licensor’s ownership by the CEO and board chair.
- Assess the effects of clinical, regulatory, safety, manufacturing, intellectual-property, competition, and reimbursement risks on the prospects for commercialization.