Tenax Therapeutics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 14, 2019. Tenax is a development-stage specialty pharmaceutical company focused on cardiovascular and pulmonary diseases. Its lead candidate, levosimendan, is in a Phase 2 trial for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). The company reported no revenue.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Operating expenses | $2.26 million | $1.55 million | $5.74 million | $4.67 million |
| Net loss | $2.22 million | $1.54 million | $5.60 million | $4.60 million |
| Net loss per share, basic and diluted | $0.33 | $1.05 | $0.93 | $3.18 |
| Net cash used in operating activities | $1.8 million | $1.6 million | $5.83 million | $4.30 million |
At September 30, 2019, cash and cash equivalents were $6.65 million and marketable securities were $0.48 million, totaling approximately $7.1 million in cash and investments. Current assets were $7.56 million; current liabilities were $1.13 million; working capital was $6.43 million. Total assets were $7.77 million, total liabilities $1.24 million, and stockholders’ equity $6.54 million. Liabilities included a $197,603 operating lease liability; the filing reports no material borrowings. No revenue-based margins are available.
Changes versus comparable periods
- Q3 operating expenses rose 45% year over year, and net loss increased about 45%. Research and development expense increased to $917,000 from $363,000, principally reflecting Phase 2 trial costs; general and administrative expense increased to $1.34 million from $1.19 million, mainly due to legal and professional fees.
- For the first nine months, operating expenses increased 23% and net loss increased 22%. R&D rose to $2.05 million from $732,000, largely due to clinical site activation and enrolled-patient costs. G&A declined to $3.69 million from $3.93 million, including lower personnel costs.
- Operating cash use increased to $5.83 million from $4.30 million for the nine-month period. Cash and cash equivalents fell $5.72 million from year-end 2018; investing activities provided only $15,000, versus $6.04 million in the prior-year period. Warrant exercises provided $96,500 in financing cash.
- Common shares outstanding increased from 3.79 million at December 31, 2018 to 6.74 million at September 30, 2019, primarily as Series A preferred shares converted into common shares.
Outlook, risks, and unusual items
- Management estimated existing resources would fund planned operations through the first quarter of 2020. It stated substantial additional financing would be needed thereafter and that funding may not be available on acceptable terms, or at all. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- The Phase 2 HELP trial was planned for 36 patients across 15 North American sites. As of November 11, 2019, 17 patients had enrolled; the company anticipated enrollment continuing through the end of 2019. Trial completion timing, costs, regulatory outcomes, and potential revenue remain uncertain.
- Orion initiated arbitration in June 2019 concerning whether its oral levosimendan formulation is covered by line-extension provisions in the license, and sought reimbursement of legal fees. Tenax disputed Orion’s position. Arbitration-related legal costs contributed to higher G&A expense. The company reported no other material pending legal proceedings.
- The levosimendan license includes contingent FDA and Canadian approval payments totaling $3 million, up to $13 million in sales-based milestones, and royalties. No development milestones had been achieved or related contingent liability recorded as of September 30, 2019.
- Tenax had 10.52 million warrants outstanding at September 30, 2019, and 697,500 shares available for grant under its 2016 stock plan. Additional equity financing could dilute shareholders; debt financing could add interest and restrictive covenants; partnering could require relinquishing product rights.
- Management reported effective disclosure controls and no material change in risk factors from prior filings. The company adopted the new lease accounting standard in 2019; the filing states its financial-statement impact was not material.
Investor facts to verify
- Whether Tenax obtained financing after the stated Q1 2020 runway, and the resulting liquidity and dilution.
- Subsequent enrollment, completion, and results of the 36-patient Phase 2 HELP trial, and any regulatory interaction or development plan.
- The outcome and financial consequences of the Orion arbitration, including any effects on rights to levosimendan formulations.
- Potential dilution from outstanding warrants, preferred shares, options, and future capital raising.
- Whether operating cash burn, clinical expenses, and lease obligations remain consistent with management’s funding assumptions.