Tenax Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Tenax is a specialty pharmaceutical company developing treatments for cardiovascular and pulmonary diseases. Its lead candidate, levosimendan, is being studied in a Phase 2 trial for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). The filing reports no revenue for the period.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $1.662 million | $1.223 million; up 36% |
| Net loss | $1.617 million | $1.193 million; up 36% |
| Net loss per share, basic and diluted | $0.33 | $0.84 |
| Net cash used in operating activities | $2.133 million | $1.558 million |
| Cash and cash equivalents | $10.322 million at March 31 | $12.367 million at December 31, 2018 |
| Marketable securities | $0.502 million at March 31 | $0.495 million at December 31, 2018 |
| Working capital | $10.177 million at March 31 | $11.755 million at December 31, 2018 |
| Total liabilities | $1.117 million | $1.566 million at December 31, 2018 |
| Stockholders’ equity | $10.340 million | $11.772 million at December 31, 2018 |
Operating expenses were primarily general and administrative ($1.179 million) and research and development ($0.483 million). R&D increased from $59,000 in Q1 2018, chiefly due to Phase 2 trial costs. With no reported revenue, a gross margin or operating margin is not applicable. Investing activities used $9,000; financing activities provided $97,000 from warrant exercises. Cash and marketable securities totaled approximately $10.8 million at quarter-end. Liabilities included $248,000 in operating lease obligations; the filing reports no material debt balance.
Material changes and operating developments
- Net loss increased by $424,000 year over year, reflecting higher R&D spending as the Phase 2 trial advanced. Operating cash use increased by approximately $574,000; management attributed the increase primarily to accrued clinical-trial costs.
- The company enrolled its first Phase 2 patient in March 2019. The trial is described as multicenter, double-blind, and placebo-controlled; the filing says enrollment was underway at six targeted North American medical centers and anticipates enrollment continuing through year-end 2019.
- During Q1, 2,299,990 Series A preferred shares converted into common shares. At March 31, 554,603 preferred shares remained outstanding. The company also had 10,640,718 warrants outstanding, creating potential dilution.
- Tenax adopted the new lease accounting standard on January 1, 2019, recording a $247,823 lease liability at March 31 and a $27,670 reduction to opening accumulated deficit.
Outlook, risks, and contingencies
- Management estimated existing cash and investments would fund planned operations through the first quarter of 2020. The company expects continued losses and says it needs substantial additional financing to continue development and pursue commercialization; funding may not be available on acceptable terms, or at all.
- The filing states that these funding needs and recurring losses raise substantial doubt about the company’s ability to continue as a going concern. Potential financing could dilute shareholders, add debt covenants and interest expense, or require licensing away product rights.
- FDA discussions supported the planned Phase 2 design and endpoints; the filing says a limited Phase 3 program may be possible, subject to further discussion after Phase 2. No approval or Phase 3 outcome is assured.
- The levosimendan license includes contingent development payments of $2 million upon U.S. FDA approval and $1 million upon Canadian approval, plus potential sales milestones and royalties. No development milestone had been met by March 31, 2019, and no related liability was recorded.
- The company reported no material pending legal proceedings and said its risk factors had not materially changed from its 2018 Form 10-K. Management concluded disclosure controls were effective as of March 31, 2019.
Important facts for investors to verify
- Whether trial enrollment progresses as planned and whether Phase 2 results support further development.
- Whether Tenax secures additional capital before its estimated runway ends; assess dilution and financing terms.
- The pace of cash burn relative to the stated runway, including clinical-trial costs and working-capital changes.
- The potential dilution and conversion terms associated with outstanding warrants and remaining Series A preferred shares.
- That reported cash, investments, and liabilities are consistent with subsequent filings and any material changes after March 31, 2019.