Tenax Therapeutics, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet figures compared with December 31, 2016. The unaudited filing was signed May 10, 2017.
Business context and financial results
Tenax is a development-stage specialty pharmaceutical company focused on critical-care treatments. Its lead candidate is levosimendan, licensed for development and commercialization in the United States and Canada. The income statement reports no revenue; consequently, revenue growth and margins are not available.
| Metric | Q1 2017 | Q1 2016 or prior date |
|---|---|---|
| General and administrative expense | $1.45 million | $1.76 million |
| Research and development expense | $2.05 million | $3.94 million |
| Total operating expenses / operating loss | $3.50 million | $5.71 million |
| Net loss | $3.28 million | $5.36 million |
| Net loss per share, basic and diluted | $0.12 | $0.19 |
| Cash used in operating activities | $4.04 million | $3.32 million |
| Cash and cash equivalents | $7.03 million | $10.00 million at Dec. 31, 2016 |
| Marketable securities | $10.74 million | $11.87 million at Dec. 31, 2016 |
| Working capital | $7.75 million | $7.43 million at Dec. 31, 2016 |
| Total assets / liabilities / stockholders’ equity | $19.15 million / $5.04 million / $14.11 million | $23.34 million / $6.20 million / $17.14 million at Dec. 31, 2016 |
Cash plus marketable securities totaled approximately $17.77 million at March 31. The balance sheet shows no separate debt line; reported liabilities were current accounts payable, accrued liabilities and warrant liabilities. No cash dividends or material capital expenditures are highlighted.
Changes versus the comparable period
- Total operating expenses fell about 39%, mainly as Phase III LEVO-CTS trial costs declined after trial activity wound down. R&D decreased about 48%; G&A decreased about 18%, primarily from lower professional and other costs.
- Net loss narrowed about 39%, to $3.28 million from $5.36 million. The per-share loss was $0.12 versus $0.19.
- Operating cash use increased to $4.04 million from $3.32 million, primarily because accrued clinical-trial costs declined. Investing activities provided $1.07 million, versus $2.92 million, largely reflecting lower sales of marketable securities.
- Cash and cash equivalents declined about $2.97 million during the quarter. Total assets declined from year-end, while working capital increased modestly as current liabilities fell.
Outlook, significant developments and risks
- Management estimated that available resources would fund planned operations through the first half of 2018. The company expects continued losses and says substantial additional financing will be needed beyond that period and until profitability, if achieved. Financing may dilute shareholders, add debt and covenants, or require licensing rights on unfavorable terms; financing is not assured.
- The Phase III LEVO-CTS trial did not meet either co-primary endpoint for levosimendan in cardiac-surgery patients. The company reported statistically significant improvements in two of three secondary endpoints, safety without clinically significant increases in hypotension or arrhythmias, and a non-significant numerical reduction in 90-day mortality. FDA discussions were ongoing, with a pre-NDA meeting scheduled for May 10, 2017. Approval is uncertain.
- There is an important difference in emphasis within the filing: the intangible-asset note says the company did not anticipate further levosimendan development for LCOS following the trial, while MD&A describes pursuing FDA discussions and preparing a possible NDA for heart failure or cardiac surgery. The filing does not resolve this strategic distinction.
- The board was conducting a strategic alternatives review, with financial-advisor assistance; possible outcomes included a merger, business combination, or asset purchase, license or other transaction. No transaction was assured.
- Nasdaq notified the company on March 15 that its share price had remained below the $1 minimum for 30 consecutive business days. The company had until September 11, 2017 to regain compliance by closing at or above $1 for at least 10 consecutive business days, or face potential delisting.
- CEO John P. Kelley resigned effective April 3, 2017. President and CFO Michael B. Jebsen became interim CEO. Kelley’s separation terms include salary-based severance, potential COBRA reimbursement and consulting services; Jebsen received additional monthly compensation and a 200,000-share option grant.
- The company disclosed no material pending legal proceedings, no material changes in other previously disclosed risk factors, and no off-balance-sheet arrangements. Management reported disclosure controls were effective as of March 31, 2017.
Most important facts for investors to verify
- Whether the FDA meeting and subsequent regulatory strategy support any NDA filing, and which levosimendan indication the company intends to pursue after LEVO-CTS.
- Actual cash burn, trial and operating commitments, and whether the projected runway through the first half of 2018 remains achievable.
- Availability, terms and potential dilution of additional financing, licensing or strategic-transaction alternatives.
- Whether Tenax regained Nasdaq’s minimum-bid compliance by the deadline and maintained its listing.
- The potential costs and governance implications of the CEO transition and associated separation and option arrangements.