TENAX THERAPEUTICS, INC. quarterly report, Q1 FY2016

Business context and reporting period

Tenax Therapeutics, Inc. is a clinical-stage specialty pharmaceutical company focused on critical-care treatments. This unaudited Form 10-Q covers the three months ended March 31, 2016. Its lead candidate, levosimendan, is being developed for low cardiac output syndrome (LCOS) in cardiac-surgery patients; the filing reports no product revenue.

Key financial metrics

Combined cash and marketable securities were approximately $34.8 million at quarter-end. The filing reports no interest expense in Q1 2016 and no financing cash flows; it does report a $293,438 warrant liability. No profit or operating margin was reported because the company had no reported revenue and incurred a loss.

Material changes versus the prior comparable period

• Net loss rose to $5.36 million from $2.94 million. Research and development expense increased to $3.94 million from $1.58 million, primarily because of higher costs for the levosimendan Phase III trial. General and administrative expense increased to $1.76 million from $1.62 million.
• Operating cash use increased to $3.32 million from $2.54 million, mainly reflecting higher Phase III trial spending. Cash declined by $0.40 million during the quarter; net investing cash inflow of $2.92 million was primarily from marketable-security sales.
• Other income included a $230,902 gain from the change in fair value of Series C warrants, compared with a $136,377 loss in Q1 2015. These valuation changes are non-operating and depend on model assumptions.
• Working capital fell by about $6.10 million from Dec. 31, 2015; total liabilities rose by about $1.64 million.

Guidance, outlook, risks and contingencies

• Management believes available cash and investments are sufficient to fund operations through calendar year 2017. This estimate assumes no accelerated development of other opportunities or unexpected events, costs, or contingencies. Additional capital will likely be needed for future development and commercialization; financing may be unavailable or cause dilution, debt covenants, or unfavorable licensing terms.
• As of May 6, 2016, 63 U.S. and Canadian sites were active in the Phase III LCOS trial, with 599 of 760 planned patients enrolled. Management anticipated enrollment through the end of 2016. The Imperial College London LeoPARDS Phase II-B sepsis trial had completed enrollment of its planned 516 patients.
• Levosimendan has FDA Fast Track status for the LCOS indication, and the FDA agreed to the Phase III protocol under a Special Protocol Assessment. Approval remains uncertain and contingent on clinical and regulatory outcomes.
• The Orion license requires $2 million upon U.S. approval and $1 million upon Canadian approval, up to $13 million in sales-based milestones, and tiered royalties. No development milestones had been met or related contingent liability recorded as of March 31, 2016.
• The company expects continued losses for at least several years and cannot determine the duration or completion costs of development or when it may generate revenue. It reported no material pending legal proceedings and no material change in previously disclosed risk factors.

Important facts for investors to verify

• Subsequent progress and results of the Phase III LCOS trial, including enrollment, timing, and any regulatory updates.
• Whether the stated funding runway through 2017 remains achievable as trial and commercialization costs develop.
• Potential financing needs, dilution, and the timing and conditions of any Orion milestone or royalty obligations.
• Changes in the fair value of the Series C warrant liability, which uses significant unobservable valuation inputs.