TENAX THERAPEUTICS, INC. quarterly report, Q3 FY2014

Business context and reporting period

Tenax Therapeutics is a clinical-stage specialty pharmaceutical company focused on critical-care treatments. This filing covers the quarter and nine months ended January 31, 2015 (fiscal 2015 Q3), not 2013 Q3 as stated in the request metadata. The company’s lead candidate is levosimendan; it has no material product revenue. The unaudited interim results are not necessarily indicative of full-year results.

Key financial metrics

• For the nine months, operating cash use was $8.12 million; investing cash use was $40.62 million, mainly reflecting purchases of marketable securities; financing provided $0.33 million.
• At January 31, cash and cash equivalents were $9.92 million and marketable securities totaled $40.15 million, or approximately $50.1 million combined. Current assets were $17.67 million, current liabilities $2.87 million, and working capital $14.80 million.
• Notes payable, net, were $151,255, all current. Total liabilities were $10.83 million, including a $7.96 million deferred tax liability and $579,660 of warrant liabilities. No conventional long-term debt balance was reported.
• Gross margin is not meaningful for the current period because product revenue and cost of sales were both zero.

Material changes versus comparable periods

• Quarterly operating loss rose to $3.13 million from $2.43 million as operating expenses increased, while net loss declined to $2.87 million from $3.35 million. The improvement in net loss mainly reflected favorable other income, including a decrease in the fair value of warrant liabilities and interest income.
• Nine-month operating loss increased to $9.69 million from $6.14 million, mainly due to higher clinical development spending. Nine-month net loss was nearly unchanged at $9.09 million versus $9.13 million; lower interest expense and improved other income largely offset higher operating losses.
• Research and development expense rose to $4.75 million for nine months from $2.21 million, driven principally by the Phase III levosimendan trial and approximately $500,000 of support for the U.K. LeoPARDS trial.
• Cash and cash equivalents fell from $58.32 million at April 30, 2014 to $9.92 million at January 31, 2015, while the company invested in $40.15 million of marketable securities. Combined cash and securities declined to approximately $50.1 million.
• The company stopped its Phase II-b Oxycyte traumatic-brain-injury trial in September 2014 and is considering strategic alternatives. It commenced the levosimendan Phase III LCOS trial in September 2014.

Outlook, risks and unusual items

• Management expected existing cash and marketable securities to fund operations through the fiscal year ending April 30, 2017. It expects continued losses and says substantial additional financing will be needed beyond that period; financing may be unavailable or involve dilution, restrictive debt terms, or unfavorable licensing terms.
• As of March 16, 2015, the company reported 40 of 50 planned U.S. sites activated and 41 patients enrolled in the LCOS trial. It planned to activate up to 11 Canadian sites after receiving Health Canada approval in February 2015. The trial targets 760 patients and was expected to take approximately 18 months to complete.
• The company also funded Imperial College London approximately $500,000 to support LeoPARDS; as of March 16, 2015, that trial had enrolled 250 of an estimated 516 patients. Regulatory and clinical outcomes remain uncertain.
• On February 23, 2015, after the reporting date, Tenax entered an at-the-market sales agreement allowing it to offer up to $40 million of common stock through Cowen, subject to company instructions. This creates potential dilution; sales were not obligatory.
• Levosimendan’s license includes contingent regulatory milestones of $2 million for U.S. approval and $1 million for Canadian approval, up to $13 million in sales-based milestones, and royalties. No development milestones had been achieved or accrued at January 31, 2015.
• Warrant valuation is a Level 3 estimate using significant unobservable assumptions. Management reported effective disclosure controls, no significant internal-control changes, and no legal proceedings.

Investor verification priorities

• Confirm the filing period: the document reports fiscal Q3 2015, ended January 31, 2015.
• Track LCOS and LeoPARDS enrollment, trial costs, timelines, and regulatory implications; verify subsequent clinical results and any changes to plans.
• Monitor cash burn and whether the stated runway through April 30, 2017 remains achievable.
• Check whether shares were sold under the $40 million at-the-market agreement and assess resulting dilution and cash proceeds.
• Review future financing needs, contingent Orion license payments and royalties, and any strategic decision on Oxycyte.