Tonix Pharmaceuticals Holding Corp. quarterly report, Q1 FY2020

Tonix Pharmaceuticals Holding Corp. — Q1 2020 Form 10-Q

Reporting period: Three months ended March 31, 2020. Tonix is a clinical-stage biopharmaceutical company with no products available for sale and no revenue. Its development programs include treatments for fibromyalgia and PTSD, and potential vaccines for COVID-19.

Financial performance and position

MetricQ1 2020Q1 2019 / comparison
RevenueNoneNone
Research and development expense$4.7 million$3.9 million; up 21%
General and administrative expense$2.6 million$2.4 million; up 8%
Operating loss$7.3 million$6.3 million
Net loss$7.3 million$6.2 million
Net loss available to common stockholders$9.0 million$6.2 million
Basic and diluted loss per share$0.37$12.76
Cash used in operating activities$9.3 million$8.6 million
Cash and cash equivalents at quarter-end$30.7 million$11.2 million at Dec. 31, 2019

The company reported no revenue, so revenue-based margins are not applicable. Net loss increased by $1.1 million, primarily reflecting higher clinical and R&D spending, including ongoing Phase 3 trials and the start of COVID-19 vaccine work. G&A growth was attributed mainly to legal and investor-relations costs. The $9.0 million loss attributable to common stockholders includes $1.7 million of non-cash deemed dividends related to preferred stock conversion terms and repriced warrants.

At March 31, 2020, total assets were $33.9 million, current liabilities were $2.7 million, total liabilities were $2.7 million, and stockholders’ equity was $31.2 million. Working capital was approximately $30.7 million. Lease liabilities totaled approximately $0.3 million; the filing reports no material conventional debt. Research and development contracts carried approximately $13.8 million of commitments for future work.

Material changes and financing

  • Financing activities provided $28.8 million in Q1 2020, compared with $0.1 million in Q1 2019. The company received approximately $6.5 million net from its February financing, $14.8 million net from a March common-stock offering, and $7.5 million from warrant exercises.
  • Common shares issued and outstanding rose to 49.35 million at March 31, from 8.53 million at December 31, 2019. The increase included equity offerings, warrant exercises, and conversion of Series B preferred stock. The filing reports 52.30 million shares outstanding as of May 11, 2020.
  • The company recorded $1.3 million of preferred-stock deemed dividends and a $0.5 million warrant repricing deemed dividend. These reduced loss available to common shareholders but were not operating cash expenses.
  • Operating cash use increased by $0.7 million year over year, mainly due to increased R&D activity.

Outlook, risks and subsequent events

  • Going concern: Management expected cash resources to fund projected operations through the end of 2020, but stated they would not cover the one-year period from the filing date. The company said this raises substantial doubt about its ability to continue as a going concern absent additional funding. It may seek equity, debt, or collaboration financing; acceptable financing may not be available. Without it, programs could be delayed, reduced, or discontinued.
  • Development and operating risks: Tonix expects continued operating losses and higher R&D spending. Clinical timelines and costs are uncertain; trials may be delayed or fail due to efficacy, safety, recruitment, regulatory, funding, or other issues. COVID-19 could disrupt operations, trials, staffing, and supply chains.
  • Post-quarter financing: On April 8, the company established an at-the-market program allowing up to $50 million of common-stock sales. It reported selling approximately 2.9 million shares for about $2.1 million gross proceeds after quarter-end.
  • Nasdaq listing: Nasdaq notified the company on April 21 that it did not meet the $1 minimum bid-price requirement. The compliance deadline was extended to December 28, 2020; failure to regain compliance could lead to delisting.
  • Other commitments: Several university and asset-license agreements provide for contingent development, regulatory, and sales milestone payments and royalties. No related milestone payments had been accrued or paid as of March 31, 2020.
  • Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting occurred during the quarter. The company reported no material legal proceedings.

Important facts for investors to verify

  • Whether subsequent ATM sales or other financing materially extend the stated cash runway, and the resulting share dilution.
  • Actual cash burn versus management’s projections, including the impact of the $13.8 million in contracted R&D work.
  • Clinical and regulatory progress, timing, and funding needs for the fibromyalgia, PTSD, and COVID-19 vaccine programs.
  • Whether Tonix regained Nasdaq’s minimum bid-price compliance by the applicable deadline.
  • The share-count and per-share effects of warrants, options, equity plans, and other potential issuances; the reported loss-per-share comparison also reflects the prior reverse stock split and a large change in weighted-average shares.