Tonix Pharmaceuticals Holding Corp. — Q3 2013 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2013. Tonix is a development-stage specialty pharmaceutical company focused on CNS disorders, including fibromyalgia (FM) and post-traumatic stress disorder (PTSD). It had no commercial products or sales revenue.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.64 million | $0.66 million | $3.32 million | $1.88 million |
| General and administrative expense | $1.45 million | $1.08 million | $3.86 million | $2.86 million |
| Net loss | $3.09 million | $1.73 million | $7.18 million | $6.82 million |
| Basic and diluted loss per share | $0.87 | $1.01 | $2.73 | $4.08 |
| Cash used in operating activities | Not separately reported | Not separately reported | $4.99 million | $4.21 million |
- At September 30, 2013, cash was $7.42 million, compared with $1.79 million at December 31, 2012; working capital was $5.35 million.
- Total assets were $7.57 million and total liabilities were $2.13 million. Current liabilities included $985,809 in accounts payable, $853,859 in accrued expenses, and $280,000 in related-party promissory notes. The notes bear no interest and are payable on demand after one year from issuance.
- Cash provided by financing activities was $10.63 million for the first nine months, primarily from the August public offering and warrant exercises. Cash used in investing activities was $8,208.
- Gross margin is not meaningful because the company had no revenue or cost of goods sold.
Material changes and unusual items
- Q3 R&D expense increased 149% year over year, reflecting additional TNX-102 SL development, including manufacturing and clinical and non-clinical work. Nine-month R&D expense increased 76%.
- Q3 G&A expense increased 35%; nine-month G&A expense also increased 35%. Factors included payroll-related costs, professional and legal fees, investor relations, and offering- and public-company-related expenses. Stock-based compensation was $1.28 million for the nine months.
- Q3 net loss increased 78% year over year; nine-month net loss increased 5%. The 2012 nine-month comparison included $1.18 million of expense from a warrant-liability fair-value change and substantial financing-related interest costs; there was no similar warrant liability in 2013.
- In August 2013, Tonix sold 2.68 million units, each comprising one common share and one warrant, at $4.25 per unit. The filing reports net proceeds of approximately $10.0 million, but gives slightly different amounts in different sections. The offering materially increased cash and shares outstanding. The company also completed a 20-for-1 reverse stock split in May 2013; share and per-share figures are retroactively adjusted.
Outlook, commentary, and risks
- The lead candidate, TNX-102 SL, was in a Phase 2b/3 FM trial; initial results were expected in the second half of 2014. Management planned to file an IND for PTSD in Q1 2014 and expected to start a Phase 2 military-related PTSD trial in Q2 2014.
- Management expected R&D expenses to increase significantly over the next 12–24 months and believed existing cash would fund operating and capital requirements through at least September 30, 2014. The company said the offering proceeds would not fund all studies needed for product approval and that additional capital would be required.
- Tonix had no available credit or bank financing and had incurred recurring losses and negative operating cash flow. If additional financing is unavailable or unacceptable, it may need to delay, reduce, or discontinue programs or seek partners on terms that could require giving up product rights.
- Clinical and regulatory outcomes are uncertain. Trial delays, safety or efficacy findings, recruitment challenges, regulatory decisions, and competition could adversely affect development plans and financing needs. TNX-301 had no further development planned at the time; TNX-201 plans included an FDA meeting expected in Q1 2014.
- Related-party arrangements included consulting services from an entity controlled by the CEO and chairman; the annual fee increased to $325,000 effective October 15, 2013. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control during the quarter.
Important facts for investors to verify
- Progress, enrollment, safety, and timing of the TNX-102 SL FM and planned PTSD trials, including whether stated milestones were achieved.
- Cash runway against the September 2014 estimate, subsequent spending, and the timing and terms of any additional financing.
- The exact net proceeds from the August offering, given the slightly different figures disclosed in the filing, and the potential dilution from 4.42 million warrants outstanding at September 30, 2013.
- Outstanding obligations and related-party transactions, including the $280,000 notes and the revised consulting fee.