Tenax Therapeutics, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed April 1, 2019. Tenax is a development-stage specialty pharmaceutical company with no approved products or product sales. Its primary program is levosimendan, licensed for development and commercialization in the United States and Canada.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Operating expenses | $6.89 million | $9.21 million |
| Research and development | $1.24 million | $3.53 million |
| General and administrative | $5.65 million | $5.68 million |
| Net loss | $14.14 million | $8.84 million |
| Net cash used in operations | $5.50 million | $12.14 million |
- 2018 net loss included a $7.33 million deemed dividend on Series A preferred stock; operating loss was $6.89 million. Basic and diluted net loss per share was $9.04, compared with $6.27 in 2017.
- Cash and cash equivalents were $12.37 million and marketable securities were $0.49 million at year-end, for approximately $12.86 million in combined resources. Working capital was $11.75 million, versus $7.05 million a year earlier.
- Total liabilities were $1.57 million, consisting of current liabilities; the balance sheet reported no debt. Cash runway was projected through the first quarter of 2020, based on current plans.
- No meaningful operating margins are available because the company reported no product revenue. The company had an accumulated deficit of $227.8 million.
Material changes and financing
- Operating cash use fell by $6.64 million year over year, primarily because the Phase 3 LEVO-CTS trial had been completed; spending began on the Phase 2 HELP study.
- In December 2018, Tenax raised approximately $9.0 million net through an offering of Series A convertible preferred stock and warrants. The securities included warrants to purchase 10.36 million common shares at $1.93 per share, in addition to the preferred stock’s conversion rights.
- At December 31, 2018, 2.85 million Series A preferred shares remained outstanding. Subsequent conversions left 554,603 preferred shares outstanding as of March 28, 2019. The filing also disclosed substantial potential dilution from outstanding warrants, options, preferred stock and other convertible or exercisable instruments.
- Common stock closed at $1.21 on December 31, 2018, compared with $9.80 at the end of 2017. A 1-for-20 reverse stock split took effect in February 2018.
Programs, outlook and risks
- Tenax was advancing levosimendan for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF), an indication with no approved pharmacologic therapies. The FDA agreed with the planned Phase 2 design and endpoints in March 2018. The first site was activated in November 2018; the first patient of 36 planned was enrolled in March 2019. An End-of-Phase 2 discussion was anticipated after study completion.
- The LEVO-CTS Phase 3 trial for cardiac-surgery patients did not meet either co-primary endpoint. It did meet two of three secondary endpoints, including reduced low cardiac output syndrome. A post hoc analysis suggested improved 90-day survival in isolated CABG patients, but the FDA indicated another prospective mortality study would be needed. Tenax suspended that program, citing the cost and scale of the required study.
- Management said substantial additional funding would be needed beyond the projected runway. The auditor’s report and management disclosure both identified substantial doubt about the company’s ability to continue as a going concern. Failure to raise capital could force reductions or delays in development.
- The Board was reviewing strategic alternatives, including potential transactions; the process might not result in a transaction. The company also cited possible partnering and licensing opportunities.
- Key risks include clinical and regulatory uncertainty, dependence on one principal candidate, no commercial revenue, reliance on Orion as the sole levosimendan manufacturer, and financing and dilution risk. Levosimendan’s principal licensed U.S. patents were disclosed as expiring in September 2020.
- Orion license obligations include $2 million upon U.S. FDA approval, $1 million upon Canadian approval, potential commercial milestones of up to $13 million, and tiered royalties; none of the development milestones had been achieved by year-end.
Investor verification points
- Confirm current cash runway, burn rate, and financing needs against the stated Q1 2020 projection.
- Review the HELP Phase 2 enrollment, results, timing, and any subsequent FDA feedback or development plans.
- Assess the terms, conversion status, exercise prices, and potential dilution from preferred stock, warrants, options, and other securities.
- Track strategic-alternatives developments and whether any partnering, licensing, or corporate transaction is completed.
- Verify the clinical and regulatory implications of the failed LEVO-CTS co-primary endpoints and the company’s decision to suspend the CABG program.