Axsome Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 7, 2019. Axsome is a clinical-stage biopharmaceutical company developing CNS and pain/primary-care therapies. It had no approved products and generated no revenue.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $15.8m | $6.0m | $34.4m | $16.3m |
| General and administrative expense | $3.1m | $2.2m | $8.4m | $7.1m |
| Net loss | $19.1m | $8.3m | $43.5m | $21.4m |
| Net loss per share, basic and diluted | $0.56 | $0.31 | $1.29 | $0.83 |
| Cash used in operating activities | Not stated quarterly | Not stated quarterly | $28.8m | $20.3m |
- At September 30, cash and cash equivalents were $43.6m, compared with $14.0m at December 31, 2018. Total assets were $44.4m, total liabilities $37.6m, and stockholders’ equity $6.8m. Accumulated deficit was $151.1m.
- Outstanding term-loan principal was $20.0m, with $19.1m reported as long-term debt and $0.6m as the current portion. The loan bears interest at the greater of 7.5% or 2% above prime and matures in February 2023.
- Net cash provided by financing activities was $58.5m for the nine months, including $44.5m net equity proceeds and $20.0m loan proceeds, offset in part by $7.2m of term-loan repayments. Investing cash use was $0.01m.
- Margins are not meaningful because the company had no revenue. The filing reports continuing operating losses and does not provide a profitability forecast.
Material changes versus comparable periods
- Quarterly net loss more than doubled year over year; nine-month net loss also more than doubled. R&D expense rose substantially as the company expanded and advanced clinical programs.
- Management attributed higher R&D costs mainly to starting or preparing the GEMINI, MOMENTUM, INTERCEPT, and CONCERT trials and open-label safety studies, and continued work on STRIDE-1 and ADVANCE-1. Higher personnel and stock-compensation costs contributed to increased G&A.
- Cash increased primarily because of equity and debt financing. The company raised approximately $20.1m gross under a new $50m at-the-market sales agreement during the nine months; 942,285 shares were sold.
- The July 2019 amendment to the $24m term-loan facility extended the interest-only period to 18 months, extended the deadline for a conditional $4m second tranche to December 31, 2019, and increased the final payment fee from 6.0% to 6.3%.
Outlook, risks, and unusual items
- Management estimated available cash would fund anticipated operating requirements into the second quarter of 2021; the notes also state cash was expected to cover at least 12 months following filing. The estimate depends on clinical-trial timing and spending and could prove incorrect. Additional financing is expected to be needed.
- The company expects substantial losses and rising expenses as it develops candidates and prepares for potential commercialization. No formal revenue or earnings guidance was provided.
- Key development programs included AXS-05 in depression and Alzheimer’s-related agitation, AXS-07 in acute migraine, and AXS-12 in narcolepsy. AXS-05 had FDA Breakthrough Therapy designation for major depressive disorder. The company cautioned that designations do not assure faster review or approval.
- Significant risks include clinical-trial failure or delays, regulatory uncertainty (including reliance on the 505(b)(2) pathway), manufacturing and third-party dependence, competition and reimbursement limitations, and the need for additional capital. The debt has covenants and is secured by company assets other than intellectual property; intellectual property is subject to a negative pledge.
- Intellectual-property proceedings are a notable risk for AXS-02: the PTAB had invalidated claims in multiple challenged patents, including a decision in October 2019 on patent ’245; review proceedings on other patents remained ongoing. The filing also describes potential conflicts arising from licenses with Antecip, an entity owned by the CEO and board chair.
- The company reported no material pending legal proceedings, was in compliance with financing covenants, and stated disclosure controls were effective with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the cash-runway estimate remains achievable given clinical spending, trial progress, and financing needs.
- Clinical and regulatory milestones, results, enrollment, and timelines for AXS-05, AXS-07, and AXS-12, including any additional studies required by the FDA.
- Status and consequences of the AXS-02 patent challenges, including remaining PTAB proceedings and any appeals or rehearing requests.
- Availability and conditions for drawing the conditional $4m loan tranche, as well as debt service, covenants, and future financing plans.
- Potential dilution from further equity issuance and the terms and related-party implications of the Antecip license agreements.