Axsome Therapeutics, Inc. — Q1 2019 Form 10-Q
Period: Three months ended March 31, 2019; filed May 9, 2019. Axsome is a clinical-stage biopharmaceutical company developing treatments for CNS disorders and pain. It had no approved products and generated no revenue.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $7.60 million | $4.75 million |
| General and administrative expense | About $2.82 million | $2.41 million |
| Operating loss | $10.42 million | $7.16 million |
| Net loss per share, basic and diluted | $0.32 | $0.19 |
| Cash used in operating activities | $9.50 million | $6.68 million |
There were no product margins to report. R&D expense rose about 60%, primarily with the initiation and progress of clinical trials, particularly AXS-07, and manufacturing costs. G&A increased mainly due to legal, public-company, and personnel costs. The 2018 comparison included a $2.67 million non-cash gain from a change in warrant-liability fair value; no warrant liability was outstanding in Q1 2019.
Cash and cash equivalents were $42.62 million at March 31, up from $13.97 million at year-end. Net cash increased $28.66 million, reflecting $25.0 million net proceeds from ATM stock sales and $20.0 million in new term-loan proceeds, partly offset by $7.24 million in loan repayment and operating cash use. Current assets were $43.76 million and current liabilities $7.71 million. Accumulated deficit was $118.19 million.
Debt principal outstanding was $20.0 million. The March 2019 facility provides another $4.0 million only if specified AXS-12 trial data and FDA-related conditions are met by August 15, 2019. Interest is at least 7.5%; the loan matures in February 2023, is secured by company assets other than intellectual property, and includes a 6% final payment fee. The company reported compliance with its debt covenants.
Material changes and developments
- Axsome raised about $25.8 million gross through its ATM in January by selling 3,164,015 shares; the $30 million facility was exhausted and terminated. Shares outstanding increased from 30.09 million at December 31, 2018 to 33.30 million at March 31, 2019.
- R&D spending increased by $2.85 million year over year. AXS-07 R&D expense rose to $2.53 million from $0.19 million; AXS-12 expense was $0.45 million versus none in the prior-year quarter.
- Management expected available cash to fund anticipated operating needs into at least the first quarter of 2021, while cautioning that trial timing and costs could shorten the runway. It also stated that substantial future financing would be needed.
Outlook, risks, and unusual items
- Management expects significant expenses and increasing losses for the foreseeable future; profitability depends on successful trials, regulatory approvals, and commercialization, none of which is assured.
- Pipeline activity included AXS-05 trials in treatment-resistant depression and Alzheimer’s agitation; AXS-07 Phase 3 migraine trial; AXS-12 Phase 2 narcolepsy trial; and AXS-02 Phase 3 knee osteoarthritis study. The filing reports AXS-05 met the ASCEND MDD study’s primary endpoint and received FDA Breakthrough Therapy designation for MDD. After quarter-end, Axsome announced positive smoking-cessation Phase 2 results in April and expedited/pivotal development status for AXS-05 in MDD in May.
- Key risks include clinical failure or delay, regulatory uncertainty (including reliance on the 505(b)(2) pathway), patient enrollment, manufacturing and CRO dependence, competition and reimbursement, and the need for additional capital. The company also disclosed adverse PTAB decisions invalidating claims in certain AXS-02-related patents; it had stopped pursuing one appeal and was considering options regarding another decision. Antecip, which licenses certain assets to Axsome, is owned by the CEO and chairman, creating a disclosed conflict-of-interest risk.
- The filing states there were no material pending legal proceedings. It also says the company had no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Financial-statement inconsistency: The consolidated statements report Q1 2019 G&A of $2,818,392 and net loss of $10,640,376; the MD&A table instead reports G&A of $2,818,892 and net loss of $10,640,876. Confirm the correct amounts in the filed statements and subsequent reports.
- Whether the cash-runway estimate through at least Q1 2021 remains achievable given clinical-trial spending and the company’s financing needs.
- Whether AXS-12 meets the clinical and FDA conditions for access to the additional $4.0 million loan tranche, and the implications if it does not.
- Current status and potential impact of the challenged AXS-02 patents and related PTAB proceedings.
- Trial progress, final results, regulatory requirements, and potential commercial prospects for the lead programs; positive interim or trial announcements do not guarantee approval or sales.
- Potential dilution and financing terms following the completed ATM offering, as well as the terms and capacity of any future capital raises.