Axsome Therapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet amounts are as of March 31, 2018. Axsome is a clinical-stage biopharmaceutical company developing five product candidates for CNS disorders and had no approved products or product revenue.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.75 million | $5.99 million |
| General and administrative expense | $2.41 million | $1.69 million |
| Total operating expenses / operating loss | $7.16 million | $7.67 million |
| Net loss | $4.81 million | $8.00 million |
| Net loss per share, basic and diluted | $0.19 | $0.41 |
| Cash used in operating activities | $6.68 million | $6.64 million |
| Cash | $26.63 million | $34.02 million at December 31, 2017 |
| Total assets | $27.94 million | $35.56 million at December 31, 2017 |
| Total liabilities | $15.35 million | $18.84 million at December 31, 2017 |
The company reported no product revenue, so operating margins are not meaningful. Net loss improved year over year largely because of a $2.67 million noncash gain from revaluing warrant liabilities; operating expenses declined by $0.51 million. R&D spending fell mainly as costs from earlier trials decreased, partly offset by work on AXS-05 and ADVANCE-1. G&A rose mainly due to higher intellectual-property and legal costs.
Operating cash use was broadly similar to the prior-year quarter. Cash declined by $7.39 million during Q1, including $0.83 million of term-loan principal repayment. Management estimated available cash would fund anticipated operating requirements into the third quarter of 2019, but cautioned that trial timing and costs could shorten that runway. The company said significant future financing would be required.
At quarter-end, the SVB term loan had $8.89 million of principal outstanding, with scheduled repayments through 2020. The loan carries interest at 4.50% plus the applicable prime rate, has an 8.5% final payment fee, and is secured by company assets other than intellectual property; the intellectual property is subject to a negative pledge. The two additional $5 million tranches expired after specified milestones were not met. The company also had a $30 million at-the-market sales agreement and raised approximately $0.2 million gross under it during Q1.
Development progress and material changes
- AXS-02: Following an interim analysis, the company discontinued the Phase 3 CREATE-1 trial in CRPS for futility. The IDMC recommended continuing the Phase 3 COAST-1 knee osteoarthritis trial to full enrollment; the filing also says screening and enrollment were paused pending the STRIDE-1 data readout.
- AXS-05: The company was conducting a Phase 3 trial in treatment-resistant depression (STRIDE-1) and a Phase 2/3 trial in Alzheimer’s agitation (ADVANCE-1). In February, AXS-09 met its primary endpoint in a Phase 1 trial. In April, after quarter-end, the STRIDE-1 IDMC recommended continuing the trial and reported that AXS-05 appeared safe and well-tolerated based on interim information.
- After quarter-end, the first patient entered a Phase 2 AXS-05 smoking-cessation trial conducted with Duke University.
- AXS-07 was being developed for acute migraine; AXS-06 for osteoarthritis and rheumatoid arthritis; and AXS-09 for CNS disorders.
Outlook, risks and unusual items
Management expects continued substantial losses and increasing expenses as clinical development advances; it does not expect significant revenue in the near future and may never achieve profitability. The cash-runway estimate is based on assumptions that could prove inaccurate. Additional equity or debt financing may not be available on acceptable terms and could dilute shareholders or restrict operations.
Key risks include clinical-trial failure, delay or enrollment challenges; regulatory uncertainty, including whether the planned 505(b)(2) pathway will be accepted; manufacturing and third-party service-provider dependence; competition and reimbursement pressure; and the need to establish commercialization capabilities. The filing also highlights ongoing PTAB challenges to certain AXS-02 patents, including a review limited to written-description grounds for one patent and a review instituted for another; outcomes were uncertain. Three exclusive licenses are with Antecip, an entity owned by the CEO and board chair, creating disclosed potential conflicts of interest and royalty obligations if licensed products are sold.
The $2.67 million warrant fair-value gain was a noncash accounting item, not operating cash generation. Warrants issued in the December 2017 offering are recorded as a current liability and remeasured using Level 3 inputs. No material legal proceedings were pending, and management reported disclosure controls effective at the reasonable-assurance level with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash use and clinical-trial spending remain consistent with management’s stated runway into Q3 2019, and what financing may be needed.
- Results and timelines for STRIDE-1, ADVANCE-1 and COAST-1, including the impact of paused COAST-1 screening and the discontinued CREATE-1 trial.
- The status and scope of the PTAB proceedings concerning AXS-02 patents and any resulting effect on development or commercialization rights.
- Loan repayment obligations, covenants, collateral provisions and the remaining availability of the at-the-market equity facility.
- Potential financial and governance implications of the Antecip licenses and the disclosed CEO/board-chair conflict of interest.