Praxis Precision Medicines, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The unaudited financial statements are presented in thousands of dollars unless noted. Praxis is a clinical-stage CNS biopharmaceutical company with no approved products and no product revenue.
Financial and operating highlights
- Revenue: None; the company does not expect product sales for several years, if ever.
- Q3 2020: Operating expenses were $16.2 million, including R&D of $12.8 million and G&A of $3.4 million. Net loss was $16.2 million, versus $10.6 million in Q3 2019. Net loss attributable to common stockholders was $20.2 million, or $12.10 per share, versus $11.9 million, or $7.61 per share.
- First nine months of 2020: Operating expenses were $36.3 million (R&D $28.7 million; G&A $7.6 million). Net loss was $36.1 million, compared with $28.1 million in 2019. Net loss attributable to common stockholders was $43.7 million, or $26.53 per share, compared with $31.6 million, or $21.02 per share.
- Cash flow: Net cash used in operating activities was $32.4 million for the first nine months of 2020, up from $23.5 million in 2019. Investing cash flow was zero; financing provided $102.4 million. Cash, cash equivalents and restricted cash ended the period at $115.4 million, including $114.8 million of cash and cash equivalents.
- Balance sheet and liquidity: Total assets were $119.5 million; current assets $115.9 million; current liabilities $10.4 million; and total liabilities $10.6 million. No borrowings are reported; liabilities include operating leases. Accumulated deficit was $123.3 million. Management stated that September cash plus subsequent IPO proceeds should fund operations into Q4 2022, subject to assumptions.
- Margins: Not meaningful because the company had no revenue. Losses are expected to continue.
Changes versus prior comparable periods
- Q3 operating expenses rose $5.6 million year over year; R&D increased $3.4 million and G&A increased $2.1 million. Management attributed R&D growth mainly to PRAX-114 and PRAX-944 clinical work and increased personnel, partly offset by lower discovery-stage spending. Higher G&A reflected IPO preparation, professional fees and headcount.
- For the nine-month period, operating expenses increased $8.0 million and net loss increased $8.0 million year over year. R&D growth included higher personnel costs and PRAX-114 clinical spending; G&A growth reflected professional fees and additional staff.
- Cash and cash equivalents increased from $44.8 million at December 31, 2019, largely reflecting preferred-stock financing. During the nine months, the company raised $133.4 million net from preferred stock, repurchased Series C preferred stock for $30.0 million and paid $1.1 million of deferred offering costs.
Outlook, risks and unusual items
- Praxis reported three clinical-stage candidates: PRAX-114 and PRAX-944 in Phase 2 development, and PRAX-562 in Phase 1. Management expected multiple topline readouts across the three programs within 18 months and planned to launch another clinical development program in 2021.
- On October 20, 2020, after quarter-end, the company completed its IPO of 11.5 million shares at $19 per share, for $218.5 million gross and approximately $199.9 million net proceeds. Outstanding preferred stock converted into 25,067,977 common shares. Management said the IPO proceeds extended its expected cash runway into Q4 2022.
- In November 2020, after quarter-end, the FDA placed the PRAX-114 IND on clinical hold pending resolution of nonclinical pharmacology and toxicology matters. The filing does not specify a resolution date.
- In May 2020, Praxis received a cease-and-desist letter from Sage Therapeutics alleging improper access to and use of confidential information concerning PRAX-114. Praxis disputed the allegations and stated it intended to defend its position; an adverse outcome could harm the business.
- COVID-19 had not caused significant impact or delays at the time of the filing, but could disrupt enrollment, trial sites, suppliers, outsourced resources and regulatory review.
- Key risks include clinical failure or safety issues, regulatory uncertainty and possible nonacceptance of trial data generated mainly in Australia and New Zealand, competition, reliance on third-party manufacturers and collaborators, intellectual-property disputes, and the need for substantial additional funding. No formal financial guidance was provided.
- Praxis repurchased 5.8 million Series C preferred shares for $30.0 million in 2020; investors waived accumulated dividends, and the company recorded a $0.5 million gain. The company also completed a one-for-2.14 reverse stock split on October 8, 2020.
Most important facts for investors to verify
- Progress and timing of resolving the FDA clinical hold on PRAX-114, and the effect on planned trials and readouts.
- Clinical results, safety and enrollment for PRAX-114, PRAX-944 and PRAX-562, including how preliminary or topline data compare with final trial results.
- Whether spending and operating cash use remain consistent with management’s runway estimate into Q4 2022, and when additional capital may be needed.
- Status and potential consequences of Sage’s allegations and any other intellectual-property or licensing disputes.
- Post-IPO share count, preferred-stock conversion, equity awards and potential share sales when lock-up restrictions expire.