Tenax Therapeutics, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. The unaudited filing was signed November 14, 2018. Tenax is a specialty pharmaceutical company developing levosimendan in North America, principally for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). It reported no revenue for the periods presented.
Financial position and results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Operating expenses | $1.55 million | $1.31 million | $4.67 million | $7.82 million |
| Net loss | $1.53 million | $1.23 million | $4.58 million | $7.50 million |
| Net loss per share, basic and diluted | $1.05 | $0.87 | $3.17 | $5.32 |
| Net cash used in operating activities | $1.6 million, per MD&A | $1.3 million, per MD&A | $4.30 million | $10.86 million |
At September 30, 2018, cash and cash equivalents were $3.35 million and marketable securities totaled $1.81 million, or approximately $5.2 million combined. Current assets were $5.14 million; current liabilities and total liabilities were $516,158, including a $19,376 warrant liability. The company reported no debt balance. Working capital was approximately $4.62 million, and stockholders’ equity was $4.94 million, down from $8.88 million at year-end 2017. No meaningful revenue-based margin measure is available because revenue was not reported.
Changes versus the prior comparable periods
- Q3 operating expenses rose about 19% year over year, and net loss increased from $1.23 million to $1.53 million. General and administrative expense increased to $1.19 million, while research and development expense increased to $363,000, primarily reflecting PH-HFpEF trial start-up costs and personnel.
- For the first nine months, operating expenses fell about 40% and net loss fell about 39%. The main driver was lower clinical development spending after completion of the Phase 3 LEVO-CTS trial in 2017; 2018 also included costs to initiate the planned PH-HFpEF Phase 2 trial.
- Operating cash use for the first nine months declined to $4.30 million from $10.86 million. Investing activities provided $6.04 million, mainly from sales of marketable securities; this was a conversion of investments to cash, not operating cash generation.
- Cash and cash equivalents increased from $1.60 million at December 31, 2017, while marketable securities fell from $7.93 million to $1.81 million. Total cash and securities declined over that period.
Outlook, risks and contingencies
- Management estimated existing resources would fund planned operations through the first quarter of 2019. Substantial additional financing would be needed thereafter; management said financing availability was not assured. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Tenax planned to begin enrollment in its PH-HFpEF Phase 2 trial in Q4 2018. The company said the FDA agreed with the planned design, entry criteria and endpoints, and indicated a limited Phase 3 program might be possible; the Phase 3 pathway remained subject to further discussion after Phase 2.
- Potential financing through equity could significantly dilute shareholders; debt could add interest and restrictive covenants; collaboration or licensing could require relinquishing rights on unfavorable terms. Failure to obtain funding could lead to delayed or reduced development programs.
- The levosimendan license includes contingent payments of $2 million upon U.S. FDA approval, $1 million upon Canadian approval, and up to $13 million in commercial milestones, plus royalties. No development milestones had been met and no contingent liability was recorded at September 30, 2018.
- The filing reported no material pending legal proceedings and no material change in previously disclosed risk factors. Disclosure controls were assessed as effective; no significant change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Tenax secured financing sufficient to fund operations beyond the stated Q1 2019 runway, and the resulting dilution, debt terms or licensing concessions.
- Whether PH-HFpEF Phase 2 enrollment began as planned and the trial’s timing, enrollment, costs and results; the filing provides no guarantee of clinical or regulatory success.
- Cash burn and liquidity after September 30, 2018, including the pace of converting remaining marketable securities into operating cash.
- The effects of the February 2018 1-for-20 reverse stock split and the potential dilution from outstanding options, warrants and restricted stock. The filing reported 1,465,496 common shares outstanding at September 30, 2018.
- The company’s revenue prospects and the timing and potential cost of license milestones and royalties if levosimendan advances toward approval or commercialization.