TENAX THERAPEUTICS, INC. quarterly report, Q2 FY2017

Tenax Therapeutics, Inc. — 2017 Second-Quarter Form 10-Q

Business context and period. This unaudited quarterly report covers the three and six months ended June 30, 2017. Tenax is a development-stage specialty pharmaceutical company focused on critical-care treatments; its lead candidate is levosimendan. The filing reports no product revenue.

Financial performance and liquidity

MetricThree months ended June 30, 2017Three months ended June 30, 2016Six months ended June 30, 2017Six months ended June 30, 2016
RevenueNone reportedNone reportedNone reportedNone reported
General and administrative expense$1.791 million$1.240 million$3.239 million$3.001 million
Research and development expense$1.223 million$3.432 million$3.274 million$7.375 million
Total operating expenses / operating loss$3.014 million$4.671 million$6.513 million$10.377 million
Net loss$2.986 million$4.641 million$6.262 million$10.003 million
Net loss per share, basic and diluted$0.11$0.17$0.22$0.36
Cash used in operating activities$5.6 million$5.2 million$9.633 million$8.485 million

Balance sheet and liquidity at June 30, 2017: Cash and cash equivalents were $2.234 million; marketable securities totaled $9.893 million, bringing cash and securities to approximately $12.1 million. Current assets were $8.997 million, current liabilities $2.183 million, and working capital $6.814 million. Total assets were $13.449 million and stockholders’ equity $11.266 million. The filing lists no borrowings or debt balance. Gross margin is not applicable because no revenue was reported.

Changes versus comparable periods

  • Second-quarter net loss narrowed to $2.986 million from $4.641 million a year earlier, largely as research and development expense declined after lower spending on the LEVO-CTS Phase III trial.
  • For the first half, net loss declined to $6.262 million from $10.003 million. R&D expense fell by $4.101 million, while G&A increased by $0.238 million.
  • Management attributed higher quarterly G&A principally to former CEO severance and higher personnel costs. First-half operating cash use rose by $1.147 million, primarily because accrued clinical-trial costs decreased.
  • Cash and cash equivalents fell from $9.996 million at December 31, 2016, while marketable securities totaled $9.893 million at June 30, 2017 versus $11.871 million at year-end. Total liabilities declined from $6.199 million to $2.183 million.

Outlook, risks and significant items

  • LEVO-CTS did not meet either co-primary endpoint. The company reported statistically significant results for two secondary endpoints, including reduced low cardiac output syndrome and lower postoperative use of secondary inotropes; it described safety results as favorable. In July 2017, after the quarter-end, the FDA and Health Canada said another trial would be required to support an NDA. Tenax was evaluating clinical, regulatory and financing options.
  • Management said available resources were expected to fund planned operations through the third quarter of 2018. It expects continuing losses and needs substantial additional financing beyond that period; financing may be unavailable or may dilute shareholders, impose debt covenants, or require licensing away rights.
  • The board was conducting a strategic alternatives review, with Ladenburg Thalmann as financial advisor. The review could result in no transaction.
  • Tenax received a Nasdaq notice over its share price closing below $1 for 30 consecutive business days. It had until September 11, 2017, to regain compliance; failure could lead to delisting and impair trading and financing access.
  • The company recorded a $33.3 million impairment charge in the fourth quarter of 2016 for levosimendan in-process R&D and goodwill after LEVO-CTS results. No further levosimendan development for cardiac-surgery LCOS was then anticipated, though subsequent regulatory discussions left the broader program under evaluation.
  • Under its Orion license, contingent payments include $2 million upon U.S. approval, $1 million upon Canadian approval, and up to $13 million in sales-based milestones, plus royalties. No development milestones had been met and no contingent milestone liability was recorded at June 30.
  • The filing states there were no material pending legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective at quarter-end.

Important facts for investors to verify

  • Whether Tenax secured financing or a strategic transaction, and whether its stated cash runway remained achievable.
  • Regulatory feedback, trial design, cost and funding for any additional levosimendan study, including the company’s intended indications.
  • Nasdaq minimum-bid compliance by the September 11, 2017 deadline and any subsequent listing action.
  • Actual cash burn, changes in accrued clinical-trial obligations, and any dilution or licensing terms from future financing.