Tenax Therapeutics, Inc. — Q2 2016 Form 10-Q
Business and period: Clinical-stage specialty pharmaceutical company developing levosimendan, its lead product, for low cardiac output syndrome (LCOS) in cardiac surgery patients. This unaudited report covers the quarter and six months ended June 30, 2016, compared with the same 2015 periods. The company reported no commercial product revenue.
Financial results and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $49,286 government grant | $0 | $49,286 government grant |
| General and administrative expense | $1.24 million | $1.93 million | $3.00 million | $3.55 million |
| Research and development expense | $3.43 million | $1.95 million | $7.38 million | $3.53 million |
| Net loss | $4.64 million | $4.75 million | $10.00 million | $7.69 million |
| Net loss per share, basic and diluted | $0.17 | $0.17 | $0.36 | $0.27 |
- Cash flow: Six-month operating cash use was $8.49 million versus $5.34 million in 2015, principally reflecting higher levosimendan trial costs. Investing activities provided $6.75 million, largely from marketable-security sales; financing activities were nil. Cash and equivalents declined to $1.93 million from $3.66 million at year-end. Management reported Q2 operating cash use of $5.2 million versus $2.8 million.
- Liquidity and balance sheet: Cash plus marketable securities totaled approximately $29.5 million at June 30, 2016. Working capital was $4.90 million, down from $15.96 million at December 31, 2015. Total assets were $64.13 million and stockholders’ equity $50.89 million. The company reported no outstanding borrowings; current liabilities included a $370,405 warrant liability, and it had a $7.96 million deferred tax liability.
- Margins: Not meaningful given the absence of commercial revenue. No profitability was reported.
Material changes and developments
- Six-month net loss increased by $2.32 million year over year as R&D expense more than doubled, driven by the Phase III Levo-CTS trial; lower G&A expense partly offset the increase.
- After reviewing endpoint data from the first 600 patients, Tenax raised the planned Phase III enrollment from 760 to 880 to obtain 201 events. Cited factors included approximately 4% of randomized patients not receiving study drug, approximately 4% missing endpoint data, and a somewhat lower-than-expected event rate.
- Oxycyte development remained suspended; the company said it did not expect significant additional trial close-out costs.
Outlook, risks, and unusual items
- Management expected available resources to fund operations through calendar year 2017, assuming no accelerated development of other opportunities or unexpected costs. It anticipated continued losses and substantial additional capital needs for levosimendan development and potential commercialization. Future funding may be unavailable or require dilution, debt covenants, or licensing away rights.
- The filing’s timing statements differ: Q2 highlights projected trial enrollment completion by the end of September 2016 at the then-current rate, while the broader discussion anticipated enrollment continuing through the end of calendar 2016. The company’s strategic focus included completing the trial and pursuing regulatory approval and commercialization.
- The levosimendan license carries potential FDA and Canadian approval milestones of $2 million and $1 million, up to $13 million in sales-based milestones, and tiered royalties. No development milestones had been met or related contingent liability recorded at June 30, 2016.
- Quarterly results included a $76,967 loss from the fair-value change in Series C warrants; for the six months, the company recorded a $153,935 gain. No long-lived-asset impairment was recorded in 2016; the 2015 comparison included a $1.03 million impairment loss.
- Management cited clinical-trial enrollment, regulatory, commercialization, financing, and development-cost uncertainties. No material pending legal proceedings were reported; management said risk factors had not materially changed. Disclosure controls were assessed as effective, with no significant internal-control changes reported.
Investor verification points
- Verify Levo-CTS enrollment progress, the revised 880-patient target, event count, and the differing completion-timing statements.
- Assess whether the approximately $29.5 million in cash and securities can support the stated runway given the $8.49 million first-half operating cash burn and forecast trial and commercialization spending.
- Confirm clinical-trial results, regulatory milestones, and any resulting license payments or royalty obligations.
- Monitor funding needs and potential dilution, as well as the valuation assumptions underlying the Level 3 warrant liability.