Business context and reporting period
Axsome Therapeutics, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018. The company is a clinical-stage biopharmaceutical developer with no approved products and no product revenue. Its pipeline targets CNS disorders and pain; the filing also reports unaudited quarterly results, including Q4 2018.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $23.5 million | $20.0 million |
| General and administrative expense | $9.4 million | $7.2 million |
| Total operating expenses | $32.8 million | $27.2 million |
| Net loss | $31.0 million | $28.9 million |
| Net loss per share, basic and diluted | $1.15 | $1.27 |
| Cash used in operating activities | $30.1 million | $26.5 million |
Q4 2018 operating expenses were $9.45 million and net loss was $9.60 million, or $0.32 per share. No revenue or gross margin was reported, so commercial margins are not meaningful. FY 2018 net loss included a $2.79 million non-cash gain from the change in fair value of warrants; the warrants expired in December 2018.
At December 31, 2018, cash was $14.0 million, total assets $15.4 million, current liabilities $10.8 million, and total liabilities $14.4 million. Working capital was approximately $4.4 million. Loan payable, net of discounts, was approximately $6.9 million, including current and long-term portions. Stockholders’ equity was $0.94 million. Cash fell $20.1 million during 2018.
After year-end, Axsome received approximately $25.0 million in net proceeds from January 2019 ATM share sales and entered a new loan facility in March 2019: $20.0 million funded, with another $4.0 million available subject to a clinical milestone. Management said cash, including these financings, was expected to fund operations into at least Q4 2021; this estimate depends on assumptions and could prove inaccurate.
Material changes and notable developments
- R&D expense rose $3.5 million in 2018, principally due to AXS-05 trials and startup/manufacturing costs for AXS-07 and AXS-12. AXS-02 spending declined as trial activity changed.
- G&A increased $2.1 million, mainly from intellectual-property and legal costs, public-company expenses, and personnel.
- Net loss per share improved despite a larger net loss, as weighted-average shares increased and the warrant fair-value gain reduced reported loss.
- R&D was concentrated in AXS-05 ($13.5 million); AXS-07 expense increased to $3.2 million from $0.2 million.
- Management reported the STRIDE-1 interim futility review recommended continuing the AXS-05 TRD study. For ADVANCE-1, the review recommended continuing the AXS-05 arm and no further enrollment in the bupropion arm.
- The CREATE-1 AXS-02 CRPS trial was stopped for futility. The COAST-1 knee OA trial was recommended to continue, but screening had been paused pending STRIDE-1 results.
Outlook, risks, contingencies, and unusual items
As of the filing date, Axsome reported AXS-05 had met the primary endpoint in its Phase 2 MDD ASCEND study; that result was announced in January 2019. The company also reported initiating the AXS-07 Phase 3 migraine study in March 2019 and the AXS-12 Phase 2 narcolepsy study in January 2019. The FDA had agreed under a Special Protocol Assessment to AXS-07’s Phase 3 design; the company believed one pivotal trial might suffice, but the FDA could require additional evidence.
The company expects continued substantial losses and higher development spending and does not expect near-term revenue. Key risks include clinical-trial failure or delays, regulatory uncertainty (including reliance on the 505(b)(2) pathway), financing needs and potential dilution, dependence on contract manufacturers and research organizations, future reimbursement and market acceptance, and the need to build commercial capabilities. The March 2019 loan carries covenants and collateral restrictions.
Intellectual property is a material contingency: Grunenthal challenged multiple patents in post-grant review proceedings. PTAB decisions had held certain challenged claims invalid, including claims of the ’239 and ’862 patents; Axsome appealed the ’862 decision in January 2019. The filing also describes pending proceedings, so patent protection and related rights remain uncertain. Certain core licenses are with Antecip, an entity owned by the CEO and board chair, creating disclosed related-party and potential conflict-of-interest risks.
The company reported no material pending legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2018; the auditor did not provide an internal-control attestation because Axsome qualified for the emerging-growth-company exemption.
Most important facts for investors to verify
- Current cash runway and cash burn against management’s Q4 2021 estimate, including the effects of the 2019 equity and debt financings.
- Final outcomes, safety, enrollment, and regulatory requirements for STRIDE-1, ADVANCE-1, COAST-1, MOMENTUM, and CONCERT; interim recommendations are not final efficacy results.
- Whether the ASCEND Phase 2 result is confirmed in later-stage trials and supports the intended AXS-05 indications.
- Status and scope of patent challenges, appeals, and any resulting effect on AXS-02 or other licensed intellectual property.
- Terms, covenants, repayment obligations, and milestone conditions of the March 2019 loan, as well as potential future dilution from equity issuance.