Business context and reporting period
Tenax Therapeutics, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The specialty pharmaceutical company is developing levosimendan, principally for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). The statements reflect a 1-for-20 reverse stock split effective February 23, 2018.
Financial results and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported |
| Operating expenses | $1.89 million | $3.11 million | $3.01 million and $6.51 million, respectively |
| Net loss | $1.87 million | $3.05 million | $2.99 million and $6.26 million, respectively |
| Basic and diluted loss per share | $1.29 | $2.12 | $2.12 and $4.44, respectively |
| Net cash used in operating activities | $1.2 million, per MD&A | $2.75 million | $5.6 million and $9.63 million, respectively |
At June 30, cash and cash equivalents were $3.90 million and marketable securities totaled $2.80 million, or approximately $6.7 million combined. Total assets were $7.03 million; current liabilities were $0.79 million; working capital was $5.92 million; and stockholders’ equity was $6.23 million. The filing reports no interest-bearing debt; liabilities consisted of accounts payable, accrued liabilities, and warrant liabilities. Gross and operating margins are not meaningful given the absence of reported revenue.
Changes versus prior comparable periods
- Second-quarter operating expenses fell 37% year over year; first-half expenses fell 52%. General and administrative costs declined, while the largest reduction was R&D spending after the Phase 3 LEVO-CTS trial costs incurred in 2017.
- R&D expense was $0.31 million for the quarter and $0.37 million for the first half, compared with $1.22 million and $3.27 million, respectively, in 2017. The company attributed the decrease mainly to lower CRO costs for the completed LEVO-CTS trial; costs for starting the planned PH-HFpEF Phase 2 trial partially offset the decrease.
- Operating cash use improved year over year, primarily reflecting lower accrued clinical-trial costs. Investing cash inflow was $5.04 million, largely from sales of marketable securities; it should not be mistaken for cash generated by operations.
- Combined cash and securities declined from approximately $9.54 million at December 31, 2017 to $6.70 million at June 30, 2018, while accumulated deficit reached $216.55 million.
Outlook, risks, and unusual items
- Management estimated existing resources would fund planned operations through the first quarter of 2019. The company said it needs substantial additional financing thereafter and warned that funding may not be available; failure to obtain capital could delay or reduce development plans. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Management planned to begin enrollment in the PH-HFpEF Phase 2 trial in the second half of 2018. Following a March 2018 meeting, the FDA agreed with the proposed Phase 2 design, entry criteria, and endpoints; the FDA noted a limited Phase 3 program could be an opportunity, subject to further discussion after Phase 2.
- Potential financing through equity could dilute shareholders; debt could bring interest costs and restrictive covenants; licensing or collaboration could require relinquishing rights. Levosimendan development, regulatory approval, trial execution, and future financing remain material uncertainties.
- The Orion license includes contingent development payments of $3 million upon specified U.S. and Canadian regulatory approvals and commercialization milestones of up to $13 million, plus royalties. No development milestones had been met and no liability for these contingent payments was recorded at June 30, 2018.
- The company recorded $0.10 million of common stock for services rendered and $0.26 million of common stock compensation in the first half. A Level 3 warrant liability was $24,551 at quarter-end. No material legal proceedings were reported, and management said risk factors had not materially changed from the 2017 Form 10-K.
Important facts for investors to verify
- Whether financing is secured in time to support operations beyond the stated first-quarter 2019 runway, and the resulting dilution, debt terms, or licensing concessions.
- Whether Phase 2 enrollment began as planned, trial timing and costs, and subsequent clinical and regulatory developments.
- Cash burn and the composition and liquidity of marketable securities; distinguish securities sales from operating cash generation.
- Potential share dilution from outstanding options, warrants, restricted stock, and any future capital raises, accounting for the reverse split.
- Future obligations under the Orion license if regulatory or commercial milestones are achieved.