Axsome Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Axsome is a CNS-focused biopharmaceutical company developing four candidates and commercializing Sunosi, whose U.S. rights it acquired from Jazz on May 9, 2022. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net product sales | $8.8 million | None | $8.8 million | None |
| Research and development | $15.8 million | $14.5 million | $28.4 million | $31.1 million |
| Selling, general and administrative | $31.2 million | $16.3 million | $56.9 million | $27.6 million |
| Operating loss | $39.2 million | $30.8 million | $77.5 million | $58.7 million |
| Net loss | $41.4 million | $32.3 million | $81.1 million | $61.5 million |
| Net loss per share, diluted | $1.06 | $0.86 | $2.09 | $1.64 |
Q2 cost of product sales was $1.0 million, implying gross profit of about $7.8 million, or an approximately 88.9% gross margin before other expenses. This reflects a short post-acquisition sales period and acquired inventory; it may not represent ongoing product economics. No income tax benefit was recorded.
At June 30, cash and cash equivalents were $73.4 million, down from $86.5 million at December 31, 2021. Current assets were $104.0 million and current liabilities $42.6 million. Six-month operating cash use was $66.2 million; investing cash use was $53.5 million, including the $53.0 million Sunosi upfront payment; financing provided $106.6 million. Long-term loan carrying value was $93.5 million against $95.0 million principal. Accumulated deficit was $490.3 million.
Material changes and notable items
- Sunosi contributed $8.8 million of sales and $4.6 million of net loss from acquisition through June 30. The acquisition included $53.0 million cash consideration and $36.1 million initial fair value of contingent consideration, principally royalties; the balance was $35.3 million at quarter-end.
- Compared with Q2 2021, SG&A rose $14.9 million, mainly from pre-commercial and Sunosi commercial activities, personnel and higher stock-based compensation. R&D rose $1.3 million, reflecting personnel and ongoing trials. For the first half, R&D fell $2.7 million, primarily because the prior-year period included NDA fees; SG&A increased $29.3 million.
- Axsome drew $45.0 million under its amended Hercules facility and raised approximately $56.8 million net through equity sales in the first half. Common shares outstanding were 39.9 million at June 30, versus 37.8 million at year-end.
- The Hercules loan bears a floating rate of at least 8.95%, subject to a 10.70% cap. It is secured by substantially all company assets, including intellectual property. The company reported covenant compliance at June 30.
Outlook, risks and contingencies
- Management expects continued operating losses and rising expenses from Sunosi commercialization and pipeline development; sustained profitability is not assured. The filing gives two runway scenarios: existing cash was expected to cover at least 12 months after filing, while cash plus remaining committed term-loan capital was expected to fund operations into 2024 under the current plan, which assumes AXS-05 approval in 2022. If approval is delayed or not obtained, management estimated at least 12 months of runway on available cash. The filing cautions that assumptions may prove wrong.
- FDA review of the AXS-05 major depressive disorder NDA remained ongoing; the prior August 2021 target action date had passed. Axsome reported responding to known deficiencies, receiving proposed labeling in June 2022, and agreeing to proposed postmarketing requirements/commitments.
- The FDA issued a Complete Response Letter for AXS-07 migraine on April 29, 2022. The stated principal issues concerned chemistry, manufacturing and controls; the FDA did not request new clinical trials or raise clinical efficacy or safety concerns. The company said it believed the issues were addressable and planned to discuss resubmission timing with the FDA.
- The U.S. Sunosi acquisition closed; the Ex-U.S. asset closing was expected in Q4 2022. Sunosi carries Jazz U.S. sales royalties and assumed SK/Aerial royalties and milestone commitments, including up to $165 million tied to revenue milestones and $1 million tied to development milestones. Acquisition purchase-price allocations were preliminary.
- Material risks include dependence on Sunosi acceptance and successful candidate development and regulatory approval; reimbursement, competition, manufacturing and third-party service-provider risks; financing needs and loan covenants; and uncertainty from COVID-19, which management said had not significantly affected trial progression to date.
- A securities class action filed in May 2022 alleges misstatements concerning AXS-07 CMC practices and its FDA application; a related shareholder derivative action was filed in July. Both sought unspecified damages and other relief, and the company had not responded as of the filing.
Important facts for investors to verify
- Subsequent Sunosi sales, net revenue deductions, payer access and gross-margin economics as commercialization progresses.
- FDA decisions and timelines for AXS-05 and AXS-07, including any AXS-07 CMC remediation or resubmission timetable.
- Actual cash burn and runway against the conditional 2024 estimate, including availability and terms of remaining Hercules tranches and compliance with minimum-cash requirements.
- Updates to preliminary Sunosi acquisition valuations, contingent-consideration assumptions, royalty obligations and milestone exposure.
- Developments in the securities and derivative litigation, and any resulting financial or operational consequences.