Axsome Therapeutics, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance sheet compared with December 31, 2016. Axsome is a clinical-stage CNS biopharmaceutical company with no approved products or product revenue.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $6.0 million | $4.5 million; up $1.5 million |
| General and administrative expense | $1.7 million | $1.4 million; up $0.3 million |
| Total operating expenses / operating loss | $7.7 million | $5.9 million |
| Interest and debt-discount amortization | $0.323 million expense | $0.017 million income |
| Net loss | $8.0 million; $0.41 per share | $5.9 million; $0.31 per share |
| Net cash used in operations | $6.6 million | $3.9 million |
| Cash and cash equivalents | $45.0 million at March 31 | $36.6 million at December 31, 2016 |
Research and development expense increased mainly with the CREATE-1, STRIDE-1 and COAST-1 clinical studies and product-candidate manufacturing. The company reported no profit margin; with no revenue, operating margins are not meaningful. Accumulated deficit was $55.6 million.
Financing activities provided $15.0 million in Q1, including $14.8 million net proceeds from a March public offering of 4,304,813 shares at $3.74 per share, plus proceeds from option and warrant exercises. Cash increased by $8.4 million during the quarter.
Debt included a $10.0 million SVB term loan. At March 31, the balance-sheet carrying amounts were $1.08 million current and $8.78 million long-term. The loan bears interest at 4.50% plus the applicable prime rate, has an 8.5% final payment fee, and matures in November 2020. Up to $10 million of additional advances were conditional on clinical and financial milestones.
Business developments and outlook
- AXS-05 was in a Phase 3 study for treatment-resistant depression; Axsome planned to start a Phase 2/3 study for agitation in Alzheimer’s disease in Q2 2017.
- AXS-02 was in Phase 3 studies for complex regional pain syndrome and knee osteoarthritis associated with bone marrow lesions. The company also planned a Phase 3 study for chronic low back pain associated with Modic changes after readouts from CREATE-1 and STRIDE-1.
- The FDA cleared the AXS-02 chronic-low-back-pain IND in February 2017 and the AXS-05 Alzheimer’s-agitation IND in January 2017. Fast Track designation for AXS-05 in treatment-resistant depression was received in February 2017; the filing also reports designation for Alzheimer’s agitation in May 2017, after quarter-end.
- Management expected cash to fund anticipated operating requirements into the first quarter of 2019, but said timing and cost of clinical trials could shorten the runway. The company anticipated continued losses and substantial additional financing needs, and did not expect significant revenue in the near future.
Risks, contingencies and notable items
- Clinical, regulatory and commercial outcomes remain uncertain; additional studies, delays, safety findings, enrollment challenges or manufacturing issues could increase costs or prevent approval.
- AXS-05 Phase 3 uses a single tablet combining dextromethorphan and bupropion, unlike some earlier studies using separate tablets; the filing warns the formulation change could affect pharmacokinetics and prompt additional FDA requirements.
- The additional SVB loan tranches depend on specified clinical and financial milestones. The loan is secured by company assets other than intellectual property, which is subject to a negative pledge, and includes operating covenants.
- Grünenthal filed a post-grant review petition in December 2016 challenging a patent relating to oral zoledronic acid for CRPS. A second petition, filed in May 2017, challenges a patent involving dosage forms and knee-pain use. Axsome said it intended to oppose the petitions; outcomes were uncertain.
- Axsome licenses technology from Antecip, an entity owned by its CEO and board chair, and disclosed potential conflicts of interest. The licenses provide for royalties on net sales if products are commercialized; no payments had been required to date.
- The company reported no material pending legal proceedings, effective disclosure controls at reasonable-assurance level, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Clinical-trial progress, enrollment, data readouts and any resulting changes to development timelines or costs.
- Whether Axsome achieves the clinical and financial milestones required to access the remaining SVB loan tranches, and how the cash-runway estimate changes.
- Outcomes of the Grünenthal patent-review petitions and any other intellectual-property disputes affecting AXS-02.
- Future financing needs, potential dilution, debt obligations and the terms of any additional capital raises.
- Regulatory feedback on AXS-05’s single-tablet formulation, and the scope of any additional studies required.