Tenax Therapeutics, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed April 2, 2018. The company is a clinical-stage specialty pharmaceutical developer focused on critical-care therapies. It had no approved products for sale and reported no product revenue.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Research and development expense | $3.53 million | $13.14 million |
| General and administrative expense | $5.68 million | $6.25 million |
| Operating expenses | $9.21 million | $52.65 million |
| Net loss | $8.84 million | $43.92 million |
| Net loss per share | $6.27 | $31.24 |
| Cash used in operating activities | $12.14 million | $15.87 million |
| Cash and cash equivalents | $1.60 million | $10.00 million |
| Marketable securities | $7.93 million | $11.87 million |
| Working capital | $7.05 million | $7.43 million |
At year-end, total assets were $9.89 million, total liabilities $1.01 million, and stockholders’ equity $8.88 million. The filing reports no conventional debt balance; liabilities consisted mainly of accounts payable, accrued liabilities, and warrant liabilities. No operating margin is meaningful given the absence of revenue. Cash plus marketable securities totaled approximately $9.54 million.
Material changes versus 2016
- Net loss narrowed substantially, primarily because 2016 included a $33.27 million impairment charge related to levosimendan in cardiac-surgery development and a $7.96 million income-tax benefit. Neither item recurred in 2017.
- Research and development expense fell 73%, largely because LEVO-CTS Phase 3 trial costs declined after the trial was completed.
- Operating cash use decreased by $3.73 million year over year, but cash and cash equivalents fell by $8.39 million. Investing cash inflow also declined, as fewer marketable securities were sold.
- Working capital declined modestly. Cash, cash equivalents, and marketable securities together decreased from about $21.87 million to $9.54 million.
Outlook, commentary, risks, and unusual items
- Lead program: Levosimendan is being developed in North America for pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). Management planned an FDA meeting in the first half of 2018 to discuss a Phase 2 study and targeted enrollment in the second half of 2018. These are plans, not assured milestones.
- LEVO-CTS: The Phase 3 cardiac-surgery trial missed both co-primary endpoints. It met two of three secondary endpoints, including reduced low cardiac output syndrome and reduced postoperative use of secondary inotropes. An isolated-CABG post hoc analysis showed improved 90-day survival, but the FDA said a new prospective CABG study would be required to support a mortality claim. Tenax suspended CABG development, citing the scale, cost, and timing of the requested study.
- Strategic review: Since April 2017, the board has been reviewing alternatives to maximize stockholder value, with Ladenburg Thalmann as financial adviser. Potential options include a merger, business combination, or acquisition, license, or other transaction involving assets; the review may produce no transaction.
- Liquidity and going concern: Management estimated existing resources would fund planned operations through the first quarter of 2019. The company expects to need substantial additional capital and warned that financing may not be available on acceptable terms. Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern.
- Key dependencies and risks: Tenax relies on Orion as its sole levosimendan manufacturer and has limited personnel and product opportunities. Clinical, regulatory, financing, reimbursement, intellectual-property, and commercialization risks are material. Additional equity financing could dilute shareholders; debt or licensing could impose restrictions or require surrendering rights.
- Other items: The company recorded a $192,419 gain from the change in fair value of warrant liabilities. The Tax Cuts and Jobs Act reduced the federal corporate tax rate; deferred tax assets were adjusted, while a valuation allowance remained. A 1-for-20 reverse stock split took effect February 23, 2018; share and per-share figures in the filing are retroactively adjusted.
Important facts for investors to verify
- Current cash, marketable securities, cash burn, and whether financing has extended the stated runway beyond the first quarter of 2019.
- Progress and FDA feedback on the PH-HFpEF Phase 2 study, including trial design, funding, and enrollment timing.
- Whether the company’s strategic review resulted in a transaction, partnership, or change in development priorities.
- Interpretation of LEVO-CTS secondary and post hoc results, and the practical implications of the FDA’s requirement for another CABG study.
- Potential dilution from outstanding equity awards and warrants, and any changes to the company’s listing status or capital structure.