Tenax Therapeutics, Inc. — Q3 2016 Form 10-Q Summary
Business context and reporting period
Quarterly period ended September 30, 2016. Tenax is a development-stage specialty pharmaceutical company focused on critical-care therapies. Its lead candidate is intravenous levosimendan, licensed for development and commercialization in the United States and Canada. The company’s Phase III Levo-CTS trial is evaluating levosimendan to reduce morbidity and mortality in cardiac-surgery patients at risk of low cardiac output syndrome (LCOS). The filing reports no revenue for the 2016 quarter or first nine months.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $49,286 government grant |
| Operating expenses | $4.50 million | $3.10 million | $14.88 million | $11.22 million |
| Net loss | $4.27 million | $2.92 million | $14.28 million | $10.61 million |
| Net loss per share | $0.15 | $0.10 | $0.51 | $0.38 |
| Net cash used in operating activities | $4.3 million per MD&A | $3.1 million per MD&A | $12.77 million | $8.47 million |
The company had $722,152 in cash and cash equivalents and $24.41 million in marketable securities at September 30, 2016, or approximately $25.1 million combined. Current assets were $7.67 million and current liabilities $5.06 million, leaving working capital of $2.61 million. Total assets were $59.71 million; total liabilities were $13.02 million. The filing reports no conventional borrowings outstanding; current liabilities included a $310,275 warrant liability, and the balance sheet included a $7.96 million deferred tax liability.
Nine-month investing cash inflow was $9.83 million, mainly reflecting securities sales and purchases; financing cash flow was zero. Cash and cash equivalents fell by $2.94 million from year-end 2015. No meaningful operating margins are available because the company had no 2016 revenue and continued to report losses.
Material changes versus prior comparable periods
- Q3 net loss rose by $1.35 million year over year as operating expenses increased 45%, chiefly because Phase III trial costs increased. Research and development expense rose to $3.23 million from $1.68 million.
- For the first nine months, net loss increased by $3.67 million. R&D expense more than doubled to $10.61 million from $5.21 million, principally due to Levo-CTS trial costs; general and administrative expense declined to $4.27 million from $4.98 million.
- Nine-month operating cash use increased to $12.77 million from $8.47 million, primarily reflecting higher levosimendan trial spending. Marketable securities declined to $24.41 million from $34.55 million at December 31, 2015.
- Stockholders’ equity fell to $46.69 million from $60.42 million at year-end 2015, while accumulated deficit grew to $175.01 million.
Outlook, commentary, risks and unusual items
- Management believed existing cash and investments would fund operations through calendar 2017, assuming no accelerated development, unexpected costs or other contingencies. The company expects continued losses and says additional capital will likely be needed for levosimendan commercialization and other development. Funding may be unavailable or require dilution, debt covenants, or granting rights to partners.
- After reviewing endpoint data from the first 600 trial patients, Tenax raised its expected enrollment target from 760 to 880 to obtain 201 events. Reasons included patients not receiving study drug, missing endpoint data and a lower-than-expected event rate. As of November 8, 2016, 858 patients were enrolled; management expected enrollment to finish by the end of November 2016. This was an expectation, not a reported trial result.
- Levosimendan remains in Phase III; FDA has granted Fast Track status and agreed to the protocol under a Special Protocol Assessment. Approval and commercialization remain uncertain and depend on trial outcomes, regulatory review, financing and commercial execution.
- The company recorded a $74,000 gain on disposal of equipment previously used in Oxycyte manufacturing. Oxycyte development had been suspended in 2014. The $214,065 nine-month gain from changes in fair value of Series C warrants was non-cash and valuation-dependent; the warrant liability was $310,275 at quarter-end.
- The levosimendan license carries potential FDA and Canadian approval milestone payments of $2 million and $1 million, up to $13 million in sales-based milestones, and royalties. No development milestones had been met and no liability for those contingent payments was recorded at September 30, 2016.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material pending legal proceedings were reported. The Chief Medical Officer voluntarily resigned effective November 5, 2016.
Important facts for investors to verify
- Whether Levo-CTS enrollment finished as expected and whether the trial achieved its required 201 events and primary endpoint.
- Actual cash burn and available funding runway, including the liquidity and maturity profile of marketable securities and spending beyond 2017.
- Whether additional financing or collaboration arrangements are needed, and their potential dilution or impact on product rights.
- Future trial, regulatory and commercialization costs, and the contingent license milestones and royalties payable to Orion.
- The filing’s quarterly operating-cash-use figures in MD&A; the cash flow statement supplies nine-month figures but no quarterly cash-flow statement.