TENAX THERAPEUTICS, INC. — 2016 Form 10-K
Business context and reporting period. Tenax is a clinical-stage specialty pharmaceutical company focused on critical-care therapies. Its principal asset was exclusive U.S. and Canadian development and commercialization rights to intravenous levosimendan. The report covers the fiscal year ended December 31, 2016; Tenax changed its year-end from April 30, so prior-period comparisons require care. The unaudited calendar-2015 results are not directly comparable in audit status to 2016.
Key financial results and position
| Metric | 2016 | Comparable information |
|---|---|---|
| Revenue | $0 | Unaudited calendar 2015 revenue: $49,286, entirely grant revenue |
| Operating expenses | $52.65 million | Includes $33.27 million impairment charge |
| Operating loss | $52.65 million | Calendar 2015 unaudited operating loss: $16.56 million |
| Net loss | $43.92 million | Calendar 2015 unaudited net loss: $15.93 million |
| Net loss per share | $1.56 | Selected financial data separately reports $1.57 for 2016 |
| Research and development expense | $13.14 million | Driven primarily by LEVO-CTS trial costs |
| Cash and marketable securities | $21.87 million | Down from $38.21 million at December 31, 2015 |
| Operating cash flow | $(15.87) million | Cash use increased from $12.06 million in calendar 2015 |
| Working capital | $7.43 million | Down from $15.96 million at December 31, 2015 |
| Total assets / liabilities | $23.34 million / $6.20 million | Year-end 2015: $72.99 million / $12.56 million |
No product revenue or meaningful gross margin was reported for 2016. The $33.27 million impairment eliminated the $22.0 million levosimendan in-process research and development asset and $11.27 million of goodwill. A $7.96 million deferred income-tax benefit partially reduced the reported net loss. The company reported no long-term debt at year-end; current liabilities included $226,092 of warrant liabilities.
Material changes, outlook, and risks
- LEVO-CTS: The Phase III cardiac-surgery trial completed enrollment in December 2016. Top-line results announced January 31, 2017 showed no statistically significant benefit on either co-primary endpoint. Two of three secondary endpoints—low cardiac output syndrome and postoperative use of secondary inotropes—were statistically significant; the 90-day mortality reduction was not statistically significant. Tenax said it did not anticipate further development for cardiac-surgery LCOS and recorded the impairment.
- Potential alternative indication: After discussions with FDA, Tenax scheduled a pre-NDA meeting for the second quarter of 2017 to discuss whether data may support an application for acute decompensated heart failure. FDA approval was uncertain; Fast Track status and the prior Special Protocol Assessment do not assure approval for any indication.
- Septic shock: The LeoPARDS trial did not meet its primary or prespecified secondary endpoints. Tenax did not anticipate further development in this indication.
- Liquidity and funding: Management estimated available resources would fund planned operations through the first half of 2018. The company expected continuing losses and said it would need substantial additional capital thereafter; financing might be unavailable or dilutive, and failure to obtain funding could force cuts to development or commercialization plans.
- Operating dependencies and commitments: Orion is levosimendan’s sole manufacturer. The license provides for $2 million upon U.S. approval, $1 million upon Canadian approval, up to $13 million in sales-based milestones, and tiered royalties; no development milestones had been met at year-end. Operating lease commitments totaled $528,655.
- Other risks and unusual items: The company had no approved drug products, relied on a small workforce, and faced regulatory, commercialization, reimbursement, competition, intellectual-property, and clinical-development risks. Management reported ordinary-course litigation not expected to materially affect the financial statements. Auditors issued unqualified opinions on the financial statements and internal controls; management concluded controls were effective.
Important facts for investors to verify
- Whether the FDA meeting and subsequent regulatory strategy support a levosimendan NDA for acute decompensated heart failure, given the failed LEVO-CTS co-primary endpoints.
- Actual cash burn, available financing, and runway after the failed cardiac-surgery trial; the stated first-half-2018 runway is management’s estimate.
- The differing 2016 loss-per-share figures ($1.56 in the financial statements and $1.57 in selected financial data), and the basis and audit status of each 2015 comparison.
- Potential dilution: as of March 9, 2017, outstanding options, warrants, and other instruments were exercisable for an aggregate 7,157,921 shares, approximately 20% of then-outstanding common shares.
- Any changes in development plans, licensing economics, or supply arrangements with Orion, as well as the timing and cost of any additional clinical or regulatory work.