UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30, 2019
OR
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ________ to ________
Commission File
Number 001-37635
AXSOME
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
45-4241907
|
(State or other
jurisdiction of incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
200 Broadway
3rd
Floor
New York, New York
|
10038
|
(Address of principal
executive offices)
|
(Zip Code)
|
Registrant’s
telephone number, including area code: (212)
332-3241
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark
whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark
whether the registrant has submitted electronically every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ☐
Indicate by check mark
whether the registrant is a large accelerated filed, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.:
|
|
Large accelerated
filer ☐
|
Accelerated
Filer ☒
|
Non-accelerated
filer ☐
|
Smaller reporting
company ☒
|
|
Emerging growth
company ☒
|
If an emerging growth
company, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
☒
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes ☐ No
☒
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title
of each class:
|
|
Trading
Symbol(s)
|
|
Name
of each exchange on which registered:
|
Common Stock, Par Value
$0.0001 Per Share
|
|
AXSM
|
|
The Nasdaq Global
Market
|
There were 34,508,626
shares of the registrant’s common stock, $0.0001 par value,
outstanding as of November 1, 2019.
AXSOME THERAPEUTICS,
INC.
QUARTERLY REPORT ON
FORM 10-Q
FOR THE QUARTER
ENDED SEPTEMBER 30, 2019
TABLE OF
CONTENTS
CAUTIONARY
NOTE REGARDING
FORWARD‑LOOKING STATEMENTS
Certain matters discussed in this
report, including matters discussed under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” may constitute forward-looking statements for purposes
of the Securities Act of 1933, as amended, or the Securities Act,
and the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and involve known and unknown risks, uncertainties
and other factors that may cause our actual results, performance or
achievements to be materially different from the future results,
performance or achievements expressed or implied by such
forward-looking statements. The words “anticipate,” “believe,”
“estimate,” “may,” “expect” and similar expressions are generally
intended to identify forward-looking statements. Our actual results
may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including,
without limitation, those discussed under the captions “Risk
Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and elsewhere in this report,
as well as other factors which may be identified from time to time
in our other filings with the Securities and Exchange Commission,
or the SEC, or in the documents where such forward-looking
statements appear. All written or oral forward-looking statements
attributable to us are expressly qualified in their entirety by
these cautionary statements. Such forward-looking statements
include, but are not limited to, statements about:
|
·
|
|
our expectations for
increases or decreases in expenses;
|
|
·
|
|
our expectations for
the clinical and preclinical development, manufacturing, regulatory
approval, and commercialization of our pharmaceutical product
candidates or any other products that we may acquire or
in-license;
|
|
·
|
|
our estimates of the
sufficiency of our existing capital resources combined with future
anticipated cash flows to finance our operating
requirements;
|
|
·
|
|
our expectations for
incurring capital expenditures to expand our research and
development and manufacturing capabilities;
|
|
·
|
|
our expectations for
generating revenue or becoming profitable on a sustained
basis;
|
|
·
|
|
our expectations or
ability to enter into marketing and other partnership
agreements;
|
|
·
|
|
our expectations or
ability to enter into product acquisition and in-licensing
transactions;
|
|
·
|
|
our expectations or
ability to build our own commercial infrastructure to manufacture,
market and sell our product candidates;
|
|
·
|
|
our ability to obtain
and maintain intellectual property protection for our product
candidates;
|
|
·
|
|
the acceptance of
our products by doctors, patients, or payors;
|
|
·
|
|
our stock price and its
volatility;
|
|
·
|
|
our ability to attract
and retain key personnel;
|
|
·
|
|
the performance of our
third-party manufacturers;
|
|
·
|
|
our expectations for
future capital requirements; and
|
|
·
|
|
our ability to
successfully implement our strategy.
|
The forward-looking statements
contained in this report reflect our views and assumptions only as
of the date that this report is signed. Except as required by law,
we assume no responsibility for updating any forward-looking
statements.
We qualify all of our forward-looking
statements by these cautionary statements. In addition, with
respect to all of our forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of
1995.
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
Axsome
Therapeutics, Inc.
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
43,641,861
|
|
$
|
13,968,742
|
|
Prepaid and other
current assets
|
|
|
594,345
|
|
|
1,246,360
|
|
Total current
assets
|
|
|
44,236,206
|
|
|
15,215,102
|
|
Equipment,
net
|
|
|
34,554
|
|
|
51,832
|
|
Other assets
|
|
|
168,969
|
|
|
112,345
|
|
Total assets
|
|
$
|
44,439,729
|
|
$
|
15,379,279
|
|
Liabilities and
stockholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
9,447,359
|
|
$
|
3,687,245
|
|
Accrued expenses and
other current liabilities
|
|
|
8,413,107
|
|
|
3,843,299
|
|
Loan payable, current
portion
|
|
|
648,523
|
|
|
3,291,394
|
|
Total current
liabilities
|
|
|
18,508,989
|
|
|
10,821,938
|
|
Loan payable,
long-term
|
|
|
19,108,144
|
|
|
3,619,420
|
|
Total
liabilities
|
|
|
37,617,133
|
|
|
14,441,358
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred stock,
$0.0001 par value per share (10,000,000 shares authorized, none
issued and outstanding at September 30, 2019 and December
31, 2018, respectively)
|
|
|
—
|
|
|
—
|
|
Common stock, $0.0001
par value per share (150,000,000 shares authorized, 34,496,846 and
30,087,213 shares issued and outstanding at
September 30, 2019 and December 31, 2018,
respectively)
|
|
|
3,450
|
|
|
3,009
|
|
Additional paid-in
capital
|
|
|
157,907,655
|
|
|
108,485,219
|
|
Accumulated
deficit
|
|
|
(151,088,509)
|
|
|
(107,550,307)
|
|
Total stockholders’
equity
|
|
|
6,822,596
|
|
|
937,921
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
44,439,729
|
|
$
|
15,379,279
|
|
The accompanying
notes are an integral part of the consolidated financial
statements.
Axsome
Therapeutics, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
15,835,573
|
|
$
|
6,040,780
|
|
$
|
34,441,796
|
|
$
|
16,343,823
|
|
General and
administrative
|
|
|
3,111,662
|
|
|
2,202,679
|
|
|
8,375,131
|
|
|
7,052,439
|
|
Total operating
expenses
|
|
|
18,947,235
|
|
|
8,243,459
|
|
|
42,816,927
|
|
|
23,396,262
|
|
Loss from
operations
|
|
|
(18,947,235)
|
|
|
(8,243,459)
|
|
|
(42,816,927)
|
|
|
(23,396,262)
|
|
Interest and
amortization of debt discount (expense)
|
|
|
(327,825)
|
|
|
(270,933)
|
|
|
(860,723)
|
|
|
(878,605)
|
|
Tax credit
|
|
|
139,448
|
|
|
217,418
|
|
|
139,448
|
|
|
217,418
|
|
Change in fair value of
warrant liability
|
|
|
—
|
|
|
15,000
|
|
|
—
|
|
|
2,689,000
|
|
Net loss
|
|
$
|
(19,135,612)
|
|
$
|
(8,281,974)
|
|
$
|
(43,538,202)
|
|
$
|
(21,368,449)
|
|
Net loss per common
share, basic and diluted
|
|
$
|
(0.56)
|
|
$
|
(0.31)
|
|
$
|
(1.29)
|
|
$
|
(0.83)
|
|
Weighted average common
shares outstanding, basic and diluted
|
|
|
34,445,489
|
|
|
26,325,904
|
|
|
33,771,671
|
|
|
25,875,783
|
|
The accompanying
notes are an integral part of the consolidated financial
statements.
Axsome
Therapeutics, Inc.
Consolidated
Statements of Stockholders’ Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Accumulated
|
|
Total
stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
paid-in capital
|
|
deficit
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
25,492,992
|
|
|
2,549
|
|
|
93,299,517
|
|
|
(76,584,843)
|
|
|
16,717,223
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
534,570
|
|
|
—
|
|
|
534,570
|
|
Issuance
of common stock upon financing
|
|
56,900
|
|
|
6
|
|
|
139,914
|
|
|
—
|
|
|
139,920
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,805,559)
|
|
|
(4,805,559)
|
|
Balance
at March 31, 2018
|
|
25,549,892
|
|
$
|
2,555
|
|
$
|
93,974,001
|
|
$
|
(81,390,402)
|
|
$
|
12,586,154
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
474,659
|
|
|
—
|
|
|
474,659
|
|
Issuance
of common stock upon financing
|
|
702,970
|
|
|
70
|
|
|
2,228,932
|
|
|
—
|
|
|
2,229,002
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,280,916)
|
|
|
(8,280,916)
|
|
Balance
at June 30, 2018
|
|
26,252,862
|
|
$
|
2,625
|
|
$
|
96,677,592
|
|
$
|
(89,671,318)
|
|
$
|
7,008,899
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
392,665
|
|
|
—
|
|
|
392,665
|
|
Issuance
of common stock upon exercise of warrants
|
|
25,000
|
|
|
3
|
|
|
32,497
|
|
|
—
|
|
|
32,500
|
|
Issuance
of common stock upon financing
|
|
180,800
|
|
|
55
|
|
|
1,590,612
|
|
|
—
|
|
|
1,590,667
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,281,974)
|
|
|
(8,281,974)
|
|
Balance
at September 30, 2018
|
|
26,458,662
|
|
$
|
2,683
|
|
$
|
98,693,366
|
|
$
|
(97,953,292)
|
|
$
|
742,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
30,087,213
|
|
|
3,009
|
|
|
108,485,219
|
|
|
(107,550,307)
|
|
|
937,921
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
1,256,310
|
|
|
—
|
|
|
1,256,310
|
|
Issuance
of common stock upon exercise of options
|
|
52,819
|
|
|
5
|
|
|
410,157
|
|
|
—
|
|
|
410,162
|
|
Issuance
of warrants upon debt financing
|
|
—
|
|
|
—
|
|
|
426,000
|
|
|
—
|
|
|
426,000
|
|
Issuance
of common stock upon financing
|
|
3,164,015
|
|
|
316
|
|
|
24,983,366
|
|
|
—
|
|
|
24,983,682
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,640,376)
|
|
|
(10,640,376)
|
|
Balance
at March 31, 2019
|
|
33,304,047
|
|
$
|
3,330
|
|
$
|
135,561,052
|
|
$
|
(118,190,683)
|
|
$
|
17,373,699
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
888,556
|
|
|
—
|
|
|
888,556
|
|
Issuance
of common stock upon exercise of options
|
|
59,720
|
|
|
6
|
|
|
205,330
|
|
|
—
|
|
|
205,336
|
|
Issuance
of common stock upon exercise of warrants
|
|
24,389
|
|
|
2
|
|
|
144,868
|
|
|
—
|
|
|
144,870
|
|
Issuance
of warrants upon debt financing
|
|
—
|
|
|
—
|
|
|
(39,000)
|
|
|
—
|
|
|
(39,000)
|
|
Issuance
of common stock upon financing
|
|
942,285
|
|
|
95
|
|
|
19,471,603
|
|
|
—
|
|
|
19,471,698
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,762,214)
|
|
|
(13,762,214)
|
|
Balance
at June 30, 2019
|
|
34,330,441
|
|
$
|
3,433
|
|
$
|
156,232,409
|
|
$
|
(131,952,897)
|
|
$
|
24,282,945
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
1,156,435
|
|
|
—
|
|
|
1,156,435
|
|
Issuance
of common stock upon exercise of options
|
|
129,218
|
|
|
13
|
|
|
483,825
|
|
|
—
|
|
|
483,838
|
|
Issuance
of common stock upon exercise of warrants
|
|
37,187
|
|
|
4
|
|
|
34,986
|
|
|
—
|
|
|
34,990
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,135,612)
|
|
|
(19,135,612)
|
|
Balance
at September 30, 2019
|
|
34,496,846
|
|
$
|
3,450
|
|
$
|
157,907,655
|
|
$
|
(151,088,509)
|
|
$
|
6,822,596
|
|
The accompanying
notes are an integral part of the consolidated financial
statements.
Axsome
Therapeutics, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(43,538,202)
|
|
$
|
(21,368,449)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
3,301,301
|
|
|
1,401,894
|
|
Amortization of debt
discount
|
|
|
471,742
|
|
|
293,580
|
|
Change in
fair value of warrants
|
|
|
—
|
|
|
(2,689,000)
|
|
Depreciation
|
|
|
31,938
|
|
|
36,728
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
652,015
|
|
|
554,749
|
|
Other
assets
|
|
|
(56,624)
|
|
|
70,596
|
|
Accounts
payable
|
|
|
5,760,114
|
|
|
731,913
|
|
Accrued
expenses and other current liabilities
|
|
|
4,569,808
|
|
|
708,237
|
|
Net cash
used in operating activities
|
|
|
(28,807,908)
|
|
|
(20,259,752)
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchases
of equipment
|
|
|
(14,660)
|
|
|
(32,696)
|
|
Net cash
used in investing activities
|
|
|
(14,660)
|
|
|
(32,696)
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock upon financing, net
|
|
|
44,455,380
|
|
|
3,959,589
|
|
Proceeds
from issuance of term loan
|
|
|
20,000,000
|
|
|
—
|
|
Repayment
of principal on term loan
|
|
|
(7,238,889)
|
|
|
(2,500,000)
|
|
Proceeds
from issuance of common stock upon exercise of options
|
|
|
1,099,336
|
|
|
—
|
|
Proceeds
from issuance of common stock upon exercise of warrants
|
|
|
179,860
|
|
|
32,500
|
|
Net cash
(used in) provided by financing activities
|
|
|
58,495,687
|
|
|
1,492,089
|
|
Net
(decrease) increase in cash
|
|
|
29,673,119
|
|
|
(18,800,359)
|
|
Cash at
beginning of period
|
|
|
13,968,742
|
|
|
34,021,123
|
|
Cash at
end of period
|
|
$
|
43,641,861
|
|
$
|
15,220,764
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
979,167
|
|
$
|
585,025
|
|
Supplemental
disclosures of non-cash financing activity:
|
|
|
|
|
|
|
|
Issuance
of warrants in connection with debt financing
|
|
$
|
387,000
|
|
$
|
—
|
|
The accompanying
notes are an integral part of the consolidated financial
statements.
Axsome
Therapeutics, Inc.
Notes to
Consolidated Financial Statements (Unaudited)
Note 1. Nature of
Business and Basis of Presentation
Axsome
Therapeutics, Inc. (“Axsome” or the “Company”) is a
clinical-stage biopharmaceutical company developing novel therapies
for central nervous system (“CNS”) disorders for which there are
limited treatment options. By focusing on this therapeutic area,
the Company is addressing significant and growing markets where
current treatment options are limited or inadequate. The Company’s
core CNS portfolio includes four product candidates, AXS‑05,
AXS-07, AXS-09, and AXS-12, which are being developed for multiple
indications. The Axsome Pain and Primary Care business unit
(“Axsome PPC”) houses Axsome’s pain and primary care assets,
including AXS-02 and AXS-06, and intellectual property which covers
these and related product candidates and molecules being developed
by Axsome and others. The Company aims to become a fully integrated
biopharmaceutical company that develops and commercializes
differentiated therapies that expand the treatment options
available to caregivers and improve the lives of patients living
with CNS disorders. The Company was incorporated on
January 12, 2012 in the State of Delaware and now has
operations in the United States and Australia.
The accompanying
unaudited interim consolidated financial statements have been
prepared by the Company in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”) for interim
information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”) for reporting on
Form 10-Q. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted pursuant
to such rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 filed with the SEC on March 15,
2019.
In the opinion of
management, the unaudited interim consolidated financial statements
reflect all adjustments, which are normal recurring adjustments,
necessary for the fair presentation of the financial information
for the interim periods. The results of operations for the three
and nine months ended September 30, 2019 are not necessarily
indicative of the operating results for the full fiscal year or any
future period.
Liquidity and
Capital Resources
The Company has incurred operating
losses since its inception, and expects to continue to incur
operating losses for the foreseeable future and may never become
profitable. As of September 30, 2019, the Company had an
accumulated deficit of $151.1 million.
The Company’s primary
sources of cash have been proceeds from the issuance and sale of
its common stock in public offerings. The Company has not yet
commercialized any of its product candidates and cannot be sure if
it will ever be able to do so. The Company’s ability to achieve
profitability depends on a number of factors, including its ability
to obtain regulatory approval for its product candidates,
successfully complete any post-approval regulatory obligations and
successfully commercialize its product candidates alone or in
partnership. The Company may continue to incur substantial
operating losses even if it begins to generate revenues from its
product candidates.
The Company believes
its existing cash will be sufficient to fund its anticipated
operating cash requirements for at least twelve months following
the date of this filing. The actual amount of cash that the Company
will need to operate is subject to many factors, including, but not
limited to, the timing, design and conduct of clinical trials for
its product candidates. The Company is dependent upon significant
future financing to provide the cash necessary to execute its
current operations, including the commercialization of any of its
product candidates.
The Company’s common
stock is listed on the Nasdaq Global
Market and
trades under the symbol “AXSM”.
Note 2. Summary of
Significant Accounting Policies
Significant Risks
and Uncertainties
The Company’s operations are subject
to a number of factors that can affect its operating results and
financial condition. Such factors include, but are not limited to:
the results of clinical testing and trial activities of the
Company’s product candidates; the Company’s ability to obtain
regulatory approval to market its products, if approved;
competition from products manufactured and sold or being developed
by other companies; the price of, and demand for, the Company’s
products, if approved; the Company’s ability to negotiate favorable
licensing or other manufacturing and marketing agreements for its
products, if approved; and the Company’s ability to raise
additional financing. If the Company does not successfully
commercialize any of its product candidates, it will be unable to
generate recurring product revenue or achieve and maintain
profitability.
Use of
Estimates
Management considers many factors in
developing the estimates and assumptions that are used in the
preparation of these financial statements. Management must apply
significant judgment in this process. In addition, other factors
may affect estimates, including expected business and operational
changes, sensitivity and volatility associated with the assumptions
used in developing estimates, and whether historical trends are
expected to be representative of future trends. The estimation
process often may yield a range of potentially reasonable estimates
of the ultimate future outcomes and management must select an
amount that falls within that range of reasonable estimates. This
process may result in actual results differing materially from
those estimated amounts used in the preparation of the financial
statements if these results differ from historical experience, or
other assumptions do not turn out to be substantially accurate,
even if such assumptions are reasonable when made. In preparing
these financial statements, management used significant estimates
in the following areas, among others: stock‑based compensation
expense; the determination of the fair value of the warrants; the
accounting for research and development costs; and the
recoverability of the Company’s net deferred tax assets and related
valuation allowance.
Foreign Currency
Translation
Expenses denominated in foreign
currency are translated into U.S. dollars at the exchange rate on
the date the expense is incurred. Assets and liabilities of foreign
operations are translated at period-end exchange rates. The effect
of exchange rate fluctuations on translating foreign currency into
U.S. dollars is included in the Statements of Operations and is not
material to the Company’s financial statements.
Segment and
Geographic Information
Operating segments are defined as
components of an enterprise for which separate discrete information
is available for evaluation by the chief operating decision maker
or decision-making group, in deciding how to allocate resources and
in assessing performance. The Company views its operations and
manages its business as one operating segment, which is the
business of developing novel therapies for the management of CNS
disorders.
Cash
Equivalents
The Company considers all highly
liquid investments that have maturities of three months or less
when acquired to be cash equivalents. The Company’s cash and cash
equivalents includes holdings in checking and overnight sweep
accounts. The Company’s cash equivalents, which are money market
funds held in a sweep account, are measured at fair value on a
recurring basis. As of September 30, 2019, the balance of cash and
cash equivalents was $43.6 million, which approximates fair value
and was determined based upon Level 1 inputs. The sweep account is
valued using quoted market prices with no valuation adjustments
applied. Accordingly, these securities are categorized as Level
1.
Concentration of
Credit Risk
Financial instruments that
potentially subject the Company to a concentration of credit risk
consist of cash. The Company maintains its cash at financial
institutions, which at times, exceed federally insured limits. At
September 30, 2019, the majority of the Company’s cash was held by
one financial institution and the amount on deposit was in excess
of Federal Deposit Insurance Corporation insurance limits. The
Company has not recognized any losses from credit risks on such
accounts since inception. The Company believes it is not exposed to
significant credit risk on cash.
Fair Value of
Financial Instruments
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between
market participants at the measurement date. Assets and liabilities
that are measured at fair value are reported using a three‑level
fair value hierarchy that prioritizes the inputs used to measure
fair value. This hierarchy maximizes the use of observable inputs
and minimizes the use of unobservable inputs. The three levels of
inputs used to measure fair value are as follows:
Level 1—Quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access at
the measurement date.
Level 2—Inputs other than quoted prices in active
markets that are observable for the asset or liability, either
directly or indirectly.
Level 3—Inputs that are unobservable for the asset or
liability.
To the extent that valuation is based
on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised by the Company in
determining fair value is greatest for instruments categorized in
Level 3. A financial instrument’s level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
The Company’s financial instruments
are cash, accounts payable, accrued liabilities, and current and
long-term debt. The carrying values for cash, accounts payable and
accrued liabilities reported in the accompanying consolidated
financial statements approximate their respective fair values due
to their short‑term maturities. The carrying value of debt, the
2019 Term Loan (see Note 4 – Loan and Security Agreement), is
estimated to approximate its fair value as the interest rate
approximates the market rate for loans with similar terms and risk
characteristics.
Debt
Issuance Costs
Debt
issuance costs consist of costs incurred in obtaining long-term
financing. These costs are classified on the consolidated balance
sheet as a direct deduction from the carrying amount of the related
debt liability. These expenses are deferred and amortized as part
of interest expense in the consolidated statement of operations
using the effective interest rate method over the term of the debt
agreement.
Equipment
Equipment consists
primarily of computer equipment and is recorded at cost. Equipment
is depreciated on a straight‑line basis over its estimated useful
life, which the Company estimates to be three years. When equipment
is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain
or loss is included in operating expenses.
Research and
Development Costs
Research and development expenses
primarily consist of costs incurred in performing research and
development activities, including preclinical studies, clinical
trials, manufacturing costs, employee salaries and benefits,
stock‑based compensation expense, contract services, including
external research and development expenses incurred under
arrangements with third parties, such as contract research
organizations (“CROs”), facilities costs, overhead costs,
depreciation, and other related costs.
Generally, research and development
costs are expensed as incurred. Nonrefundable advance payments for
goods or services that will be used or rendered for future research
and development activities are deferred and amortized over the
period that the goods are delivered or the related services are
performed, subject to an assessment of recoverability. The Company
makes estimates of costs incurred in relation to clinical site
costs. The Company analyzes the progress of clinical trials,
including levels of patient enrollment, invoices received and
contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability.
Significant judgments and estimates must be made and used in
determining the accrued balance and expense in any accounting
period. The Company reviews and accrues clinical trial study
expenses based on work performed and relies upon estimates of those
costs applicable to the stage of completion of a study. With
respect to clinical site costs, the financial terms of these
agreements are subject to negotiation and vary from contract to
contract. Payments under these contracts may be uneven, and depend
on factors such as the achievement of certain events, the
successful recruitment of patients, the completion of portions of
the clinical trial or similar conditions. The objective of the
Company’s policy is to match the recording of expenses in its
financial statements to the actual services received and efforts
expended. As such, expense accruals related to clinical site costs
are recognized based on the Company’s estimate of the degree of
completion of the event or events specified in the specific
clinical study or trial contract.
Income
Taxes
Income taxes are accounted for under
the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, operating losses, and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. Valuation allowances are
provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets
will not be realized.
The Company estimates an annual
effective tax rate of 0% for the year ending December 31, 2019
and has not recorded an income tax benefit for the nine months
ended September 30, 2019 and 2018 since it determined that a full
valuation allowance is required against the Company’s deferred tax
assets.
The Company recognizes the tax
benefit from an uncertain tax position only if it is more likely
than not to be sustained upon examination based on the technical
merits of the position as well as consideration of the available
facts and circumstances. When uncertain tax positions exist, the
Company recognizes the tax benefit of tax positions to the extent
that the benefit will more likely than not be realized. As of
September 30, 2019, the Company does not believe any material
uncertain tax positions are present. In the event the Company
determines that accrual of interest or penalties are necessary in
the future, the amount will be presented as a component of income
tax expense.
Stock‑Based
Compensation
For stock options issued, the Company
estimates the grant date fair value of each option using the
Black‑Scholes option pricing model. The Black-Scholes model takes
into account the expected volatility of the Company’s common stock,
expected dividends of the Company’s common stock, the risk-free
interest rate, the estimated life of the option, the closing market
price of the Company’s common stock and the exercise price. The
estimates utilized in the Black-Scholes calculation involve
inherent uncertainties and the application of management’s
judgment. In addition, the Company recognizes expense for equity
awards forfeitures as they occur. For awards subject to
service-based vesting conditions, the Company recognizes
stock-based compensation expense on a straight-line basis over the
requisite service period, which is generally the vesting term. For
awards subject to performance-based vesting conditions, the Company
recognizes stock-based compensation expense using the accelerated
attribution method when it is probable that the performance
condition will be achieved. The expense related to the stock-based
compensation is recorded within the same financial statement line
item as the grantee’s cash compensation.
The Company’s policy upon exercise of stock options is that shares
will be issued as new shares from the Company’s 2015 Omnibus
Incentive Compensation Plan available share pool.
Basic and Diluted
Net Loss per Common Share
Basic net loss per share of common
stock is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period.
Diluted net loss per share of common stock includes the effect, if
any, from the potential exercise or conversion of securities, such
as warrants and stock options, which would result in the issuance
of incremental shares of common stock. As the impact of these items
is anti‑dilutive during periods of net loss, there was no
difference between basic and diluted net loss per share of common
stock for the three and nine months ended September 30, 2019 and
2018.
Recent Accounting
Pronouncements
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842), which supersedes
FASB Topic 840, Leases (Topic 840), requires that assets and
liabilities arising under leases be recognized on the balance sheet
as well as additional quantitative and qualitative disclosures that
provide the amount, timing, and uncertainty of cash flows related
to lease agreements. In July 2018, the FASB also issued ASU No.
2018-11, Leases (Topic 842), which provides (1) optional transition
method that entities can use when adopting the standard and (2) a
practical expedient that permits lessors to not separate nonlease
components from the associated lease component if certain
conditions are met. The standard is effective for annual and
interim periods beginning after December 15, 2018, with early
adoption permitted upon issuance. The Company elected to use the
transition method approved by the FASB in accordance with ASU No.
2018-11, Leases, which allows companies to apply the provisions of
the new leasing standard as of January 1, 2019, without adjusting
the comparative periods presented by recognizing a
cumulative-effect adjustment to the opening balance of retained
earnings. The Company applied a policy election to exclude
short-term leases from balance sheet recognition and also elected
certain practical expedients at adoption. As permitted under these
expedients, the Company did not reassess whether existing contracts
are or contain leases, the lease classification for any existing
leases, initial direct costs for any existing lease and whether
existing land easements and rights of way, that were not previously
accounted for as leases, are or contain a lease. The Company has
adopted this guidance effective January 1, 2019. The Company
evaluated its contracts and concluded that the contracts are not
leases and do not contain a lease and the adoption of this guidance
did not impact its financial statements.
In
August 2016, the FASB issued ASU No.
2016-15, Statement
of Cash Flows (Topic 230) – Classification of Certain Cash Receipts
and Cash Payments, which is guidance
to address diversity in practice with respect to how certain cash
receipts and cash payments are presented and classified in the
statement of cash flows. The updated guidance addresses eight
specific cash flow issues with the objective of reducing the
existing diversity that occurs in practice. The guidance is
effective for annual and interim periods beginning after December
15, 2017. The Company has adopted this guidance effective
January 1, 2018 and the adoption of the guidance did not have a
material impact on the Company’s financial
statements.
In May
2017, the FASB issued ASU No. 2017-09, Compensation-Stock
Compensation (Topic 718): Scope of Modification
Accounting. ASU 2017-09
provides clarity and reduces both (1) diversity in practice and (2)
cost and complexity when applying the guidance in Topic 718, to a
change to the terms or conditions of a share-based payment
award. The amendments in ASU 2017-09 should be applied
prospectively to an award modified on or after the adoption
date. This ASU is effective for fiscal years beginning after
December 15, 2017, including interim periods within those
years. The Company has adopted this guidance effective January
1, 2018 and the adoption of the guidance did not have a material
impact on the Company’s financial statements.
In June 2018, the FASB
issued ASU No. 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, to simplify the accounting for
share-based payments to nonemployees by aligning it with the
accounting for share-based payments to employees, with certain
exceptions. The standard will be effective for annual and
interim periods beginning after December 15, 2018. The Company
early adopted this guidance effective October 1, 2018 and the
adoption did not have a material impact on the Company’s financial
statements.
In July 2018, the FASB issued ASU No.
2018-09, Codification
Improvements, which provides
technical corrections, clarifications, and other improvements to
several topics in the FASB Accounting Standard Codification. The
transition and effective date guidance is based on the facts and
circumstances of each amendment. Some of the amendments do not
require transition guidance and were effective upon issuance of the
ASU. Amendments that do not have transition guidance are effective
for annual periods beginning after December 15, 2018. The Company
has adopted this guidance effective January 1, 2019 and the
adoption of the guidance did not have a material impact on the
Company’s financial statements.
In August 2018, the SEC
adopted the final rule under SEC Release No. 33-10532,
Disclosure Update
and Simplification, amending certain disclosure
requirements that were redundant, duplicative, overlapping,
outdated or superseded. The changes are generally expected to
reduce or eliminate certain disclosures; however, the amendments
did expand interim period disclosure requirements related to
changes in stockholders’ equity. The final rule was effective on
November 5, 2018. The Company adopted this guidance on its
effective date and presented the changes in shareholders’ equity in
the interim financial statements in quarterly reports on Form 10-Q.
See the consolidated statement of stockholders’ equity.
In August 2018, the
FASB issued ASU No. 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value
Measurement,
which modifies, removes and adds certain disclosure requirements on
fair value measurements based on the FASB Concepts
Statement, Conceptual
Framework for Financial Reporting-Chapter 8: Notes to the Financial
Statements. The
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The ASU is effective for fiscal years beginning after December 15,
2019, including interim periods within those years. The Company is
currently evaluating the potential impact of the new
guidance.
Note 3. Accrued
Expenses and Other Current Liabilities
At September 30, 2019 and December
31, 2018 accrued expenses and other current liabilities consisted
of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
6,625,638
|
|
$
|
2,266,285
|
|
Accrued
compensation
|
|
|
995,181
|
|
|
1,051,401
|
|
Other
|
|
|
792,288
|
|
|
525,613
|
|
Total
|
|
$
|
8,413,107
|
|
$
|
3,843,299
|
|
Note 4. Loan and Security
Agreement
Current Term
Loan
2019 Term
Loan
In March 2019, the
Company entered into a $24.0 million growth capital term loan
facility (the “2019 Term Loan”) with Silicon Valley Bank (“SVB”)
and WestRiver Innovation Lending Fund VIII, L.P (“WestRiver”). The
two-tranche loan agreement consists of an initial $20.0 million
tranche (the “Term A Loan Advance”), which was funded upon closing,
with the remaining $4.0 million (the “Term B Loan Advance”)
initially available to be drawn, at the Company’s option, subject
to the achievement of positive data, on or prior to August 15, 2019
(which was extended to December 31, 2019, in connection with the
First Amendment to the 2019 Term Loan, as discussed below), with
respect to the Company’s ongoing Phase 2 clinical trial for AXS-12
in narcolepsy, sufficient to submit a Phase 3 protocol to FDA,
provided that the Company has not received any objections from the
FDA within thirty days after submission of such Phase 3 protocol
(the “Milestone Event”). A portion of the first tranche was used to
satisfy the Company’s existing obligations under the 2016 Amended
Term Loan (as defined below) with SVB, which consisted of $5.6
million in outstanding principal balance and $0.85 million as a
final payment fee, and such obligations are considered to be fully
repaid and performed.
The loan bears
interest at an annual rate equal to the greater of (i) seven and
one-half of one percent (7.50%) and (ii) two percent (2%) above the
Prime Rate. The loan advances mature in February 2023 and
initially had an interest-only payment period of 12 months
(which was extended to 18 months in connection with the First
Amendment to the 2019 Term Loan, as discussed below), extendable to
18 months upon the drawing of the Term B Loan Advance (which is now
extendable to 24 months as a result of the First Amendment to the
2019 Term Loan). Principal payments coming due within twelve months
have been classified as current liabilities in the accompanying
balance sheet. In addition, the Company was initially required to
pay a final payment fee of 6.0% of the principal amount extended on
the date of repayment of the 2019 Term Loan (which was increased to
6.3% in connection with the First Amendment to the 2019 Term Loan,
as discussed below), which is being accreted and amortized into
interest expense using the effective interest rate method over the
term of the loan.
The Company could
initially prepay all, but not less than all, of the 2019 Term Loan,
subject to a prepayment premium of 3.0% of the outstanding
principal if prepaid within one year of the effective date of the
loan, 2.0% of the outstanding principal if prepaid after the first
anniversary of the effective date but on or prior to the second
anniversary of the effective date, and 1.0% of the outstanding
principal if prepaid after the second anniversary of the effective
date. The 2019 Term Loan is collateralized by a security interest
in all of the Company’s assets except intellectual property. The
Company’s intellectual property is subject to a negative
pledge.
First Amendment
to the 2019 Term Loan
On July 25, 2019 (the
“First Amendment Effective Date”), the Company entered into the
first amendment to the 2019 Term Loan (the “First Amendment to the
2019 Term Loan”). Under the First Amendment to the 2019 Term Loan,
the interest-only monthly payment period was extended to 18 months
after the date of the 2019 Term Loan, which may be further extended
to 24 months upon receipt by the Company of the Term B Loan
Advance. The Company’s ability to draw down the Term B Loan Advance
was extended to December 31, 2019, subject to the Company’s
achievement of the Milestone Event prior to or on December 31,
2019. The Term B Loan Advance and the Term A Loan Advance
(together, the “Loan Advances”) mature on February 1, 2023 (the
“Maturity Date”).
Pursuant to the 2019
Term Loan, as amended by the First Amendment to the 2019 Term Loan,
following the interest-only payment period, the Company will begin
making monthly payments of principal in equal monthly installments
for 30 consecutive months (provided, that, upon the occurrence of
the Milestone Event, the repayment schedule will be decreased to 24
consecutive months) and monthly payments of interest, until the
Maturity Date. Interest will accrue on the unpaid
principal balance of the outstanding Loan Advances at a floating
per annum rate equal to the greater of (i) seven and one-half of
one percent (7.50%) and (ii) two percent (2.0%) above the prime
rate. The First Amendment to the 2019 Term Loan increased the final
payment fee, payable upon the Company’s repayment of the Loan
Advances from 6.0% to 6.3% of the original principal amount of the
Loan Advances.
The Company may prepay
all, but not less than all of the Loan Advances, subject to a
prepayment fee of 3.0% of any amount prepaid prior to the first
anniversary of the First Amendment Effective Date, 2.0% of the
amount prepaid if the prepayment occurs after the first anniversary
of the First Amendment Effective Date through and including the
second anniversary of the First Amendment Effective Date, or 1.0%
of the amount prepaid if the prepayment occurs after the second
anniversary of the First Amendment Effective Date, but prior to the
Maturity Date. These percentages are unchanged from the original
2019 Term Loan.
The Company evaluated
whether the First Amendment to the 2019 Term Loan entered into in
July 2019 represented a debt modification or extinguishment in
accordance with ASC 470-50, Debt –
Modifications and Extinguishments. As the present value of the cash
flows under the terms of the First Amendment to the 2019 Term Loan
is less than 10% different from the remaining cash flows under the
terms of the 2019 Term Loan, the First Amendment to the 2019 Term
Loan was accounted for as a debt modification. Therefore, the
unamortized balance of debt discount costs incurred in connection
with 2019 Term Loan are being amortized through maturity in
February 2023 utilizing the effective interest rate
method.
Previous Term
Loan
Prior to the 2019 Term
Loan, the Company had a $20.0 million Term Loan Agreement with SVB
which was executed in November 2016 (“2016 Original Term Loan”).
The three-tranche term loan consisted of an initial $10.0 million
tranche triggered upon closing, with the remaining $10.0 million
available to be drawn in two $5.0 million tranches, at the
Company’s option, subject to the achievement of certain clinical
and financial milestones. The Company did not achieve the
conditional criteria to access the second and third tranches before
the specified dates and the $10.0 million in additional term loan
advances subsequently expired.
The 2016 Original Term
Loan bore interest at an annual rate equal to 4.50% plus the prime
rate, which is the greater of 3.50% or the Wall Street Journal
prime rate, and was payable monthly. It was to mature in November
2020 and had an interest-only payment period until December 1,
2017, which was extendable to May 2018 upon the drawing of the
second tranche. Because the Company did not achieve the conditional
criteria to access the second and third term advances before the
specified dates, the $10.0 million in additional term loan advances
expired and the Company began to repay principal in December 2017.
Following the interest-only payment period, the Company began
making monthly payments of principal and interest and such payments
would continue until the maturity date. Principal payments coming
due within twelve months had been classified as current liabilities
in the accompanying balance sheet. In addition to principal and
interest payments under the 2016 Original Term Loan, the Company
was required to pay a final payment fee of 8.5% of the principal
amount extended on the date of repayment of the 2016 Original Term
Loan. The Company accrued the final payment fee into interest
expense using the effective interest rate method until the entry
into the 2019 Term Loan in March 2019, at which time the Company
paid SVB $0.85 million in satisfaction of all final payment fee
liabilities due under the 2016 Original Term Loan.
The Company was
permitted to prepay all, but not less than all, of the 2016
Original Term Loan subject to a prepayment premium of 3.0% of the
outstanding principal if prepaid within two years of the effective
date of the loan, 2.0% of the outstanding principal if prepaid
during the third year of the loan, and 1.0% of the outstanding
principal if prepaid after the third year. The 2016 Original Term
Loan was collateralized by a security interest in all of the
Company’s assets except intellectual property. The Company’s
intellectual property was subject to a negative pledge.
In November 2018, the
Company amended the 2016 Original Term Loan with SVB to provide an
additional $4.0 million growth capital loan. The additional capital
was available to be drawn on the amendment effective date which was
November 26, 2018 through May 31, 2019, at the Company’s option,
conditioned upon the achievement of a clinical milestone, which
required the Company’s receipt of positive data of the Company’s
Phase 2 clinical trial of AXS-12 for the treatment of narcolepsy,
sufficient to submit a Phase 3 protocol to the FDA and to proceed
to a Phase 3 trial (“2016 Amended Term Loan”). The financial terms
for this additional growth capital were more favorable than those
of the 2016 Original Term Loan. All other terms and conditions from
the 2016 Original Term Loan agreement remained in place. The
additional $4.0 million growth capital loan had to be drawn by May
31, 2019 and would bear interest at an annual rate equal to the
greater of the prime rate plus 2.00%, or 7.25%, if drawn. The
Company’s obligations under the 2016 Amended Term Loan, along with
the ability of the Company to draw down on the additional $4.0
million tranche, were considered performed and completed in
connection with the establishment of the 2019 Term Loan.
The Company evaluated
whether the 2019 Term Loan entered into in March 2019 represented a
debt modification or extinguishment in accordance with ASC
470-50, Debt –
Modifications and Extinguishments. As the present value of the cash
flows under the terms of the 2019 Term Loan is less than 10%
different from the remaining cash flows under the terms of the 2016
Original Term Loan and the 2016 Amended Term Loan, the 2019 Term
Loan was accounted for as a debt modification. Since the borrowing
capacity of the 2019 Term Loan is greater than the borrowing
capacity from the 2016 Original Term Loan and the 2016 Amended Term
Loan, the unamortized balance of debt discount costs incurred in
connection with those loans and additional debt discount costs
incurred in connection with entry into the 2019 Term Loan, are
being amortized through maturity in February 2023 utilizing the
effective interest rate method.
Loan
Interest Expense and Amortization
The Company incurred
interest expense of $383,334 and $979,167 for the three
and nine months ended September 30, 2019, respectively, as
compared to $182,357 and $585,025 for the three and nine months
ended September 30, 2018, respectively. In addition, amortization
of the final payment fee was $120,322 and $316,246 for the three
and nine months ended September 30, 2019, respectively, as
compared to $63,636 and $210,399 for the three and nine months
ended September 30, 2018, respectively.
The outstanding debt and unamortized
debt discount balances are as follows:
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Total Outstanding
Debt
|
|
$
|
20,000,000
|
|
$
|
6,388,889
|
Add: accreted liability
of final payment fee
|
|
|
284,042
|
|
|
663,459
|
Less: unamortized debt
discount, long-term
|
|
|
(509,231)
|
|
|
(99,595)
|
Less: current portion
of long-term debt
|
|
|
(666,667)
|
|
|
(3,333,333)
|
Loan payable,
long-term
|
|
$
|
19,108,144 |
|
$
|
3,619,420 |
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
666,667 |
|
$
|
3,333,333 |
Less: current portion
of unamortized debt discount
|
|
|
(18,144) |
|
|
(41,939) |
Loan payable, current
portion
|
|
$
|
648,523 |
|
$
|
3,291,394 |
In
connection with the 2016 Original Term Loan, SVB and Life Science
Loans, LLC received warrants to purchase an aggregate 65,228 shares
of the Company’s common stock at an exercise price of $7.41 per
share, which are exercisable for seven years from the date of
issuance. The warrants were classified as a component of
stockholders’ equity. In September
2019, SVB exercised in full the 32,614 warrants it received in
connection with the 2016 Original Term Loan via a cashless
exercise. The Company issued SVB 24,328 shares of its common stock
in connection with the warrant exercise, and did not receive any
cash proceeds in connection with the warrant exercise.
Additionally,
in
connection with
the 2016
Amended Term Loan, SVB and
WestRiver Innovation Lending Fund VIII, L.P. received warrants to
purchase an aggregate 15,750 shares of the Company’s common stock
at an exercise price of $3.06 per share, which are exercisable for
seven years from the date of issuance. Both
of these warrants were classified as a component of stockholders’
equity. Prior
to entering into the 2019 Term Loan, the fair value of these
warrants and the closing costs were recorded as debt discounts and
were being amortized using the effective interest rate method over
the term of the loan. In August 2019,
SVB exercised in full the 7,875 warrants it received in connection
with the 2016 Amended Term Loan via a cashless exercise. The
Company issued SVB 6,969 shares of its common stock in connection
with the warrant exercise, and did not receive any cash proceeds in
connection with the warrant exercise.
Due
to the debt modification upon entry of the 2019 Term Loan, the
unamortized balance of the deferred debt issuance costs incurred
with the 2016 Amended Term Loan will continue to be amortized
through maturity in February 2023 along with the debt issuance
costs of the 2019 Term Loan utilizing the effective interest rate
method.
In
connection with the 2019 Term Loan, SVB and WestRiver received
warrants to purchase an aggregate 70,000 shares of the Company’s
common stock at a price per share equal to $8.10 (the “March 2019
Warrants”). The warrants would initially be earned based upon the
usage of the facility and are exercisable until March 4, 2026. The
warrants were classified as a component of stockholder’s equity, of
which 58,332 warrants were immediately exercisable and the
remaining 11,668 warrants could be earned based on usage of the
second tranche of the 2019 Term Loan. The additional warrants were
initially immediately exercisable if and when the Term B Loan
Advance was funded (however, the March 2019 Warrants were amended
in connection with the First Amendment to the 2019 Term Loan, as
discussed below). The
relative fair value of the warrants of approximately
$0.4 million at the time of issuance, which was determined
using the Black-Scholes option-pricing model, was recorded as
additional paid-in capital and reduced the carrying value of the
debt. The discount on the debt is being amortized to interest
expense over the term of the debt utilizing the effective interest
rate method.
In
connection with the First Amendment to the 2019 Term Loan, the
March 2019 Warrants were amended to fix the number of shares that
may be issued upon exercise of each such March 2019 Warrant at
29,167 shares of common stock, and SVB and WestRiver were issued
new warrants (the “July 2019 Warrants”), which become exercisable
only upon funding of the Term B Loan Advance, to purchase 5,750
shares of the Company’s common stock at a price per share equal to
$25.71. The July 2019 Warrants replace the portion of the March
2019 Warrants that could originally be earned by SVB and WestRiver
upon funding of the Term B Loan Advance. The July 2019 Warrants, if
earned, will be exercisable until July 24, 2026 and will be
exercised automatically on a net issuance basis if not exercised
prior to the expiration date and if the then-current fair market
value of one share of the Company’s common stock is greater than
the exercise price then in effect.
Amortization of the
debt discount in relation to warrants issued as described above was
$56,602 and $155,496 for the three and nine months ended
September 30, 2019, respectively, as compared to $24,940 and
$83,181 for three and nine months ended September 30, 2018,
respectively.
Scheduled Principal
Payments on Outstanding Debt, as of September 30, 2019, are as
follows:
|
|
|
|
|
2020
|
|
$
|
2,666,667
|
|
2021
|
|
|
8,000,000
|
|
2022
|
|
|
8,000,000
|
|
2023
|
|
|
1,333,333
|
|
Total principal
payments outstanding
|
|
$
|
20,000,000
|
|
The Company was in compliance with
all covenants and requirements of its financing arrangements as of
and during the nine months ended September 30, 2019.
Note 5. Net Loss per
Common Share
The following table sets forth the
computation of basic and diluted net loss per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,135,612)
|
|
$
|
(8,281,974)
|
|
$
|
(43,538,202)
|
|
$
|
(21,368,449)
|
|
Weighted average common
shares outstanding—basic and diluted
|
|
|
34,445,489
|
|
|
26,325,904
|
|
|
33,771,671
|
|
|
25,875,783
|
|
Net loss per common
share—basic and diluted
|
|
$
|
(0.56)
|
|
$
|
(0.31)
|
|
$
|
(1.29)
|
|
$
|
(0.83)
|
|
The following potentially dilutive
securities outstanding at September 30, 2019 and 2018 have been
excluded from the computation of diluted weighted average shares
outstanding, as they would be anti‑dilutive:
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Stock
options
|
|
3,184,842
|
|
2,758,499
|
|
Warrants
|
|
110,603
|
|
2,074,149
|
|
Total
|
|
3,295,445
|
|
4,832,648
|
|
Note 6.
Stockholders’ Equity
Capital
Structure
On December 1,
2016, the Company filed a shelf registration statement (the “2016
Shelf Registration Statement”) with the SEC for the issuance of
common stock, preferred stock, warrants, rights, debt securities
and units up to an aggregate amount of $150.0 million. On
December 16, 2016, the 2016 Shelf Registration Statement was
declared effective by the SEC. The 2016 Shelf Registration
Statement is currently the Company’s only active shelf registration
statement. There is approximately $57.4 million of securities
that remain available for future issuance under the 2016 Shelf
Registration as of the date of this filing, which includes the
amount remaining on the 2019 Sales Agreement with Leerink (as
defined below). All of the securities issued by the Company in the
transactions discussed in this note were registered under the 2016
Shelf Registration Statement.
In March
2017, the Company completed an underwritten public offering of its
common stock, whereby it sold 4,304,813 shares of its common stock
at a public offering price of $3.74 per share. The Company received
gross proceeds of approximately $16.1 million, of which net
proceeds were approximately $14.8 million after deducting
underwriting discounts and offering expenses.
In October 2017, the Company entered
into a sales agreement (the “2017 Sales Agreement”) with SVB
Leerink (formerly Leerink Partners LLC) ("Leerink"), pursuant to
which the Company could sell up to $30.0 million in shares of its
common stock from time to time through Leerink, acting as its sales
agent, in one or more at-the-market offerings. In January 2019, the
Company raised approximately $25.8 million in gross proceeds
through the sale of 3,164,015 shares under the 2017 Sales
Agreement, which resulted in utilizing the full $30.0 million
facility. Upon completion of the final sale fully exhausting the
$30 million of shares allowed to be sold, the 2017 Sales Agreement
was automatically terminated. Leerink received a commission of 3.0%
of the gross proceeds for all shares sold under the Sales
Agreement.
In December 2017, the Company
completed a registered direct offering (the “2017 Registered Direct
Offering”), whereby it sold an aggregate of $9.5 million worth of
units (“Units”) at a purchase price of $5.325 per Unit with each
Unit consisting of (i) one share of the Company’s common stock, and
(ii) a warrant to purchase one share of the Company’s common stock
at an exercise price equal to $5.25 per share (the “Common
Warrants”). The Company sold an aggregate of 1,783,587 Units for
gross proceeds of approximately $9.5 million and net proceeds of
approximately $8.8 million, after deducting placement agent fees
and offering expenses. Additionally, the Company issued 107,015
warrants at an exercise price of $6.6562 per share to certain
investors affiliated with H.C. Wainwright & Co., LLC, placement
agent for the 2017 Registered Direct Offering (the “Placement Agent
Warrants”). The Company incurred issuance costs associated with the
2017 Registered Direct Offering of $745,856, which included $81,000
related to issuance of the Placement Agent Warrants, of which,
$583,768 was allocated to the common stock sold and was recorded as
a reduction to equity. The remaining amount was allocated to the
Common Warrants and was expensed. The Placement Agent Warrants had
the same terms as the Common Warrants, except for the exercise
price of $6.6562 per share. The Common Warrants priced at $5.25 and
Placement Agent Warrants priced at $6.6562 utilized the 2016 Shelf
Registration Statement for a total of $9.4 million and
$712,313, respectively. Both the Common Warrants and the
Placement Agent Warrants were not exercised and subsequently were
terminated in December 2018.
On September 27, 2018, the Company
entered into a purchase agreement with certain institutional and
accredited investors (collectively, the “RDO Investors”) for the
sale by the Company directly to the RDO Investors of an aggregate
of 2,966,667 shares of the Company’s common stock, at a purchase
price of $3.00 per share (the “2018 Registered Direct Offering”),
for gross proceeds of approximately $8.9 million. The 2018
Registered Direct Offering closed on October 1, 2018, and the
Company received net proceeds of approximately $8.8 million, after
deducting transaction expenses. The 2,966,667 shares of common
stock sold in the 2018 Registered Direct Offering were offered and
sold by the Company directly to the RDO Investors, without a
placement agent, underwriter, broker or dealer.
In May 2019, the Company entered into
a new sales agreement (the “2019 Sales Agreement”) with Leerink,
pursuant to which the Company may sell up to $50.0 million in
shares of its common stock from time to time through Leerink,
acting as its sales agent, in one or more at-the-market offerings
utilizing the 2016 Shelf Registration Statement. Leerink is
entitled to receive a commission of 3.0% of the gross proceeds for
any shares sold under 2019 Sales Agreement. The Company received
approximately $20.1 million in gross proceeds through the sale of
942,285 shares, of which net proceeds were approximately $19.5
million during the nine months ended September 30, 2019.
The holders
of shares of common stock are entitled to one vote for each share
of common stock held at all meetings of stockholders and written
actions in lieu of meetings. The holders of shares of common stock
are entitled to receive dividends, if and when declared by the
board of directors.
In the future, the Company may also
periodically offer one or more of these securities in amounts,
prices and terms to be announced when and if the securities are
offered. At the time any of the securities covered by the 2016
Shelf Registration Statement are offered for sale, a prospectus
supplement will be prepared and filed with the SEC containing
specific information about the terms of any such
offering.
Equity Incentive
Plans
There were 3,668,590 shares available
for the issuance of stock options or stock-based awards under the
Company’s 2015 Omnibus Incentive Compensation Plan at September 30,
2019.
Stock
Options
The following table sets forth the
stock option activity for the nine months ended September 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
average
|
|
Aggregate
|
|
|
|
Number
|
|
average
|
|
contractual
|
|
intrinsic
|
|
|
|
of shares
|
|
exercise price
|
|
term
|
|
value
|
|
Outstanding at
December 31, 2018
|
|
2,282,636
|
|
$
|
5.06
|
|
|
|
|
|
|
Granted
|
|
1,197,231
|
|
|
15.57
|
|
|
|
|
|
|
Exercised
|
|
(241,757)
|
|
|
4.55
|
|
|
|
|
|
|
Forfeited
|
|
(53,268)
|
|
|
7.50
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at
September 30, 2019
|
|
3,184,842
|
|
$
|
9.01
|
|
8.0
|
|
$
|
36,930,345
|
|
Vested and expected to
vest at September 30, 2019
|
|
3,168,673
|
|
$
|
9.05
|
|
8.0
|
|
$
|
36,632,902
|
|
Exercisable at
September 30, 2019
|
|
1,612,322
|
|
$
|
6.34
|
|
6.6
|
|
$
|
22,428,613
|
|
The fair value of each stock option
grant is estimated on the date of grant using the Black‑Scholes
option pricing model. The expected term of the Company’s stock
options has been determined utilizing the “simplified” method as
described in the SEC’s Staff Accounting Bulletin No. 107
relating to stock‑based compensation. The simplified method was
chosen because the Company has limited historical option exercise
experience due to its short operating history. The risk‑free
interest rate is based on the U.S. Treasury yield in effect at the
time of grant for a period approximately equal to the expected term
of the award. Expected dividend yield is based on the fact that the
Company has never paid cash dividends and does not expect to pay
any cash dividends in the foreseeable future. Expected volatility
is based on historical volatilities of similar entities within the
Company’s industry which were commensurate with the Company’s
expected term assumption.
The weighted average grant date fair
value of options granted was $11.55 and $1.98 per option for the
nine months ended September 30, 2019 and 2018, respectively. As of
September 30, 2019, there was $12.9 million of total unrecognized
compensation cost related to non‑vested stock options which is
expected to be recognized over a weighted average period of
3.3 years. These amounts do not include 20,971 options
outstanding as of September 30, 2019, which are performance‑based
and vest upon the achievement of certain corporate milestones. The
total intrinsic value of options exercised (the difference in the
market price of the Company’s common stock on the exercise date and
the price paid by the optionee to exercise the option) was
approximately $4.3 million for the nine months ended September 30,
2019. There were no options exercised for the nine months ended
September 30, 2018.
Stock‑based compensation expense
recognized for the three and nine months ended September 30,
2019 and 2018 was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
286,234
|
|
$
|
90,891
|
|
$
|
652,666
|
|
$
|
311,753
|
|
General and
administrative
|
|
|
870,201
|
|
|
301,774
|
|
|
2,648,635
|
|
|
1,090,141
|
|
Total
|
|
$
|
1,156,435
|
|
$
|
392,665
|
|
$
|
3,301,301
|
|
$
|
1,401,894
|
|
Performance‑Based
Awards
The Company did not issue any
performance-based awards during the nine months ended September 30,
2019 and 2018. For awards granted with performance conditions, no
expense will be recognized, and no measurement date can occur,
until the occurrence of the event is probable. For the three and
nine months ended September 30, 2019, the Company recognized
expense of $9,514 and $29,378, respectively, and for the three
and nine months ended September 30, 2018, the Company
recognized expense of $24 and income of $247, respectively, related
to performance‑based awards.
Warrants
The following table summarizes
warrant activity for the nine months ended September 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
average
|
|
|
|
Warrants
|
|
exercise price
|
|
Outstanding at
December 31, 2018
|
|
123,037
|
|
$
|
6.35
|
|
Issued
|
|
58,334
|
|
|
8.10
|
|
Exercised
|
|
(70,768)
|
|
|
6.30
|
|
Outstanding at
September 30, 2019
|
|
110,603
|
|
$
|
7.31
|
|
Warrants
associated with 2017 Registered Direct Offering
The change in the fair value of
warrant liability for the nine months ended September 30, 2018 was
$2,689,000. This relates to the Company’s 2017 Registered Direct
Offering. As described in further detail above, the Company issued
Common Warrants to certain investors to purchase an aggregate
of 1,783,587 shares of its common stock. The Common Warrants were
exercisable at $5.25 per share and expired on December 11, 2018.
Additionally, as part of the 2017 Registered Direct Offering, the
Company issued Placement Agent Warrants to certain investors
affiliated with H.C. Wainwright & Co., LLC, the placement agent
in the 2017 Registered Direct Offering to purchase an aggregate of
107,015 shares of its common stock. The Placement Agent Warrants
were exercisable at $6.6562 and expired on December 11, 2018. The
Common Warrants and Placement Agent Warrants were analyzed and it
was determined that they required liability treatment. Under ASC
815, Derivatives and
Hedging, registered common
stock warrants that require the issuance of registered shares upon
exercise and do not expressly preclude an implied right to cash
settlement are accounted for as derivative liabilities. The Company
classified these derivative warrant liabilities on the consolidated
balance sheet as a current liability and the change in fair value
of the warrant liability was reported on the statement of
operations.
The fair value of the Common Warrants
at September 30, 2018 and December 31, 2017 was determined to be
approximately $101,000 and $2,683,000, respectively, as calculated
using Black-Scholes with the following assumptions: (1) stock price
of $3.45 and $5.60, respectively; (2) a risk-free rate of
2.22% and 1.76%, respectively; and (3) an expected volatility of
70% and 62%, respectively. The change in the fair value between
December 31, 2017 and September 30, 2018 is reported as a change in
fair value of the warrant liability on the statement of
operations.
The fair value of the Placement Agent
Warrants at September 30, 2018 and December 31, 2017 were
determined to be approximately $1,000 and $108,000, respectively,
as calculated using Black-Scholes with the following assumptions:
(1) stock price of $3.45 and $5.60, respectively; (2) a risk-free
rate of 2.22% and 1.76%, respectively; and (3) an expected
volatility of 70% and 62%, respectively. The change in the fair value
between December 31, 2017 and September 30, 2018 is reported as a
change in fair value of the warrant liability on the statement of
operations.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis contains forward-looking
statements about our plans and expectations of what may happen in
the future. Forward-looking statements are based on a number of
assumptions and estimates that are inherently subject to
significant risks and uncertainties, and our results could differ
materially from the results anticipated by our forward-looking
statements as a result of many known or unknown factors, including,
but not limited to, those factors discussed in “Risk Factors.” See
also the “Cautionary Note Regarding Forward-Looking Statements” set
forth at the beginning of this report.
You
should read the following discussion and analysis in conjunction
with the unaudited interim consolidated financial statements, and
the related footnotes thereto, appearing elsewhere in this report,
and in conjunction with management’s discussion and analysis and
the audited consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2018
which was filed with the Securities and Exchange Commission, or
SEC, on March 15, 2019.
Overview
We are a clinical-stage
biopharmaceutical company developing novel therapies for the
management of central nervous system, or CNS, disorders for which
there are limited treatment options. By focusing on this
therapeutic area, we are addressing significant and growing markets
where current treatment options are limited or inadequate. Our core
CNS portfolio includes four CNS product candidates, AXS-05, AXS-07,
AXS-09, and AXS-12, which are being developed for multiple
indications. AXS-05 is currently in a Phase 3 trial in treatment
resistant depression, or TRD, which we refer to as the STRIDE-1
study, a Phase 3 trial in major depressive disorder, or MDD, which
we refer to as the GEMINI study, a Phase 3 open-label safety trial
in patients with TRD and MDD; and a Phase 2/3 trial in agitation
associated with Alzheimer's disease, or AD, which we refer to as
the ADVANCE-1 study. We have completed a Phase 2 trial in MDD,
which we refer to as the ASCEND study and a Phase 2 trial in
smoking cessation. AXS-07 is currently in two Phase 3 trials for
the acute treatment of migraine, which we refer to as the MOMENTUM
and the INTERCEPT studies, and a Phase 3 open-label safety trial in
patients with migraine. AXS-12 is currently in a Phase 2 trial in
narcolepsy, which we refer to as the CONCERT study. The Axsome Pain
and Primary Care business unit, or Axsome PPC, houses our pain and
primary care assets, including AXS-02 and AXS-06, and intellectual
property which covers these and related product candidates and
molecules being developed by us and others. AXS-02 is being
developed for the treatment of knee osteoarthritis, or OA,
associated with bone marrow lesions, or BMLs. AXS-06 is being
developed for the treatment of osteoarthritis and rheumatoid
arthritis and for the reduction of the risk of nonsteroidal
anti-inflammatory drug, or NSAID, associated gastrointestinal
ulcers. Additionally, we are currently evaluating other product
candidates, which we intend to develop for CNS disorders. We aim to
become a fully integrated biopharmaceutical company that develops
and commercializes differentiated therapies that expand the
treatment options available to caregivers and improve the lives of
patients living with CNS disorders.
AXS-05 is a novel, oral,
investigational NMDA receptor antagonist with multimodal activity
under development for the treatment of CNS disorders. AXS-05
consists of bupropion and dextromethorphan, or DM, and utilizes our
metabolic inhibition technology. We are developing AXS-05 initially
for the following four indications: TRD, agitation associated with
AD, MDD, and as an aid to smoking cessation. The DM component of
AXS-05 is a non-competitive N-methyl-D-aspartate, or NMDA, receptor
antagonist, also known as a glutamate receptor modulator. The DM
component of AXS-05 is also a sigma-1 receptor agonist, nicotinic
acetylcholine receptor antagonist, and inhibitor of the serotonin
and norepinephrine transporters. The bupropion component of AXS-05
serves to increase the bioavailability of dextromethorphan, and is
a norepinephrine and dopamine reuptake inhibitor, and a nicotinic
acetylcholine receptor antagonist. We intend to seek U.S. Food and
Drug Administration, or FDA, approval for AXS-05 utilizing the
505(b)(2) regulatory development pathway.
AXS-07, is a novel, oral,
investigational medicine with distinct dual mechanisms of action
consisting of MoSEIC™, or Molecular Solubility Enhanced Inclusion
Complex, meloxicam and rizatriptan. We are developing AXS-07
initially for the acute treatment of migraine. Meloxicam is a
long-acting nonsteroidal anti-inflammatory drug, or NSAID, with
COX-2, an enzyme involved in inflammation and pain pathways,
preferential inhibition and potent pain-relieving effects. However
standard meloxicam has an extended time to maximum plasma
concentration, or Tmax, which
delays its onset of action. AXS-07 utilizes our proprietary MoSEIC™
technology to substantially increase the solubility and speed the
absorption of meloxicam while potentially maintaining durability of
action. Meloxicam is a new molecular entity for migraine enabled by
our MoSEIC™ technology. Rizatriptan is a 5-HT1B/D agonist
that inhibits calcitonin gene-related peptide-, or CGRP-mediated
vasodilation, has been shown to have central trigeminal
antinociceptive activity, and may reduce the release of
inflammatory mediators from trigeminal nerves. Rizatriptan is
approved as a single agent for the acute treatment of migraine. We
intend to seek FDA approval for AXS-07 utilizing the 505(b)(2)
regulatory development pathway.
AXS-09 is a novel, oral,
investigational medicine consisting of esbupropion and DM, which is
being developed for the treatment of CNS disorders. AXS-09 contains
esbupropion, the chirally pure S-enantiomer of bupropion, as compared to the
company’s first generation product candidate AXS-05 which contains
racemic bupropion, equal amounts of the S- and R-enantiomers. We have demonstrated in a Phase 1
trial that DM plasma levels are substantially increased into a
potentially therapeutic range with repeated administration of
AXS-09. Results of this Phase 1 trial coupled with preclinical data
also indicate the potential for enhanced absorption and therapeutic
effect of the S-enantiomer as compared to the
R-enantiomer.
AXS-12, reboxetine, is a novel, oral,
investigational medicine in development for treatment of
narcolepsy. AXS-12 is a highly selective and
potent norepinephrine reuptake inhibitor. The potential utility of
AXS-12 in narcolepsy is supported by positive pre-clinical and
preliminary clinical results in narcolepsy, and an extensive
positive clinical safety record. Reboxetine, the active agent in
AXS-12, significantly and dose-dependently reduced narcoleptic
episodes in hypocretin-, or orexin-deficient mice, a
well-established genetic animal model of narcolepsy.
The Axsome PPC houses Axsome’s pain
and primary care assets, including AXS-02 and AXS-06, and
intellectual property which covers these and related product
candidates and molecules being developed by Axsome and others.
AXS-02 is being developed for the treatment of knee osteoarthritis,
or OA, associated with bone marrow lesions, or BMLs, and chronic
low back pain, or CLBP, associated with Modic changes, or MCs.
Lastly, AXS-06 is being developed for the treatment of
osteoarthritis and rheumatoid arthritis and for the reduction of
the risk of NSAID-associated gastrointestinal ulcers.
AXS‑02, disodium zoledronate
tetrahydrate, is a potentially first‑in‑class, oral, targeted,
non‑opioid therapeutic for chronic pain. AXS‑02 is a potent
inhibitor of osteoclasts, which are bone remodeling cells that
break down bone tissue. We are developing AXS‑02 for the treatment
of pain in the following two conditions: knee OA associated with
BMLs and CLBP associated with type 1 or mixed type 1 and type 2
MCs. These conditions exhibit target lesions or specific pathology
that we believe may be addressed by the mechanisms of action of
AXS‑02, such as inhibition of osteoclast activity. These mechanisms
may result in a reduction of pain in these conditions. We intend to
seek FDA approval for AXS‑02 utilizing the 505(b)(2) regulatory
development pathway.
AXS-06, is a novel, oral, non-opioid,
fixed-dose combination of MoSEIC™ meloxicam and esomeprazole. We
are developing AXS-06 initially for the treatment of osteoarthritis
and rheumatoid arthritis. Esomeprazole is a proton pump inhibitor
which lowers stomach acidity and which has been shown to reduce the
occurrence of NSAID-associated gastrointestinal ulcers. AXS-06 is
designed to provide rapid, effective pain relief, and to reduce the
risk of NSAID-associated gastrointestinal ulcers, with convenient
once-daily dosing. We have successfully completed a Phase 1 trial
of AXS-06 to characterize the pharmacokinetics of meloxicam and
esomeprazole after oral administration of AXS-06. The results of
our Phase 1 trial demonstrated that the median Tmax for
meloxicam, the trial's primary endpoint, was nine times faster for
AXS-06 as compared to standard meloxicam. We intend to seek FDA
approval for AXS-06 utilizing the 505(b)(2) regulatory development
pathway.
Since our
incorporation in January 2012, our operations to date have included
organizing and staffing our company, business planning, raising
capital, developing our compounds, and engaging in other discovery
and preclinical activities. Prior to our initial public offering,
or IPO, in November 2015, we financed our operations primarily
through private placements of our convertible notes and subsequent
to our IPO, through proceeds from sales of our common stock and
warrants to purchase shares of our common stock to equity investors
and debt borrowings. For a further discussion, see the section
entitled “Liquidity and Capital Resources” below.
Our ability to become
profitable depends on our ability to generate revenue. We do not
expect to generate significant revenue unless and until we or our
collaborators obtain marketing approval for and successfully
commercialize one of our product candidates.
We have incurred
significant operating expenses and net losses since inception. We
incurred net losses of $43.5 million and $21.4 million
for the nine months ended September 30, 2019 and 2018,
respectively. Our accumulated deficit as of September 30, 2019 was
$151.1 million, and we expect to incur significant expenses
and increasing operating losses for the foreseeable future. We
expect our expenses to increase in connection with our ongoing
activities, as we continue the development and clinical trials of,
and seek regulatory approval for our current product candidates and
any other product candidates that we develop or in‑license and
advance to clinical development. If we obtain regulatory approval
for a product candidate, we expect to incur significant expenses in
order to create an infrastructure to support the commercialization
of the product candidate, including manufacturing, sales,
marketing, and distribution functions. Further, we have incurred
and will continue to incur additional costs associated with
operating as a public company. Accordingly, we will need additional
financing to support our continuing operations. We will seek to
fund our operations through public or private equity, debt
financings or other sources. Adequate additional financing may not
be available to us on acceptable terms, or at all. Our failure to
raise capital as and when needed would have a negative impact on
our financial condition and our ability to pursue our business
strategy. We will need to generate significant revenue to achieve
profitability, and we may never do so.
Year to Date and
Recent Developments
In January 2019, we
announced that AXS-05 met the prespecified primary endpoint and
significantly improved symptoms of depression in the ASCEND
study.
In January 2019, we
received approximately $25.8 million in gross proceeds, of which
net proceeds were approximately $25.0 million through the sale of
3,164,015 shares under the existing at-the-market facility with SVB
Leerink (formerly Leerink Partners LLC), or Leerink.
Upon completion of the
final sale fully exhausting the $30 million of shares available for
sale, the Sales
Agreement was automatically terminated. Please see the section entitled
“Liquidity and Capital Resources” below for a further
discussion.
In January 2019, we
initiated the CONCERT study, a Phase 2 randomized, double-blind,
controlled trial to evaluate the efficacy and safety of AXS-12 in
narcolepsy.
In March 2019, we
initiated the MOMENTUM study, a Phase 3, randomized, double-blind,
multicenter, controlled trial to assess the efficacy and safety of
AXS-07 in the acute treatment of migraine.
In March 2019, we
entered into a $24.0 million growth capital term loan facility,
which we refer to as the 2019 Term Loan, with Silicon Valley Bank,
or SVB, and WestRiver Innovation Lending Fund VIII, L.P., or
WestRiver. Further, in July 2019, the 2019 Term Loan was amended.
Please see the section entitled “Liquidity and Capital Resources”
below for a further discussion.
In March 2019, we
received FDA Breakthrough Therapy designation for AXS-05 for the
treatment of MDD.
In April 2019, we
announced that AXS-05 met the prespecified primary endpoint in
Phase 2 trial in smoking cessation.
In May 2019, we
announced expedited development and pivotal status for AXS-05 for
the treatment of MDD based on an FDA Breakthrough Therapy
meeting.
In May 2019, we
announced the acceleration of the timeline for reporting topline
results from the MOMENTUM Phase 3 trial of AXS-07 for the acute
treatment of migraine.
In May 2019, we entered
into a new sales agreement with Leerink with respect to
an at the market offering program, which we refer to as the 2019
Sales Agreement, under which we may, from time to time in our sole
discretion, issue and sell through Leerink, acting as agent, up to
$50.0 million of shares of our common stock. We received
approximately $20.1 million in gross proceeds through the sale of
942,285 shares, of which net proceeds were approximately $19.5
million during the nine months ended September 30, 2019.
In June 2019, we
initiated the GEMINI study, a Phase 3, randomized, double-blind,
multicenter, placebo-controlled trial of AXS-05 in the treatment of
MDD.
In July 2019, we
announced that we are enrolling two open-label studies in order to
build safety databases of patients to support the filing of a New
Drug Application, or NDA for (i) AXS-05 in the treatment of MDD and
(ii) AXS-07 in the acute treatment of migraine.
In August 2019, we
announced that David Marek has been appointed as our Chief
Commercial Officer.
In September 2019, we
announced positive results from a Phase 1 pharmacokinetic trial of
AXS-07, a novel, oral, investigational medicine with distinct
dual mechanisms of action being developed for the acute treatment
of migraine.
In October 2019, we
announced the completion of patient enrollment in our GEMINI and
CONCERT studies.
In October 2019, we
initiated the INTERCEPT study, a Phase 3, randomized, double-blind,
multicenter, placebo-controlled trial evaluating the early
treatment of migraine with AXS-07.
In October 2019, we
announced the results of the MINDSET physician survey, which
affirms the unmet need and favorable profile of AXS-07 in the acute
treatment of migraine.
Financial
Overview
Revenue
We have not generated any revenue
since we commenced operations and we do not expect to generate any
revenue in the near future. To the extent we enter into licensing
or collaboration arrangements, we may have sources of revenue in
the future. We expect that any revenue we generate will fluctuate
from quarter to quarter as a result of the amount and timing of
payments that we may recognize upon the sale of our product
candidates, to the extent that any product candidates are
successfully commercialized, and the amount and timing of fees,
reimbursements, and milestone and other payments received under any
future licensing or collaboration arrangements. If we fail to
complete the development of our product candidates in a timely
manner or obtain regulatory approval for them, our ability to
generate future revenue, and our results of operations and
financial position, would be materially and adversely
affected.
Research and
Development Expenses
Research and development expenses
primarily include preclinical studies, clinical trials,
manufacturing costs, employee salaries and benefits, stock‑based
compensation expense; contract services, including external
research and development expenses incurred under arrangements with
third parties, such as contract research organizations, or CROs,
facilities costs; overhead costs, depreciation, and other related
costs.
Research and development activities
are central to our business model. We will incur substantial costs
beyond our present and planned clinical trials in order to file an
NDA, for any of our product candidates. It is difficult to
determine with certainty the costs and duration of our current or
future clinical trials and preclinical studies, or if, when, or to
what extent we will generate revenue from the commercialization and
sale of our product candidates if we obtain regulatory approval. We
may never succeed in achieving regulatory approval. The duration,
costs, and timing of clinical trials and development of our product
candidates will depend on a variety of factors, including the
uncertainties of future clinical trials and preclinical studies,
uncertainties in clinical trial enrollment rate, and significant
and changing government regulation. In addition, the probability of
success for each product candidate will depend on numerous factors,
including competition, manufacturing capability, and commercial
viability. We will determine which programs to pursue and how much
to fund each program in response to the scientific and clinical
success of each product candidate, as well as an assessment of each
product candidate’s commercial potential. Management considers many
factors in developing the estimates and assumptions that are used
in the preparation of our unaudited interim consolidated financial
statements.
Management must apply significant
judgment in this process. In addition, other factors may affect
estimates, including expected business and operational changes,
sensitivity and volatility associated with the assumptions used in
developing estimates, and whether historical trends are expected to
be representative of future trends. The estimation process often
may yield a range of potentially reasonable estimates of the
ultimate future outcomes and management must select an amount that
falls within that range of reasonable estimates. This process may
result in actual results differing materially from those estimated
amounts used in the preparation of our unaudited interim
consolidated financial statements if these results differ from
historical experience, or other assumptions do not turn out to be
substantially accurate, even if such assumptions are reasonable
when made.
The following table summarizes our
research and development expenses for our primary programs for the
three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AXS-05
|
|
$
|
7,829,826
|
|
$
|
3,453,303
|
|
|
$
|
15,491,879
|
|
$
|
9,847,722
|
|
AXS-07
|
|
|
6,177,098
|
|
|
1,226,328
|
|
|
|
13,914,286
|
|
|
2,095,683
|
|
AXS-12
|
|
|
487,703
|
|
|
7,914
|
|
|
|
1,363,852
|
|
|
7,914
|
|
AXS-02
|
|
|
174,253
|
|
|
34,539
|
|
|
|
264,155
|
|
|
507,074
|
|
AXS-06
|
|
|
3,650
|
|
|
3,671
|
|
|
|
8,126
|
|
|
63,844
|
|
Other research and
development
|
|
|
876,809
|
|
|
1,224,134
|
|
|
|
2,746,832
|
|
|
3,509,833
|
|
Stock-based
compensation
|
|
|
286,234
|
|
|
90,891
|
|
|
|
652,666
|
|
|
311,753
|
|
Total research and
development expenses
|
|
$
|
15,835,573
|
|
$
|
6,040,780
|
|
|
$
|
34,441,796
|
|
$
|
16,343,823
|
|
Other research and development
expenses primarily consist of employee salaries and benefits,
facilities and overhead costs. For the three and nine
months ended September 30, 2019, the majority of employee
salaries and benefits were allocated amongst the respective
clinical development programs whereas for the three and nine months
ended September 30, 2018, employee salaries and benefits were
allocated to Other research and development expenses.
General and
Administrative Expenses
General and administrative expenses
primarily consist of salaries and related costs for personnel in
executive, finance, and operational functions, including
stock‑based compensation and travel expenses. Other general and
administrative expenses include facility‑related costs, insurance
expense, and professional fees for legal and accounting services
and patent filing and prosecution costs. General and administrative
expenses are expensed when incurred.
Interest and
amortization of debt discount (expense)
Interest and amortization of debt
discount (expense) primarily consists of cash interest and non‑cash
costs related to our term loan with SVB (see “Liquidity and Capital
Resources” below for a further discussion). We record costs
incurred in connection with the issuance of debt as a direct
deduction from the debt liability. We amortize these costs over the
term of our debt agreements in our consolidated statement of
operations. For the three and nine months ended September 30, 2019,
the amortization of debt discount expense related to the 2019 Term
Loan, the First Amendment to the 2019 Term Loan, and the 2016
Original and Amended Term Loan, whereas for the three and nine
months ended September 30, 2018, the amortization of debt discount
expense related to only the 2016 Original Term Loan.
Critical Accounting
Policies and Significant Judgments and Estimates
This discussion and
analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting
principles in the United States of America, or U.S. GAAP. The
preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of expenses during the reported period. In
accordance with GAAP, we base our estimates on historical
experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results may differ from
these estimates under different assumptions or
conditions.
While
our significant accounting policies are more fully described in
Note 2 - Summary of Significant Accounting Policies to our
unaudited interim consolidated financial statements appearing
elsewhere in this report, we believe the accounting policies
described in the “Financial Overview” section above are the most
critical to the judgments and estimates we use in the preparation
of our consolidated financial statements.
Results of
Operations
The following table summarizes our
results of operations for the periods indicated: