TENX: HELP Results & New Asset to Boot

By John Vandermosten, CFA

NASDAQ:TENX

READ THE FULL TENX RESEARCH REPORT

Fiscal Year 2020 Financial and Operational Review

Tenax Therapeutics, Inc. (NASDAQ:TENX) reported fiscal year 2020, releasing results and filing Form 10-K with the SEC on March 31, 2021. The communiqués updated investors on 2020 events and developments year-to-date. During FY:20, Tenax enrolled its Phase II HELP trial of levosimendan in PH-HFpEF and reported its results. New Board of Director members were added, Dr. Barry Borlaug was added to the company’s Scientific Advisory Board and capital raises were executed in the amount of $2.75 million and $8.0 million. The company also expanded its license agreement with Orion for North American rights to oral and subcutaneous levosimendan which are expected to be exercised for the upcoming Phase III trial.

Year-to-date 2021, Tenax acquired PH Precision Med and appointed Dr. Stuart Rich as Chief Medical Officer. In early March, Drs. June Almenoff, Michael Davidson, Delcan Doogan and Stuart Rich were elevated to the company’s Board of Directors. Dr. Blanck, Messrs. Pepin and Rallis will step down from the board following the Annual Meeting of Stockholders.

Tenax did not generate revenues in 2020 and expended $9.9 million in operational efforts. Loss per share was ($1.33).

For the fiscal year ending December 31, 2020 and versus the fiscal year ending December 31, 2019:

➢ Research & development expenses totaled $4.6 million up 31% from $3.5 million driven by an increase in CRO costs, partially offset by a reduction in costs for clinical research associates to manage HELP, as well as decrease in direct costs associated with clinical sites, drug delivery and enrolled patients;

➢ General & administrative expenses rose 4% to $5.3 million from $5.1 million, driven by an increase in bonuses paid, offset by a reimbursement and decrease in costs incurred for arbitration;

➢ Net loss was ($9.9) million, or ($1.33) per share, compared to ($8.4) million, or ($1.35) per share;

As of December 31, 2020, cash, equivalents and marketable securities totaled $6.7 million, compared to $5.4 million on December 31, 2019. Tenax continues with no debt on its balance sheet, other than the Paycheck Protection Program loan for $245 thousand. Loan service is deferred until September 2021 and the balance may be forgiven. Management has guided that cash reserves are sufficient to sustain the firm through 3Q:21.

HELP Trial Results

In early June 2020, Tenax announced topline results from its Phase II Hemodynamic Evaluation of Levosimendan in Patients with PH-HFpEF (HELP). Results were positive and statistically significant for key measures critical to a successful Phase III trial. HELP is the first study conducted in PH-HFpEF patients to show material positive improvements in hemodynamics and 6-minute walk distance. The distance for the six minute walk test (1), which has been used as a primary endpoint in other pulmonary hypertension trials, was 29 meters greater for the levosimendan group compared to the placebo group. This measure had a p-value of 0.0329, better than the 0.05 threshold required for statistical significance.

Other important measures, such as pulmonary capillary wedge pressure (PCWP) at rest, with legs up and during exercise were all directionally correct; however, the primary endpoint of PCWP during exercise was not statistically significant. These additional measures helped to provide additional detail on the drugs mechanism and effect and are not expected to be assessed in Phase III. Below is a summary of the data as presented by Tenax. Additional analysis was performed to determine the statistical significance of the difference between the arms on all three measures using a mixed effect model that used treatments as factors and position as a random effect. It generated a p-value of 0.0475.

Summary of HELP Trial Data (2)

The trial’s primary goal was to determine safety for extended use of levosimendan, to further determine the mechanism of action of the drug and to help inform the design for Phase III. Other secondary measures that were obtained in this effort include right atrial pressure (RAP) and mean pulmonary arterial pressure (mPAP) (3). These measures examined the change in pressure compared to baseline at rest, with legs up and during exercise. Data were all directionally correct and with the exception of mPAP during exercise, were all statistically significant.

Safety was a strong point in the trial. Levosimendan has a long history of use in Europe and is well understood in treatment of acute decompensated heart failure. However, the drug has not been used as chronic therapy. Going into the trial, the FDA was concerned about treatment emergent adverse events related to hemodynamic issues and development of atrial and ventricular arrhythmias. These were not observed and the majority of adverse events were mild. Headache was the most common side effect, with three incidents observed in the levo group compared to one event in the placebo group. Severe adverse events were related to infections and infestations or device related infections which were attributed to failure to employ current best practices for a peripherally inserted central catheter (PICC) line. Tenax has since announced that the Phase III trial will use an oral formulation of levosimendan, which will sidestep infusion-related issues.

The Phase II trial provided substantial support for advancing levosimendan to the next stage that includes publication of results in a major cardiovascular journal, request for an end-of-Phase-II meeting with the FDA and preparation for a Phase III trial.

End-of-Phase II Meeting with FDA

In October 2020, Tenax met with the FDA for an end-of-phase II meeting to discuss Phase II HELP trial data. The FDA agreed that one or two Phase III trials, depending on size, with primary endpoint of change in 6-minute walk distance over 12 weeks or a single Phase III trial with clinical worsening over 24 weeks would be sufficient to demonstrate efficacy. The FDA also gave the nod to replacing IV levosimendan with oral in Phase III. The FDA expressed concern regarding the necessity of a safety database, which should be addressed as Phase III protocol is finalized and submitted.

Presentations

On August 31, Tenax announced that late-breaking results from the HELP study were accepted for presentation at the Heart Failure Society of America (HFSA) Annual Scientific Meeting. Results were presented by Dr. Barry Borlaug on Saturday October 3rd, 2020. Results from HELP were also presented in a virtual R&D webinar featuring experts Stuart Rich, MD, Daniel Burkhoff, MD, Ph.D., and Barry Borlaug, MD, held on November 18, 2020.

On November 10, Tenax announced that it would present 24-hour HELP study results at the American Heart Association Scientific Sessions 2020, presented by Daniel Burkhoff, MD, Ph.D. The 24-hour portion was the initial phase of the trial, open-label and designed to identify patients with hemodynamic response following 24-hour infusion of levosimendan. The patients who met the response criteria of prespecified reduction in pulmonary capillary wedge pressure during supine bicycle exercise were classified as responders and proceeded into the trial. The 24-hour data included 44 patients, with 85% identified as responders.

Expanded License Agreement with Orion

Tenax augmented its existing agreement with Orion Corporation, with details presented in an October 15, 2020 announcement. The updated pact includes development and commercialization rights for oral subcutaneous levosimendan, in Type 2 PH-HFpEF or other pulmonary hypertension or heart failure related indications in the US and Canada. This builds on Tenax’ existing rights for exclusive development and commercialization of intravenous levosimendan in the US and Canada. The oral formulation of levosimendan is expected to be used in Tenax’ Phase III in PH-HFpEF, which will speed enrollment and drive market acceptance pending FDA marketing approval.

Next Steps

Tenax plans to switch from infused to oral levosimendan in patients who have participated in the open-label extension of the HELP study who continue treatment and remain eligible to participate in the HELP study amendment. While it is too early to determine Phase III trial design, based on commentary and precedent we think it is likely that the six minute walk test will be the primary endpoint for a Phase III. Our best estimate is that preparatory work will take place in 2021 and first patients will be enrolled in 2022. A rough estimate of time, cost and size of the registrational trial range from 18 to 36 months, $30 to $50 million and 200 to 300 patients. While none of these estimates have been confirmed by the company, we believe they are reasonable based on precedent.

Additions to the Board

On February 21, 2020, Tenax announced the addition of Dr. Barry Borlaug to its Scientific Advisory Board. Dr. Borlaug is Chair for Research, Division of Circulatory Failure, Department of Cardiovascular Medicine at the Mayo Clinic. Dr. Borlaug is a global leader in the fields of HFpEF and PH -HFpEF and was the leading enroller in the HELP study with 8 patients randomized at the Mayo Clinic.

Announced on July 20, 2020, Tenax added two new directors to its board from Armistice Capital in conjunction with an $8.0 million raise. Steven Boyd and Keith Maher, MD participated in the July 2020 financing and joined the board of directors to help guide the company’s advance as they launch a Phase III program. We anticipate that Armistice’s increased involvement with Tenax can help the company raise capital in subsequent rounds and also identify partners for either advancing levosimendan or identifying new candidates. In addition to his role on the board of Tenax, Steven is Chief Investment Officer of Armistice with a long history working in health care equities and long short investment funds. Dr. Maher is Managing Director at Armistice, focusing on healthcare and a history at top tier investment firms. We see these additions to the board a material positives and a vote of confidence by Armistice

Tenax added four new members to its board of directors, which was announced on March 2nd, 2021. The new directors included June Almenoff, MD, Ph.D., Michael Davidson, MD, Delcan Doogan, MD, and Stuart Rich, MD, who was recently appointed the company’s Chief Medical Officer.

Dr. Almenoff brings over 20 years of senior leadership experience in the biopharma space. She served as President and Chief Medical Officer of Furiex Pharmaceuticals, which was acquired by Actavis (now AbbVie), and held various ascending positions at GlaxoSmithKline for 12 years. Dr. Almenoff is currently Chief Scientific Officer of RedHill Biopharma (NASDAQ: RDHL) and also serves on the investment advisory board of Harrington Discovery Institute and on the boards of Brainstorm Cell Therapeutics (NASDAQ: BCLI) and Kurome Therapeutics. Dr. Almenoff received her bachelor’s from Smith College and graduated with AOA honors from the MD-Ph.D. program at Mount Sinai School of Medicine, completing post-graduate medical training at Stanford University Medical Center.

Dr. Michael Davidson was founder and former Chief Scientific Officer of Corvidia Therapeutics, which was acquired by Novo Nordisk. He is Clinical Professor and Director of the Lipid Clinic at the University of Chicago Pritzker School of Medicine. Dr. Davidson co-founder and Chief Medical Officer of Omthera Pharmaceuticals, acquired by AstraZeneca Pharmaceutical. He also founded the Chicago Center for Clinical Research that was acquired by Pharmaceutical Product Development. Dr. Davidson received his bachelor’s and master’s from Northwestern University and MD from Ohio State University School of Medicine.

Dr. Declan Doogan adds over 30 years of pharma and biotech industry experience. He served as Senior Vice President and Head of Worldwide Development at Pfizer and held positions at Pfizer in the US, UK and Japan. Dr. Doogan also held positions as CMO and acting CEO of Amarin (NASDAQ: AMRN) and is Chairman and co-founder of Biohaven (NYSE: BHVN). He serves on a number of Board appointments and received his MD from Glasgow University.

On April 7, three long-serving directors elected to step down given that the board had grown to 12 members. Ronald R. Blanck, D.O., Gregory Pepin and Chris A. Rallis will depart their posts on the Board of Directors of Tenax Therapeutics, effective as of the Annual Meeting of Stockholders scheduled for June 10, 2021.

Change in Board of Directors Composition (4)

Capital Raises

Tenax executed two raises over the course of fiscal year 2020. The first of which was announced on March 13, 2020, for issuance and sale of 750,000 shares of common stock at $1.1651 per share and pre-funded warrants to purchase up to 1,610,313 common shares at $1.1650 per warrant. The registered direct at-the-market offering totaled gross proceeds of about $2.75 million. The issue also included unregistered warrants for purchase of up to 2,360,313 common shares, exercisable at $1.04 per share. After placement associated fees, net proceeds totaled approximately $2.125 million. Placement agent received cash fee equal to 7.5% and was issued warrants to purchase 177,023 common shares exercisable at $1.4564 with expiry five years after issuance.

On July 8, 2020, Tenax closed another placement with a single healthcare-focused institutional investor, issuing 2,523,611 common shares at $1.0278 per share and pre-funded warrants for up to 652,313 common shares at $1.0277 per warrant. Concurrently, Tenax also issued unregistered pre-funded warrants for purchase of up to 4,607,692 common shares and unregistered warrants for purchase of up to an aggregate 7,783,616 common shares with exercise price of $0.903 and 5.5 year expiry from date of issuance, totaling proceeds of approximately $8.0 million, with net proceeds of $6.5 million. H.C. Wainwright acted as placement agent, receiving warrants to purchase 583.771 shares of common stock (7.5% of aggregate common shares offered) with exercise of $1.2848 and expiry of 5 years.

In total, Tenax raised approximately $10.6 million net in fiscal year 2020.

PH Precision Med Acquisition

On January 19, 2021, Tenax announced the acquisition, through merger with wholly owned subsidiary Life Newco II, of privately held, clinical stage PH Precision Med (PHPM), completed on January 15, 2021, in an equity deal valued at approximately $21.6 million, which we discuss here. PHPM’s shareholders were issued the equivalent of 12.1 million equity shares as consideration for the deal, comprising 1,892,905 shares of Tenax common stock, which is ~15% of Tenax’ shares outstanding, and 10,232 shares of Class B Preferred Stock, which convert to 10,232,000 shares of common stock, pending stockholder approval. Tenax is required to hold a stockholder meeting no later than July 31, 2021 to obtain stockholder approval. If not approved, meetings will be held every 90 days to seek approval until either approved or the convertible preferred stock is no longer outstanding. Based on the closing price of Tenax on January 18, 2021 of $1.78, the acquisition is valued at approximately $21.6 million.

To add detail to Tenax’ recent acquisition of PH Precision Med and its candidate imatinib, Tenax hosted a web conference on January 21, 2021, a few days after the acquisition was announced. In the presentation, Tenax CEO, Anthony DiTonno, provided the rationale for the acquisition and Dr. Stuart Rich presented on the outstanding medical need in pulmonary arterial hypertension (PAH), and how imatinib had potential not only in slowing the progression of PAH, but potentially halting, or even reversing the disease.

Dr. Rich is a globally recognized expert in the field of PAH, who influenced Tenax’ pursuit of pulmonary hypertension in heart failure with preserved ejection fraction (PH-HFpEF) (WHO Group 2). Since then, Tenax and Dr. Rich have maintained a close relationship. As Dr. Rich became interested in imatinib, he founded PHPM to support its development. Dr. Rich approached Tenax and proposed that imatinib be included in Tenax’ portfolio given the close alignment of end markets. Imatinib is a de-risked candidate with substantial market opportunity. It served Tenax to acquire the candidate and would be in line with Tenax’ mission to commercialize pharmaceutical products for patients with high unmet medical needs in pulmonary hypertension. Tenax added Dr. Rich to the management team as Chief Medical Officer, as his expertise and reputation in PH and experience working closely with the FDA would add to Tenax’ ability to navigate the clinical and regulatory requirements necessary to obtain approval.

Background on Imatinib Asset

Imatinib, a tyrosine kinase inhibitor, offers a completely different mechanism of action in contrast to other failed pulmonary vasodilators. While the compound has only been clinically evaluated once in PAH, imatinib is a relatively mature TKI that has been approved in a number of indications including chronic myeloid leukemia for which it was originally developed. The drug was originally discovered in 1992 by Brian Druker, who sought a drug that, rather than be nonspecifically cytotoxic, targeted the cancer itself.

In 2001 (5), Novartis commercialized imatinib in leukemia as Gleevec, and in 2015 the drug generated $4.6 billion in sales before patent expiry in 2016. Novartis also studied imatinib in PAH. In 2013, Novartis had advanced imatinib in PAH as far as Phase III, where unforeseen dropout due primarily to gastric intolerance hindered its final approval. Despite some favorable results, Novartis did not re-initiate studies in PAH, likely due to pending patent expiry, as imatinib was already a commercial success for Novartis in leukemia.

Novartis’ Phase III trial Imatinib in Pulmonary Arterial Hypertension, a Randomized, Efficacy Study (IMPRES) was a randomized, double-blind, placebo-controlled 24-week trial that evaluated imatinib in patients with pulmonary vascular resistance ≥800 dyne·s·cm−5 symptomatic on ≥2 PAH therapies. The primary outcome was change in 6-minute walk distance. After 24 weeks, the placebo-corrected treatment effect on 6-minute walk distance was 32 meters; patients on imatinib were able to walk 32m farther than placebo patients, on average, which was statistically significant (p=0.002) (6).

Phase III IMPRES Trial: Change in 6-minute Walk Distance From Baseline (7)

With imatinib off-patent, supportive clinical data in PAH and a wholly underserved patient population, Dr. Rich identified an opportunity to continue development on the tyrosine kinase inhibitor.

Imatinib Trials

Imatinib is potentially the first disease modifying agent in PAH. Due to gastric intolerance observed in Novartis’ unsuccessful Phase III, and prior to Tenax’ acquisition, a reformulation of oral imatinib was necessary to bypass the stomach and release the drug in the small intestine. A Phase I pharmacokinetic study is planned for the new formulation. Based on consultations with the FDA, only one successful Phase III trial will be necessary to obtain market approval.

Briefed by the EMA, the new Phase III trial has been designed to address the shortcomings of Novartis’ previous efforts. Medicines targeting PAH have been granted the Orphan Disease designation from the FDA, which are not required to pay the $2 million PDUFA fee and benefit from seven years of market exclusivity in the US if approved. The FDA had also invited PHPM to pursue Breakthrough Therapy Designation for imatinib, which could provide accelerated approval. In July 2020, the FDA agreed to PHPM development using a modified release formulation that is planned to be used in Phase III. A small comparative pharmacokinetic/bioavailability study in 12 volunteers is required to compare the modified release with the existing immediate release formulation.

Anticipated Development Timeline for Imatinib (8)

Dr. Rich guided toward completion of formulation work and Phase I pharmacokinetic study by the end of 2021, site selection and enrollment through 2022 and topline report a year or two later. The precision design of the trial will assist in not only requiring fewer patients to power the trial, but in predicting those patients who will respond best to imatinib. Precision trials leverage data, which can include trial, genetic, or biomarker data, to attempt to predict those patients who best respond to the therapy. The precision approach should assist this trial in achieving its primary outcomes, and is becoming increasingly widespread among all clinical trials as the NIH announced its precision medicine initiative several years ago. The planned imatinib trial will utilize an undisclosed biomarker to predict patient response, and will also tailor doses to individual patients. The FDA has approved imatinib’s proposed precision trial design.

Despite 12 approved therapies, the 5-year survival rate for PAH is 57%. The pulmonary vasodilators only attempt to act on the constricted vasculature, not on the underlying vascular remodeling itself. On the other hand, imatinib is the only agent that actually targets vascular remodeling and proliferation. Similar to the neovascularization in cancer, PAH is characterized by proliferation of small pulmonary arteries. As a tyrosine kinase inhibitor, imatinib modulates four kinase pathways, one of which regulates platelet derived growth factor (PDGF), which promotes mitosis of pulmonary vascular smooth muscle cells. Blocking PDGF interrupts vascular smooth cell proliferation (9).

Existing Therapies

The existing therapies for PAH include five prostacyclin pathway agonists, three endothelin receptor antagonists, one soluble guanylate cyclase stimulant (Adempas) and two phosphodiesterase type 5 inhibitors (PDE-5 inhibitors).

Existing PAH Therapies and Estimated Annual Cost of Treatment (10)

Based on data provided by Evaluate Pharma, total revenues for the PAH class in 2020 were $6.0 billion. Pricing on the existing, relatively ineffective therapies is considerable, explaining the large dollar amount of total revenues despite PAH’s status as an orphan disease.

Pulmonary Hypertension Prevalence and Market Size (11, 12, 13)

Milestones

➢ HELP Trial Full Enrollment – 1Q:20

➢ Last Patient, Last Visit HELP Trial – April 2020

➢ Topline data HELP Trial – June 2020

➢ Regain compliance with NASDAQ minimum bid requirement – June 2020

➢ $8 million capital raise / Armistice Capital – July 2020

➢ Presentation of data at conference – Fall/Winter 2020

➢ End of Phase II Meeting with FDA (PH-HFpEF) – 4Q:20 / 1Q:21

➢ Acquisition of PHPM – January 2021

➢ Finalize PH-HFpEF Phase III Trial Design – 2Q:21

➢ PK and formulation work for imatinib in PAH – 2H:21

➢ Launch Phase III PH-HFpEF Trial – 1H:22

➢ Site selection and enrollment for imatinib PH trial – 2022

➢ Launch Phase III in PH-HFpEF – 2022

➢ Imatinib PH trial topline report – 2024

➢ Completion of Phase III in PH-HFpEF – 2024

Valuation Update

We update our valuation to reflect the acquisition of PHPM. Our approach reviews the sales trends for other approved products in PAH including Remodulin (treprostinil), Opsumit (macitentan), Uptravi (selexipag) and Adempas (riociguat). We relied on the revenue and growth trends for these PAH products to estimate revenues for a successful commercialization of imatinib in PAH. We model a Phase III study starting in 2022 and ending in 2023. An NDA is expected to be submitted in 2024 followed by first revenues in 2025. Our revenue estimate assumes $101 million of initial revenues growing to $770 million over a seven year period, then declining. Our revenue trajectory reflects the seven year exclusivity period granted orphan products in the United States and the ten year exclusivity in Europe. We anticipate that if imatinib is approved, commercialization will be licensed to a partner. We assume this deal will be forged after data from the Phase III are available supporting an all-in royalty that encompasses upfronts and milestones of 30% of net revenues. While there are no details as of yet, we assume an incremental $8 million in costs in 2023 and 2024 to conduct the PAH trial. Given its orphan status, we believe that this is a fair first estimate and will update it based on additional guidance from company management. We also add 12.1 million shares to reflect the issuance related to PHPM acquisition and assume additional shares will be issued over the next two years to provide the funding necessary to support the clinical programs. We assume a 40% probability of success for Tenax’ development portfolio. The net of our estimates generates a target price of $4.50 per share

Summary

The HELP trial has ended and Tenax is now seeking regulatory guidance on next steps required to begin the Phase III. HELP’s encouraging results have attracted further investment from Armistice Capital, a group that may catalyze additional funding to move forward into a pivotal study. Based on management’s guidance we expect an end of Phase II meeting with the FDA in the next few months, after which details on the construction of a Phase III trial will be provided. Tenax has generated strong data for the PH-HFpEF indication with statistically significant results for the six minute walk test and other parameters that we think will be required in a Phase III. Based on the research and analysis included in our initiation, we believe PH-HFpEF patients will benefit from levosimendan’s mechanism of action and clinical trials can be pursued with a reasonable cost and time commitment. The new development that is driving our price increase along with the successful outcome of the HELP trial is the addition of PHPM and its Phase III ready asset, imatinib, which is expected to begin studies in 2022.

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1. The 6 Minute Walk Test is a sub-maximal exercise test used to assess aerobic capacity and endurance. The distance covered over a time of 6 minutes is used as the outcome by which to compare changes in performance capacity.

2. Author’s own work and data provided by Tenax.

3. The is the average of systolic and diastolic pressures.

4. Author’s own work and data provided by Tenax.

5. https://www.hcp.novartis.com/products/gleevec/gleevechcp/

6. Circulation. 2013;127:11280-1138

7. Circulation. 2013;127:11280-1138

8. Advancing clinical development of Imatinib in PAH, Stuart Rich M.D., January 21, 2021.

9. Berghausen, Freyhaus and Rosenkranz. Targeting of Platelet-Derived Growth Factor signaling in Pulmonary Arterial Hypertension. 2013.

10. Advancing clinical development of Imatinib in PAH, Stuart Rich M.D., January 21, 2021.

11. Pulmonary Hypertension Association, Strange G., et al. Heart. 2012.

12. Compiled from respective company annual reports.

13. Advancing clinical development of Imatinib in PAH, Stuart Rich M.D., January 21, 2021.

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