TENX: New Funding Puts Wind in the Sails
NASDAQ:TENX
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Update on Tenax
Tenax Therapeutics, Inc. (NASDAQ:TENX) has been navigating rough waters over the last few months as the need for capital to advance their Phase III clinical trials in pulmonary arterial hypertension (PAH) intensified. This issue was largely resolved with the February 2023 capital raise which provides a gross $15.6 million to advance the pipeline. Other favorable news was also released since our previous update with positive data presented at the HFSA Annual Meeting and the grant of a new patent. Over the last six months, Tenax has hired Roth Capital Partners to evaluate strategic alternatives and has executed a reverse stock split to bring it back into compliance with minimum share price requirements.
Capital Raise
On February 3, 2023, Tenax announced that it had priced the sale of 8.67 million shares or pre-funded warrant with associated warrants at $1.80 per unit. Two warrants with an exercise price of $2.25 per share were issued for each underlying equity share or pre-funded warrant. Proceeds will support the clinical development of imatinib and levosimendan for PAH and pulmonary hypertension with left side heart failure and preserved ejection fraction (PH-HFpEF) respectively.
Tenax had engaged Roth Capital Partners as a financial advisor in September 2022. The goal was exploration of a diverse range of strategic options including a sale, merger or other strategic transaction which ultimately culminated in the announced equity raise.
Patent Application Granted Notice of Allowance
On February 1st, Tenax announced it had received a notice of allowance from the US Patent and Trademark Office (USPTO) for patent number 11,213,524 entitled Pharmaceutical compositions for subcutaneous administration of levosimendan. A notice of allowance is issued when an examiner determines that a patent application satisfies the requirements for patentability. The patent is expected to provide protection until 2040 and addresses the subcutaneous use of levosimendan. Intravenous levosimendan has been available generically for many years in Europe as the patent expired in 2015; however, the drug was not approved in the US in any form. With the additional protection that is expected to be granted in this patent, the value of levosimendan in PH-HFpEF is increased.
The notice of allowance recognizing that PH-HFpEF is a distinct indication and is important for what we expect will be the next patent to be reviews for an oral formulation. When obtaining the patent, substantial effort was required to prove the point that PH-HFpEF was separate from heart disease. After in depth discussions supported by a broad selection of research, including the trial design and results from Tenax’ very own HELP trial, the patent office relented and granted the notice of allowance for subcutaneous administration of levosimendan in PH-HFpEF. We expect the patent to be issued after final administrative requirements are completed.
Reverse Stock Split
Following the beginning of the new year, Tenax executed a 1:20 reverse stock split that became effective on the close of business as of January 4, 2023. The number of shares was reduced from 45,836,215 to 2,291,811. Fractional shares were rounded up. The reverse split enabled Tenax to come into compliance with the NASDAQ’s minimum bid price requirement.
Data Presentation at HFSA
Tenax presented data from a PH-HFpEF study at the Heart Failure Society of America (HFSA) Scientific Sessions 2022, held from October 1-3, 2022 as reported in a press release. The title of the lecture was entitled “The Transition from Chronic Intravenous to Oral Levosimendan Is Safe and Effective in Patients with Pulmonary Hypertension with Heart Failure and Preserved Ejection Fraction” by Thenappan Thenappan, MD, et al. Results demonstrated an improvement in six-minute walk test, and a reduction in critical biomarkers BNP, NT-proBNP among other metrics.
The study concluded that the levosimendan oral formulation was well tolerated without safety concerns over a 6-8-week period in patients with PH-HFpEF who received IV levosimendan for an average of 18 months. There were no serious adverse events (SAEs) related to oral levosimendan therapy. Oral levosimendan was associated with further numerical improvements in six-minute walk distance, BNP/NT-ProBNP and all key Kansas City Cardiomyopathy Questionnaire domains, suggesting oral levosimendan at 3-4 mg/day may provide a superior formulation for chronic use in PH-HFpEF patients when compared to the intravenous administration of levosimendan.
Valuation
With updated timelines and a shifting profile on which assets will be advanced first, we update our valuation to reflect only one program advancing and assign equal probabilities to both. Tenax has only raised sufficient funding to advance one program and must assess numerous considerations prior to selecting its path. Our valuation is dynamic and will reflect a greater probability of both programs advancing if sufficient funding is obtained.
The imatinib program, designated TNX-201, has demonstrated significant promise in pulmonary arterial hypertension in the IMPRES trial. The results provided the impetus for the use of a modified release/modified dose imatinib that could be a disease modifying therapy, a class of treatment that is not available. Competitors in the space are also working on a disease modifying therapy and are at critical points where the efficacy of their candidate will soon be determined. One competitor in particular, Aerovate (NASDAQ: AVTE) is developing a dry powder inhaled version of imatinib designated AV-101 which is the subject of a Phase IIb trial. If development of this product stumbles due to its method of administration, investors may turn their attention to Tenax and willingly provide the funding necessary to advance TNX-201 towards approval.
Gating factors for levosimendan rely on obtaining patent protection for an oral form of the drug in pulmonary hypertension in heart failure with preserved ejection fraction (PH-HFpEF). Recently, the US Patent Office granted a notice of allowance for the use of levosimendan via subcutaneous administration for PH-HFpEF among other classes of PAH. This is an important determination as it recognizes PH-HFpEF as separate from heart disease and supports another patent under consideration seeking protection for an oral form of levosimendan for use in PH-HFpEF. A grant of patent with this definition would provide 20 years of protection for levosimendan in PH-HFpEF rather than the five years of patent exclusivity now available, substantially increasing the value of the franchise.
As events unfold in the imatinib and levosimendan spaces, we anticipate Tenax will select the most attractive option and begin its Phase III trial.
Imatinib
We modify the timing of our forecasts for imatinib and anticipate pivotal trials and FDA submission timelines will allow for a 2027 launch of TNX-201 in the United States. Sales outside of the United States are expected the following year. PAH is considered an orphan indication and will be granted seven years of exclusivity in the United States and ten years of exclusivity in the EU if approved. Our estimates for sales are based on a historical revenue arc generated by other products in the indication including remodulin, opsumit, uptravi and adempas. First year sales are estimated at $101 million, rising to over $700 million by year seven, then falling as US exclusivity expires. We expect Tenax will work with partners and receive upfronts, milestones and royalties in return for granting license rights. We forecast that Tenax will receive 30% of the economic value generated by TNX-201 and assume these are all received via royalties.
Levosimendan
Due to the delays in obtaining capital, we expect the levosimendan oral program (TNX-103)1 will complete pivotal trials, submit an NDA to the FDA, be granted approval and ultimately approve sales in 2029. Assuming an oral patent is approved, this will provide 15 years of patent protection for levosimendan assuming the oral form of levosimendan receives a patent in 2024. Tenax’ license from Orion grants them rights to US territories. We estimate a prevalence of about 1.6 million for PH-HFpEF and initial penetration into this population of 1%, rising to 15% by year six. Treatment cost in 2029 is forecast to be $15,500 per year rising at a 3% inflation rate. As with TNX-201, we model a partner commercializing levosimendan and a net2 economic value of 15% to be earned by Tenax in upfront, milestone and royalty payments.
We generate an NPV and terminal value for the two assets of $1.1 billion, not adjusted for probability of ultimate success. To this we add cash, including the amount assuming that the recent $2.25 exercise price warrants are exercised. We apply a 40% probability of success to both the imatinib and levosimendan programs, then divide it in half to recognize that only one program will move forward. Shares outstanding, including the number from the recent capital raise and prefunded warrants, total 11.0 million to which we add the warrant and option dilution of 19.0 million and another 5.0 million shares to reflect a future capital raise to produce 35.0 million shares used to calculate our valuation. The result of our estimates and assumptions produces a target price of $6.00.
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1. TNX-103 is the oral, TNX-102 is the subcutaneous and TNX-101 is the intravenous method of administration for levosimendan.
2. Net of licensing and other amounts owed to Orion.
