Tenax Therapeutics Inc (NASDAQ:TENX) is not having a good week. The company just put out data from its lead cardiovascular study, and the data failed to impress. On the back of the release, the company has taken a more than 75% hit to its market capitalization, and it looks as though the decline is going to continue as we head into the middle of the week. Markets are down on the company, and – to some extent – rightly so. We think there might be an opportunity in the decline, however.
Because sometimes, when biotechnology data hits press, market operators scramble to respond ahead of other participants. In this scramble, an overreaction can cause price to fall (or rise) to a higher degree than is actually representative of the underlying catalyst. Sure, the data here missed on a number of key points, but there are some saving graces, and we believe that these may validate a near-term recovery play.
So what happened?
Tenax was investigating the clinical benefit of a drug called levosimendan when administered before and during cardiac surgery to reduce the impact of what is called low cardiac output syndrome (LCOS). Additionally, the company was measuring the drug’s impact on morbidity and mortality associated with said LCOS. Finally, the trial also looked at some secondary endpoints centered around potential pharmacoeconomic benefits and the incidence rate of LCOS.
First, the bad news. As per the latest release, the study did not achieve statistically significant reductions in a dual endpoint of death or use of a mechanical assist device at 30 days, nor in the quad endpoint of death, myocardial infarction, need for dialysis, or use of a mechanical assist device at 30 days.
And the good news?
The study demonstrated statistically significant reductions in two of three secondary endpoints including reduction in LCOS and a reduction in postoperative use of secondary inotropes.
As things stand, the LCOS space is in dire need of an approved treatment – there are currently no pharmacologic therapies approved for management or prevention of post-cardiotomy LCOS.
Tenax may not have demonstrated that its drug can reduce mortality or morbidity associated with cardiac surgery, but it has demonstrated that levosimendan contributes to reducing LCOS. That’s a big deal. Perhaps not the blockbuster sort of achievement it might have been if the trial had hit its primary, but a big deal nonetheless.
And therein, for us, lies the opportunity.
There’s also an element of surprise in the drug’s failure at this stage. Levosimendan is currently approved in more than 50 countries and Tenax has the US rights. As such, we see two steps forward.
First, in the company seeking approval for a paired down indication of reducing LCOS incidence in cardiac surgery patients. That’s a decent market. Not huge, but far exceeding the company’s current market cap, and one that (if greenlighted) should translate to some immediate upside in itself.
Second, we think the company is going to conduct another trial to try and build on the missed endpoints. There’s plenty of data in place supportive of these endpoints from both earlier stage US studies and legacy data from around the world. This miss is a surprise miss, and one that may (when retroactively analyzed) prove anomalous.
Of course, the major concern is that any further investigation will cost money, and – especially at this stage of the development pipeline – the number could run into the millions. As such, we’re probably going to see some degree of dilution over the coming 12 months if stage II of our proposed strategy comes into play.
With any luck, however, an approval for the first of the two target indications should mitigate this dilution from a value perspective.
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Disclosure: We have no position in TENX and have not been compensated for this article.