AN2 Therapeutics(ANTX) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financials show increased cash and investments post-IPO, with a growing net loss due to R&D for epetraborole Condensed Balance Sheets Condensed Balance Sheet Data (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $28,802 | $12,097 | | Short-term investments | $75,580 | $46,458 | | Total current assets | $107,296 | $60,106 | | Total assets | $110,008 | $65,316 | | Liabilities & Equity | | | | Total current liabilities | $4,432 | $3,395 | | Total liabilities | $4,435 | $3,408 | | Redeemable convertible preferred stock | $0 | $109,319 | | Total stockholders' equity (deficit) | $105,573 | ($47,411) | | Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit) | $110,008 | $65,316 | - Following the IPO in March 2022, all redeemable convertible preferred stock was converted to common stock, resulting in a significant shift from a stockholders' deficit of ($47.4) million at year-end 2021 to a stockholders' equity of $105.6 million as of September 30, 2022[16][19] Condensed Statements of Operations and Comprehensive Loss Operating Results (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $7,428 | $5,345 | $19,759 | $10,844 | | General and administrative | $3,342 | $1,587 | $9,027 | $2,886 | | Total operating expenses | $11,770 | $6,932 | $29,786 | $13,980 | | Loss from operations | ($11,770) | ($6,932) | ($29,786) | ($13,980) | | Net loss | ($11,339) | ($6,943) | ($29,114) | ($13,998) | - Net loss for the nine months ended September 30, 2022, more than doubled to $29.1 million from $14.0 million in the same period of 2021, primarily due to an 82% increase in R&D expenses and a 213% increase in G&A expenses[22][41] Condensed Statements of Cash Flows Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($25,824) | ($11,491) | | Net cash used in investing activities | ($27,826) | ($56,270) | | Net cash provided by financing activities | $70,355 | $79,504 | | Net increase in cash and cash equivalents | $16,705 | $11,743 | - Financing activities provided $70.4 million in net cash for the first nine months of 2022, primarily from the IPO proceeds, which funded operations and investment purchases. This compares to $79.5 million in the same period of 2021 from the issuance of redeemable convertible preferred stock[31] Notes to Unaudited Condensed Financial Statements - The company is a clinical-stage biopharmaceutical firm focused on its initial product candidate, epetraborole, for treating non-tuberculous mycobacterial (NTM) lung disease[34] - In March and April 2022, the company completed its IPO, issuing 5,290,000 shares of common stock and raising total net proceeds of approximately $70.4 million[36][37] - In September 2022, the company was awarded a contract from the U.S. National Institute of Allergy and Infection Diseases (NIAID) valued up to $17.8 million to support the development of epetraborole for melioidosis and other biothreat pathogens[66][88] - The company has an exclusive worldwide license agreement with Anacor Pharmaceuticals, Inc. for epetraborole, which includes potential milestone payments up to $127 million and sales royalties[89][93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses epetraborole's pivotal trial, increased operating expenses, and current cash sufficiency for 12 months of operations - The company's primary focus is on its initial product candidate, epetraborole, a once-daily, oral treatment for NTM lung disease. A pivotal Phase 2/3 clinical trial in treatment-refractory MAC lung disease is ongoing[136] Comparison of Operating Expenses for the Three Months Ended September 30 (in thousands) | Expense Category | 2022 | 2021 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Research and development | $7,428 | $5,345 | $2,083 | 39% | | Research and development—related party | $1,000 | $0 | $1,000 | * | | General and administrative | $3,342 | $1,587 | $1,755 | 111% | | Total operating expenses | $11,770 | $6,932 | $4,838 | 70% | - R&D expenses for Q3 2022 increased by $3.1 million year-over-year, primarily due to a $1.0 million milestone payment to Anacor, a $0.9 million increase in personnel costs from higher headcount, and a $0.9 million increase in clinical trial costs[150] - As of September 30, 2022, the company had cash, cash equivalents, and short-term investments of $104.4 million, which management believes is sufficient to fund planned operations for at least 12 months[140][164] Quantitative and Qualitative Disclosures About Market Risk The company's market risk, mainly interest rate sensitivity on its $106.4 million in cash and investments, is deemed immaterial under a hypothetical 10% change - The company's primary market risk is interest rate sensitivity related to its $106.4 million in cash, cash equivalents, and investments[208] - Management concluded that a hypothetical 10% relative change in interest rates, foreign currency risk, and inflation would not have had a material impact on the financial statements[209][210][211] Controls and Procedures Management concluded that disclosure controls were ineffective due to material weaknesses in internal financial reporting controls, with a remediation plan underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness in internal control over financial reporting[215] - The material weaknesses identified include: lack of sufficient accounting personnel and expertise, ineffective controls over the period-end financial reporting process, and ineffective IT general controls for financial systems[217][219][220] - The company is implementing a remediation plan that includes hiring additional accounting personnel and designing and implementing a formal financial control environment and IT controls[222] PART II. OTHER INFORMATION Legal Proceedings As of September 30, 2022, the company was not subject to any material legal proceedings, nor are any currently pending or threatened - As of September 30, 2022, the company was not subject to any material legal proceedings[104][227] Risk Factors Key risks include limited operating history, dependence on epetraborole, need for additional funding, clinical trial failures, reliance on third parties, and internal control weaknesses - The company has a limited operating history, has incurred significant losses since inception, and may never achieve profitability[229][231] - The business is highly dependent on the success of its sole product candidate, epetraborole, and failure to obtain regulatory approval or successfully commercialize it would be detrimental[229][249] - The company relies on single-sourced third parties for preclinical studies, clinical trials, and manufacturing, which introduces risks related to performance, deadlines, and regulatory compliance[229][287] - Material weaknesses in internal control over financial reporting have been identified, which could prevent accurate and timely financial reporting if not remediated[230][332] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, and the $70.4 million IPO proceeds' use remains consistent with the original plan - There were no unregistered sales of equity securities in the period[467] - The company raised net proceeds of approximately $70.4 million from its IPO, and there has been no material change in the planned use of these proceeds[468][469] Other Items (3, 4, 5, 6) Items 3, 4, and 5 are reported as not applicable or having no information, while Item 6 lists the exhibits filed with the quarterly report - Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information) are all reported as not applicable or with nothing to report[469] - Item 6 lists the exhibits filed as part of the Quarterly Report on Form 10-Q[471]