AN2 Therapeutics(US:ANTX)2023-11-08 16:00markdown [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for Q3 2023 show a clinical-stage company with no revenue, significant net losses, and a strengthened balance sheet from capital raises Condensed Balance Sheet (in thousands) | | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $32,616 | $27,219 | | Short-term investments | $91,202 | $68,840 | | Long-term investments | $26,356 | $3,219 | | **Total Assets** | **$153,808** | **$102,560** | | **Liabilities & Stockholders' Equity** | | | | Total liabilities | $14,839 | $7,188 | | Total stockholders' equity | $138,969 | $95,372 | | **Total Liabilities & Stockholders' Equity** | **$153,808** | **$102,560** | Condensed Statements of Operations (in thousands, except per share data) | | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Research and development | $14,429 | $39,952 | | General and administrative | $3,751 | $10,868 | | **Total operating expenses** | **$18,180** | **$50,820** | | Loss from operations | ($18,180) | ($50,820) | | Other income, net | $1,473 | $2,986 | | **Net loss** | **($16,707)** | **($47,834)** | | Net loss per share | ($0.65) | ($2.22) | Condensed Statements of Cash Flows (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($36,220) | ($25,824) | | Net cash used in investing activities | ($43,698) | ($27,826) | | Net cash provided by financing activities | $85,315 | $70,355 | | **Net increase in cash and cash equivalents** | **$5,397** | **$16,705** | [Notes to Unaudited Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements) These notes detail the company's epetraborole focus, 2023 financing, accounting policies, liquidity, collaboration agreements, and equity structure - The company is a clinical-stage biopharmaceutical firm focused on developing its initial product candidate, epetraborole, for treating non-tuberculous mycobacterial (NTM) lung disease[29](index=29&type=chunk) - The company secured significant funding in 2023, raising **$19.1 million** net from an ATM Offering in April and **$65.5 million** net from an Underwritten Offering in August[33](index=33&type=chunk)[34](index=34&type=chunk) - As of September 30, 2023, the company held **$150.2 million** in cash, cash equivalents, and investments, which management believes is sufficient to fund operations for at least the next 12 months[39](index=39&type=chunk) - The company has funding arrangements with government and non-profit entities, including a contract with NIAID for up to **$17.8 million**, a grant from UGARF for up to **$1.4 million**, and a grant from the Bill and Melinda Gates Foundation for up to **$1.8 million**[62](index=62&type=chunk)[63](index=63&type=chunk) - Under the Anacor License agreement, the company may be required to make future payments up to **$2.0 million** for development milestones and up to **$125.0 million** for commercial and sales milestones, in addition to sales royalties[93](index=93&type=chunk) Stock-Based Compensation Expense (in thousands) | | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Research and development | $1,045 | $3,113 | | General and administrative | $1,124 | $3,067 | | **Total** | **$2,169** | **$6,180** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses epetraborole's pivotal trial progress, increased R&D expenses, strengthened financial position from 2023 capital raises, and anticipated future funding needs [Overview](index=28&type=section&id=MD%26A%20Overview) This overview details the company's focus on epetraborole, EBO-301 trial progress, and liquidity expected to fund operations through summer 2025 - The company is conducting a pivotal Phase 2/3 clinical trial (EBO-301) for epetraborole in patients with treatment-refractory Mycobacterium avium complex (MAC) lung disease[134](index=134&type=chunk) - Enrollment for the Phase 2 portion of the EBO-301 trial completed in September 2023, with top-line data anticipated in summer 2024[135](index=135&type=chunk) - As of September 30, 2023, the company had **$150.2 million** in cash, cash equivalents, and investments, expected to fund operations through summer 2025[140](index=140&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Operating results show a significant increase in net loss, primarily driven by a **92%** rise in R&D expenses to **$40.0 million** for the nine months ended September 30, 2023 Comparison of Operating Results (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Research and development | $39,952 | $19,759 | | General and administrative | $10,868 | $9,027 | | **Total operating expenses** | **$50,820** | **$29,786** | | **Net loss** | **($47,834)** | **($29,114)** | R&D Expenses by Activity (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Clinical trials expenses | $14,113 | $7,123 | 98% | | Personnel-related expenses | $11,959 | $5,355 | 123% | | Chemistry manufacturing and controls | $6,449 | $2,064 | 212% | | **Total R&D expenses** | **$39,952** | **$20,759** | **92%** | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company funded operations primarily through equity financing, raising approximately **$84.6 million** in 2023, holding **$150.2 million** in cash and investments, and anticipates needing substantial additional funding - As of September 30, 2023, the company had **cash, cash equivalents, and investments totaling $150.2 million**[160](index=160&type=chunk) - Primary sources of liquidity in 2023 were the Underwritten Offering (approx. **$65.5 million** net proceeds) and the ATM Offering (approx. **$19.1 million** net proceeds)[161](index=161&type=chunk) - Net cash used in operating activities for the nine months ended September 30, 2023, was **$36.2 million**, an increase from **$25.8 million** in the same period of 2022, reflecting higher development costs[171](index=171&type=chunk)[172](index=172&type=chunk) - The company anticipates needing substantial additional funding for continuing operations and does not expect positive cash flows in the foreseeable future[163](index=163&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its **$150.2 million** cash and investment portfolio, with foreign currency risk deemed immaterial - The primary market risk is interest rate sensitivity on the company's **$150.2 million** portfolio of cash and investments[184](index=184&type=chunk) - A hypothetical **10%** change in interest rates is not expected to materially impact the financial statements[185](index=185&type=chunk) - The company has some exposure to foreign currency risk from expenses in currencies like the Australian Dollar, but this was not material in the reported quarter[186](index=186&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective as of September 30, 2023, due to material weaknesses in internal control over financial reporting, with remediation ongoing - Management concluded that as of September 30, 2023, disclosure controls and procedures were not effective at a reasonable assurance level[191](index=191&type=chunk) - Ineffectiveness stems from identified material weaknesses: insufficient accounting resources, ineffective period-end reporting controls, and inadequate IT general controls[192](index=192&type=chunk)[194](index=194&type=chunk) - A remediation plan is underway, including hiring more accounting personnel and upgrading accounting systems, though material weaknesses are not yet remediated[196](index=196&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) As of September 30, 2023, the company was not subject to any material legal proceedings, nor are any currently pending or threatened - As of September 30, 2023, the company was not subject to any material legal proceedings[99](index=99&type=chunk)[199](index=199&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company faces extensive risks including heavy dependence on epetraborole, significant funding needs, reliance on third parties, competition, IP challenges, regulatory hurdles, and stock price volatility [Risks Related to Financial Position and Capital Needs](index=43&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Capital%20Needs) The company, a clinical-stage entity with an **accumulated deficit of $137.6 million**, requires substantial additional funding, risking dilution or operational delays, and has commitments under its Global Health Agreement - The company has a limited operating history, no approved products, and an **accumulated deficit of $137.6 million** as of September 30, 2023[204](index=204&type=chunk) - Substantial additional funding is required to continue operations; failure to raise capital could force delays, reductions, or cessation of product development[211](index=211&type=chunk) - The Global Health Agreement with Adjuvant includes commitments to develop epetraborole for global health initiatives, potentially affecting commercialization and requiring non-dilutive funding[220](index=220&type=chunk) [Risks Related to Product Candidate Development](index=47&type=section&id=Risks%20Related%20to%20the%20Development%20of%20Our%20Current%20and%20Future%20Product%20Candidates) Success depends heavily on epetraborole, with risks including insufficient pivotal trial data for approval, unforeseen side effects from longer dosing (**up to 16 months**), and challenging patient enrollment for the rare disease - The company's business depends heavily on the successful development and commercialization of its initial product candidate, epetraborole[223](index=223&type=chunk) - The company is conducting a single pivotal Phase 2/3 clinical trial, with no guarantee the FDA will deem it sufficient for product approval[228](index=228&type=chunk) - Epetraborole may cause undesirable side effects, and the longer dosing duration in the pivotal trial (**up to 16 months**) may reveal new adverse events not seen in shorter, prior studies[238](index=238&type=chunk)[240](index=240&type=chunk) - Patient enrollment in clinical trials for the rare NTM lung disease is difficult and could be delayed by competition from other trials and other factors, potentially increasing development costs[247](index=247&type=chunk)[249](index=249&type=chunk) [Risks Related to Dependence on Third Parties](index=56&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) The company relies on single-source third-party CROs and CMOs for all preclinical, clinical, and manufacturing activities, creating risks in performance, regulatory compliance, and supply chain disruptions - The company relies on single-sourced third parties to conduct preclinical studies, clinical trials, and manufacture clinical trial material for epetraborole[256](index=256&type=chunk) - Reliance on third-party manufacturers like Esteve Química and Catalent increases the risk of not having sufficient quantities of product candidates at an acceptable cost or quality[262](index=262&type=chunk) - Failure by third-party manufacturers to comply with cGMP regulations could result in sanctions, including fines, delays, or withdrawal of approvals[265](index=265&type=chunk) [Risks Related to Commercialization](index=58&type=section&id=Risks%20Related%20to%20the%20Commercialization%20of%20Epetraborole%20and%20Our%20Future%20Product%20Candidates) Even if approved, epetraborole faces significant commercialization risks including market acceptance, substantial competition from Insmed's Arikayce, lack of sales infrastructure, and uncertain reimbursement - Even if approved, epetraborole may fail to achieve market acceptance from physicians, patients, and third-party payors[268](index=268&type=chunk) - The company faces substantial competition from Insmed's Arikayce, the only approved therapy for treatment-refractory MAC lung disease, and other product candidates in development[271](index=271&type=chunk)[272](index=272&type=chunk) - The company has no sales or marketing infrastructure and will need to build one or partner with third parties, which is costly and may not be successful[275](index=275&type=chunk) [Risks Related to Intellectual Property](index=67&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) The company's IP position is risky, relying heavily on an exclusive license from Anacor for epetraborole, vulnerable to termination, patent challenges, and costly, uncertain global enforcement of rights - The company does not own any issued patents and its success depends on maintaining its in-licensed patent protection for epetraborole[305](index=305&type=chunk) - The company's rights to epetraborole are subject to a license agreement with Anacor; non-compliance with obligations like diligence and milestone payments could lead to license termination[309](index=309&type=chunk)[312](index=312&type=chunk) - The company may become involved in expensive and time-consuming lawsuits to protect its in-licensed patents, with an uncertain outcome[320](index=320&type=chunk) - The company relies on trade secrets and confidentiality agreements, which may be breached or may not provide adequate protection against competitors[336](index=336&type=chunk) [Risks Related to Regulatory Approval and Legal Compliance](index=77&type=section&id=Risks%20Related%20to%20Regulatory%20Approval%20of%20Epetraborole%20and%20Our%20Future%20Product%20Candidates%20and%20Other%20Legal%20Compliance%20Matters) The company faces a long, uncertain regulatory approval process for epetraborole, with no guarantee of approval despite designations, and is subject to extensive post-approval regulation, healthcare laws, and potential price controls - The company must obtain regulatory approval to commercialize epetraborole, a lengthy, expensive, and uncertain process with no guarantee of success[345](index=345&type=chunk) - The company has received Orphan Drug, QIDP, and Fast Track designations, but these do not guarantee a faster development timeline or ultimate FDA approval[355](index=355&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) - The company is subject to complex healthcare laws (e.g., Anti-Kickback Statute, False Claims Act) and data privacy laws (e.g., HIPAA); non-compliance could lead to significant penalties[383](index=383&type=chunk)[390](index=390&type=chunk) - Potential changes in healthcare policies, such as the Inflation Reduction Act (IRA), could introduce price controls and impact the commercial viability of future products[388](index=388&type=chunk)[394](index=394&type=chunk) [Risks Related to Ownership of Common Stock](index=90&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Common stock ownership is concentrated, limiting new investor influence, while the stock price is likely highly volatile, anti-takeover provisions exist, and no dividends are anticipated - Ownership is concentrated among insiders, who can significantly influence all matters requiring stockholder approval, including mergers and director elections[398](index=398&type=chunk) - The stock price is likely to be highly volatile due to factors such as clinical trial results, regulatory developments, and general market conditions[413](index=413&type=chunk) - The company's charter contains provisions (e.g., classified board, exclusive forum) that could discourage or prevent a merger or acquisition[403](index=403&type=chunk)[406](index=406&type=chunk) - The company does not anticipate paying cash dividends in the foreseeable future; returns depend on capital appreciation[411](index=411&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=98&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reports no unregistered equity sales, no material change in IPO proceeds use, and no issuer purchases of equity securities during the period - There were no unregistered sales of equity securities in the period[432](index=432&type=chunk) - There has been no material change in the planned use of proceeds from the company's IPO[435](index=435&type=chunk) - The company did not repurchase any of its equity securities during the quarter[435](index=435&type=chunk) [Defaults Upon Senior Securities](index=99&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company - Not applicable[435](index=435&type=chunk) [Mine Safety Disclosures](index=99&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[435](index=435&type=chunk) [Other Information](index=99&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - None[435](index=435&type=chunk) [Exhibits](index=100&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the 10-Q, including corporate documents and CEO/CFO certifications - The report includes standard exhibits such as the Certificate of Incorporation, Bylaws, and certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act[438](index=438&type=chunk)