AN2 Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited; amounts below are in U.S. dollars unless noted. AN2 is a clinical-stage biopharmaceutical company with no approved products and no product revenue. Its lead candidate, once-daily oral epetraborole, is being studied in a pivotal Phase 2/3 trial for treatment-refractory Mycobacterium avium complex (MAC) lung disease.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense, including related-party expense | $8.4 million | $5.3 million | $20.8 million | $11.1 million |
| General and administrative expense | $3.3 million | $1.6 million | $9.0 million | $2.9 million |
| Total operating expenses | $11.8 million | $6.9 million | $29.8 million | $14.0 million |
| Net loss | $11.3 million | $6.9 million | $29.1 million | $14.0 million |
| Net loss per share, basic and diluted | $0.59 | $3.35 | $2.21 | $7.06 |
| Cash used in operating activities | Not separately stated | Not separately stated | $25.8 million | $11.5 million |
At September 30, 2022, cash and cash equivalents were $28.8 million, short-term investments $75.6 million, and long-term investments $2.0 million. Cash, cash equivalents and short-term investments totaled $104.4 million, which management said would fund its current operating plan for at least 12 months from issuance of the statements. Total assets were $110.0 million, total liabilities $4.4 million, and accumulated deficit $77.9 million. The filing reports no borrowings or interest-bearing debt.
For the nine-month period, investing activities used $27.8 million, mainly reflecting purchases of investments net of maturities; financing provided $70.4 million, principally IPO proceeds. Cash increased $16.7 million to $28.8 million. No profit or operating margin is meaningful for this pre-revenue company.
Changes versus comparable periods
- Q3 operating expenses increased 70% year over year and net loss increased 63%; for the nine months, operating expenses increased 113% and net loss increased 108%.
- Management attributed higher research and development spending mainly to clinical trial activity, personnel, outside services and a $1.0 million Anacor milestone expense related to first-patient enrollment in the pivotal trial. Higher G&A reflected increased staffing, insurance and public-company operating costs.
- The March–April 2022 IPO raised approximately $70.4 million net, and all 11.4 million preferred shares converted into common stock. Common shares outstanding were 19.4 million at September 30, 2022, versus 2.7 million at December 31, 2021.
- Interest income rose to $0.7 million for the nine months from $0.04 million, reflecting the larger investment balance and higher yields. Available-for-sale investments had $0.5 million of net unrealized losses for the nine months.
Outlook, risks and notable items
- Enrollment in the pivotal Phase 2/3 MAC trial was ongoing. The company expected to complete Phase 2 enrollment in mid-2023 and begin Phase 3 enrollment seamlessly afterward; it expected top-line data about nine months after enrollment completion for each portion. These are management expectations, not assured outcomes.
- AN2 reported FDA Fast Track and Qualified Infectious Disease Product designations for epetraborole, and FDA and European orphan designations for NTM lung disease. The company said it had PMDA alignment on a microbiological primary endpoint for Japan; regulatory approval remains uncertain, including whether one pivotal study will be sufficient.
- A September 2022 NIAID contract can provide up to $17.8 million over a 48-month term. Funding committed for the 18-month base period was $4.3 million. No contract income had been recognized by September 30, 2022; payments depend on eligible expenses and contract conditions.
- Key risks include clinical efficacy, safety and enrollment; possible bacterial resistance; extended dosing and potential hematological effects; reliance on single-source external research, trial and manufacturing providers; and the need for substantial additional funding. The company cautioned that COVID-19, geopolitical disruption, inflation and supply-chain issues could affect development and costs.
- Management disclosed that disclosure controls were not effective at September 30, 2022 because of previously identified material weaknesses in staffing, financial close and complex-transaction controls, and IT general controls. Remediation was underway, and full remediation could extend beyond December 31, 2022. Management stated that the interim financial statements fairly presented the company’s results and position.
- No material legal proceedings were reported. The company had no products approved for sale and expected ongoing losses and negative operating cash flows.
Important facts for investors to verify
- Progress, enrollment timing, trial design and regulatory acceptance of the pivotal Phase 2/3 trial, including whether its data can support U.S. and Japanese applications.
- Epetraborole’s long-duration safety and efficacy, including resistance and red-blood-cell effects, as patient exposure extends beyond prior studies.
- Actual cash use and runway relative to management’s 12-month estimate, and the timing and conditions for NIAID contract funding.
- Remediation of the disclosed material weaknesses and the basis for the cover-page response marking “No” to whether required reports had been filed during the preceding 12 months; the supplied filing text does not explain that response.
- Potential dilution and equity-plan overhang: 2.47 million options were outstanding and 1.96 million shares remained available for future awards at September 30, 2022.