AN2 Therapeutics, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Clinical-stage biopharmaceutical company developing treatments for serious infectious diseases. This unaudited filing covers the three months ended March 31, 2023; comparisons are with Q1 2022. The lead candidate, epetraborole, is being studied in the pivotal Phase 2/3 EBO-301 trial for treatment-refractory MAC lung disease. The company has no approved products and has generated no product revenue.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $12.0 million | $5.6 million; up 113% |
| General and administrative expense | $4.1 million | $2.1 million; up 98% |
| Total operating expenses | $16.0 million | $7.7 million; up 109% |
| Other income, net | $0.7 million | $0.03 million |
| Net loss | $15.3 million | $7.7 million |
| Net loss per share, basic and diluted | $0.79 | $2.98 |
| Cash used in operating activities | $11.6 million | $6.7 million |
| Cash, cash equivalents and short-term investments | $88.5 million at March 31, 2023 | $96.1 million at December 31, 2022 |
At March 31, 2023, total assets were $91.1 million, total liabilities $8.6 million, and stockholders’ equity $82.5 million. The company reported no debt. Cash and cash equivalents were $26.7 million; short-term investments were $61.8 million. Gross margin is not applicable to the company’s current pre-revenue operations. Accumulated deficit was $105.0 million.
Changes versus the prior comparable period
- Net loss approximately doubled year over year, chiefly as operating expenses rose with increased research and development activity and public-company costs.
- R&D expense increased $6.4 million, driven mainly by personnel-related costs (+$2.5 million), chemistry, manufacturing and controls (+$2.5 million), and preclinical/research studies (+$0.9 million). Clinical-trial costs were down $0.3 million.
- G&A expense increased $2.0 million, reflecting higher personnel, insurance, professional-services and consulting costs.
- Operating cash outflow increased $4.9 million year over year. Investing cash flow was a net inflow of $10.9 million, primarily from investment maturities; financing cash flow was $0.2 million from the employee stock purchase plan. Cash and cash equivalents declined $0.5 million during the quarter.
- The Q1 2022 comparison includes the period around the IPO, which generated substantial financing proceeds; Q1 2023 had no IPO proceeds.
Outlook, risks and unusual items
- Management stated that March 31 cash, cash equivalents and investments were expected to fund the current operating plan for at least 12 months from the financial statements’ issuance. The MD&A also projected runway through mid-2024, after the anticipated Phase 2 EBO-301 data readout. These estimates depend on trial progress, spending and financing needs.
- EBO-301 had nearly 80 active sites, including approximately 30 in Asia-Pacific. U.S. enrollment was slower than projected, which management attributed in part to post-pandemic healthcare-system impacts. The company anticipated Phase 2 enrollment around mid-2023, subject to continued progress, and planned additional sites and a protocol amendment to broaden capture of the intended population and support home visits.
- Management reported initiating manufacture of epetraborole API for registration batches, with drug-product registration-batch manufacturing expected later in 2023. It planned to initiate two Phase 1 studies—thorough QT and hepatic impairment—during 2023.
- On April 6, 2023, the company entered an at-the-market sales agreement permitting up to $100 million of common-stock sales. No shares had been sold under the agreement as of the filing. Any sales could dilute existing shareholders.
- A NIAID cost-reimbursement award may provide up to $17.8 million over 48 months; $4.3 million was committed for the 18-month base period. No contract income was recognized in Q1 2023.
- Material risks include clinical-trial enrollment and outcome uncertainty, potential resistance or safety issues with long-term epetraborole use, dependence on third-party manufacturers and research providers, additional capital needs, and competition. Management cited lingering site staffing shortages, macroeconomic uncertainty and supply-chain risks.
- Silicon Valley Bank was closed in March 2023. The company said it held no material cash and cash equivalents with SVB at quarter-end and did not expect a material financial impact.
- Disclosure controls were not effective at the reasonable-assurance level because previously identified material weaknesses in financial reporting and IT controls remained. Remediation included hiring accounting staff, formalizing controls and upgrading the accounting system; full remediation could extend beyond December 31, 2023. Management said the weaknesses did not cause adjustments to the periods presented.
- No material legal proceedings were pending or threatened as of March 31, 2023.
Important facts for investors to verify
- Subsequent EBO-301 enrollment progress, Phase 2 completion timing, data-readout timing and any changes to the trial design or endpoints.
- Actual cash burn and remaining runway relative to the stated mid-2024 expectation, including the impact of clinical and registration-manufacturing costs.
- Whether and at what prices shares are sold under the $100 million ATM program, and resulting dilution.
- Progress on registration-batch manufacturing and the planned EBO-104 and EBO-105 studies.
- Remediation and independent validation of the material weaknesses in financial reporting and IT controls.
- Conditions and reimbursement milestones under the NIAID award, and the availability of additional funding if operating needs exceed current resources.