AN2 Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. AN2 is a clinical-stage biopharmaceutical company developing treatments for serious infectious diseases. It has no approved products and has not generated product revenue.
Financial performance and position
Amounts below are in millions of dollars, except per-share data. Expenses and losses are shown as reported.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Research and development expense | $14.4 | $8.4 | $40.0 | $20.8 |
| General and administrative expense | $3.8 | $3.3 | $10.9 | $9.0 |
| Total operating expenses | $18.2 | $11.8 | $50.8 | $29.8 |
| Other income, net | $1.5 | $0.4 | $3.0 | $0.7 |
| Net loss | $(16.7) | $(11.3) | $(47.8) | $(29.1) |
| Net loss per share, basic and diluted | $(0.65) | $(0.59) | $(2.22) | $(2.21) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(36.2) | $(25.8) |
- Liquidity: At September 30, 2023, cash and cash equivalents were $32.6 million, short-term investments $91.2 million, and long-term investments $26.4 million—about $150.2 million combined. Management said this would fund its planned operations through summer 2025.
- Balance sheet: Total assets were $153.8 million, total liabilities $14.8 million, and stockholders’ equity $139.0 million. No borrowings or debt are reported on the balance sheet.
- Cash flows and financing: For the first nine months, investing activities used $43.7 million, primarily reflecting investment purchases net of maturities. Financing provided $85.3 million, including $65.5 million net proceeds from an August underwritten offering and $19.1 million from the ATM program. Cash increased by $5.4 million over the period.
- Margins: Not meaningful for this pre-revenue company; the filing reports no product revenue.
Changes versus the prior comparable period
- Q3 operating expenses rose 54% to $18.2 million; net loss widened 47% to $16.7 million. For the nine-month period, operating expenses increased 71% to $50.8 million and net loss widened 64% to $47.8 million.
- R&D growth reflected higher Phase 2/3 trial activity, headcount, pre-registration manufacturing and related services. Nine-month R&D expense increased $19.2 million; clinical trial costs rose $7.0 million and CMC costs rose $4.4 million. Prior-year periods included a $1.0 million Anacor milestone expense that did not recur.
- Higher interest and investment income contributed to increased other income, net. Weighted-average shares rose, reflecting equity issuance; the company had 29,741,445 common shares outstanding at September 30, versus 19,402,658 at year-end 2022.
Outlook, commentary and risks
- Clinical program: AN2 completed enrollment in the Phase 2 portion of its pivotal EBO-301 Phase 2/3 trial for treatment-refractory MAC lung disease in September 2023 and began Phase 3 enrollment. Top-line Phase 2 data were expected in summer 2024. The company was targeting approximately 120 trial sites.
- Development plans: Registration-batch active pharmaceutical ingredient manufacturing was complete; drug-product registration batches were planned for the first half of 2024. The company had completed enrollment in the EBO-104 thorough QT study and anticipated starting a hepatic-impairment study in 2025.
- Funding: Management expects substantial ongoing losses and negative operating cash flow, and says additional capital will be needed. Future equity financing could dilute shareholders; financing may not be available on acceptable terms. The filing also describes non-dilutive funding, including NIAID, UGARF and Gates Foundation arrangements; qualifying grant proceeds reduce R&D expense rather than constitute product revenue.
- Key risks: Approval depends heavily on epetraborole and a single pivotal trial; regulators may require additional studies. Enrollment/site staffing, clinical outcomes, long-duration safety, and bacterial resistance are risks. The filing discusses prior observed red-blood-cell parameter changes and gastrointestinal events, and reliance on single-source research, clinical and manufacturing providers.
- Contingencies and unusual items: No material legal proceedings were reported. The company has potential Anacor development and commercial milestone and royalty obligations, and global-health commitments to Adjuvant that could require repayment if specified conditions are not met. No material related-party transactions were reported for the nine months of 2023. The filing says applicable Adjuvant covenants were met as of September 30.
- Internal controls: Management concluded disclosure controls were not effective because previously identified material weaknesses remained unremediated. Remediation efforts include additional accounting personnel, formalized controls and an accounting-system upgrade; effectiveness still requires validation and testing.
Important facts for investors to verify
- Progress, enrollment, protocol changes and expected timing of Phase 3 and the summer 2024 Phase 2 readout; whether the pivotal trial will support U.S. and Japan approval.
- Actual cash use and updated runway against the summer 2025 estimate, including additional financing needs and potential dilution.
- Clinical safety and efficacy findings, especially with longer exposure, and any regulatory feedback or need for additional trials.
- Manufacturing readiness, supply concentration and timing of drug-product registration batches.
- Remediation and independent testing of the disclosed material weaknesses in financial reporting controls.