AN2 Therapeutics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. AN2 is a clinical-stage biopharmaceutical company developing treatments for serious infectious diseases. Its lead candidate, epetraborole, is being developed for treatment-refractory Mycobacterium avium complex (MAC) lung disease. The company began trading on Nasdaq in March 2022.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $5.633 million | $1.649 million |
| General and administrative expense | $2.050 million | $0.401 million |
| Total operating expenses | $7.683 million | $2.050 million |
| Net loss | $7.655 million | $2.048 million |
| Net loss attributable to common stockholders | $9.475 million | $2.809 million |
| Basic and diluted loss per share | $2.98 | $1.07 |
| Cash used in operating activities | $6.742 million | $1.543 million |
Loss per share reflects preferred-stock accretion and cumulative dividends of $1.820 million in Q1 2022 and $0.761 million in Q1 2021. As the company had no revenue, profit and operating margins are not meaningful.
At March 31, 2022, cash and cash equivalents were $82.519 million and short-term investments were $35.835 million; total cash, cash equivalents, and investments were $118.4 million. Total assets were $120.503 million, total liabilities $5.093 million, and accumulated deficit $56.422 million. The filing reports no borrowings or other debt. Cash, cash equivalents, and investments substantially exceeded current liabilities of $5.087 million.
Investing activities provided $13.977 million, primarily from investment maturities. Financing activities provided $63.187 million, principally associated with the IPO. In March, AN2 sold 4.6 million IPO shares at $15 per share, with approximately $60.9 million net proceeds, and converted all preferred stock into common stock. After quarter-end, underwriters exercised the option for 690,000 additional shares; the filing reports approximately $9.6 million additional net proceeds and total IPO net proceeds of approximately $70.5 million.
Changes versus the prior comparable period
- Net loss increased to $7.655 million from $2.048 million; operating expenses rose 275% to $7.683 million.
- R&D expense increased by $3.984 million, primarily from higher clinical-trial and service costs, manufacturing activity, and personnel. G&A expense increased by $1.649 million, including higher personnel, legal, accounting, tax, and professional-service costs.
- Operating cash use increased to $6.742 million from $1.543 million, reflecting the expanded development program.
- The IPO substantially changed the capital structure: preferred stock converted to common stock, and stockholders’ equity was $115.410 million at quarter-end versus a $47.411 million deficit at December 31, 2021.
Outlook, risks, and unusual items
- Management planned to begin enrollment in the Phase 2/3 pivotal MAC trial in the first half of 2022, with Phase 2 topline results anticipated in mid-2023 and Phase 3 results in mid-2024. Timing and Phase 3 sample size could change based on Phase 2 findings and FDA feedback. The trial design was under FDA review; approval based on a single pivotal trial is not assured.
- Epetraborole had FDA Fast Track, Qualified Infectious Disease Product, and orphan drug designations for the stated indications. These designations do not assure approval. The company also intended to seek approval through the limited-population antibacterial drug pathway, whose applicability is not determined until NDA submission.
- The filing contains inconsistent runway statements: the financial-statement notes and MD&A say available funds are expected to cover the current operating plan for at least 12 months after the filing, while the risk factors state the IPO proceeds and existing cash are expected to fund operations for at least 24 months. Management also expects substantial additional funding needs and continuing losses; financing may not be available on acceptable terms.
- Clinical risks include uncertain efficacy and safety in MAC patients, a planned treatment duration of 16 months or longer despite prior human exposure of up to 28 days, and potential red-blood-cell effects observed in nonclinical studies and the Phase 1b study. Prior clinical resistance to epetraborole was observed in a different indication.
- AN2 relies on single-source third parties for research, clinical work, and manufacturing. COVID-19 had slowed some trial activity; management also cited potential shipping and European-site disruption from the Russia-Ukraine conflict, though no affected trials were then being conducted in those countries.
- Management concluded disclosure controls were not effective at March 31 because of previously identified material weaknesses in staffing, financial reporting processes, complex-transaction accounting, and IT controls. Remediation was underway; full remediation could extend beyond December 31, 2022. Management nevertheless stated the financial statements fairly present the reported results.
- No material legal proceedings were pending or threatened. Potential future obligations include Anacor development milestones up to $2.0 million, commercial and sales milestones up to $125.0 million, and royalties; these contingent payments were not recorded as liabilities for the quarter. Global-health commitments to Adjuvant include development and access obligations; the company reported compliance at quarter-end.
Important facts for investors to verify
- Reconcile the stated 12-month versus 24-month cash runway expectations and review the assumptions behind each estimate.
- Track Phase 2/3 trial initiation, enrollment, FDA feedback, endpoints, sample-size changes, and the timing and interpretation of results.
- Assess whether the $118.4 million quarter-end liquidity, plus the post-quarter IPO proceeds, remains adequate as R&D spending rises.
- Monitor remediation of the material weaknesses and subsequent effectiveness of financial-reporting and IT controls.
- Review ongoing safety, tolerability, resistance, manufacturing-supply, and patient-enrollment developments, as well as the terms and potential impact of license and global-health commitments.