AnaptysBio, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2017; filed May 11, 2017. AnaptysBio is a clinical-stage biotechnology company developing antibody product candidates for inflammation and immuno-oncology. The company has no approved products or product sales and primarily relies on collaboration payments, equity financing and debt.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Collaboration revenue | $0 | $4.9 million | Down $4.9 million |
| Research and development expense | $7.9 million | $4.8 million | Up $3.1 million |
| General and administrative expense | $2.1 million | $1.2 million | Up $0.8 million |
| Loss from operations | $10.0 million | $1.1 million | Higher loss |
| Net loss | $11.4 million | $0.9 million | Higher loss |
| Net loss per share | $0.75 | $0.34 | Higher loss per share |
| Operating cash flow | $(8.1) million | $(2.1) million | Higher use of cash |
- Comprehensive loss was $11.4 million, including a $13,000 unrealized loss on available-for-sale securities.
- Interest expense was $428,000, and the change in fair value of preferred-stock warrant liabilities produced $1.4 million of expense. The warrants converted to common-stock warrants and were reclassified to equity upon the IPO, eliminating future recurring fair-value adjustments.
- Cash, cash equivalents and investments totaled $123.8 million at March 31, 2017, including $96.8 million of cash and cash equivalents, $6.7 million of short-term investments and $20.3 million of long-term investments.
- Total assets were $131.1 million, compared with $62.2 million at December 31, 2016. Stockholders’ equity was $110.1 million, compared with a deficit of $38.2 million at year-end 2016, primarily reflecting the IPO and conversion of preferred stock.
- Debt carrying value was $14.0 million, including $1.3 million classified as current. The loans bear interest at the greater of three-month LIBOR plus 6.37% or 7.3%; the rate was 7.43% at March 31, 2017. Principal payments begin February 2018 and final maturity is January 2020.
- The company was in compliance with its debt covenants. The loans are secured by most company assets, excluding intellectual property.
Material changes versus the prior comparable period
- Collaboration revenue fell to zero because TESARO-related upfront-fee amortization, research funding and milestone revenue recognized in Q1 2016 had ended by December 31, 2016.
- Research and development expense increased due primarily to higher preclinical and clinical costs, outside services and compensation. A $0.6 million Australian research and development tax incentive reduced Q1 2017 research and development expense.
- General and administrative expense increased largely due to higher salaries and stock-based compensation and is expected to rise further as a result of public-company compliance costs.
- The January 31, 2017 IPO generated $80.2 million of net proceeds from the sale of 5.75 million shares at $15 per share. All outstanding convertible preferred stock converted into 11.5 million common shares.
- Financing activities provided $80.7 million, while $27.1 million was used for investing, primarily to purchase investments. Cash, cash equivalents and restricted cash increased $45.5 million during the quarter.
- The company adopted accounting guidance on stock compensation forfeitures and restricted cash, recording a $41,000 cumulative increase to accumulated deficit for the former adoption.
Guidance, outlook, commentary and risks
- Management expects research and development expenses to increase as ANB020, ANB019 and other programs advance through clinical development. General and administrative costs are also expected to increase as a public company.
- Management stated that existing cash, investments and projected collaboration revenue are expected to fund the operating plan through 2018, although actual cash usage may be higher than projected and additional financing may be required.
- ANB020 Phase 2a trials in severe adult peanut allergy and moderate-to-severe adult atopic dermatitis were enrolling, with top-line data anticipated in the second half of 2017. A Phase 2a asthma study was expected to enroll in the second half of 2017, with data anticipated in the first half of 2018.
- ANB019 was in a Phase 1 trial in Australia, with top-line data anticipated in the second half of 2017. The company planned to seek Phase 2 studies in generalized pustular psoriasis and palmoplantar pustular psoriasis during 2018.
- In April 2017, TESARO initiated a registration program for TSR-042, generating a $3.0 million milestone expected to be recognized and received in Q2 2017. TESARO also submitted an IND for TSR-033; the company expected a $4.0 million milestone upon IND clearance.
- The company has an accumulated deficit of $66.4 million and expects continued operating losses for at least the next several years. It has no product revenue and depends substantially on successful clinical development, regulatory approval and collaboration milestones.
- Key risks include clinical-trial failure or delay, patient enrollment and safety issues, regulatory uncertainty, manufacturing and third-party dependence, intellectual-property challenges, competition, reliance on TESARO and Celgene, potential future dilution, and the need for additional capital.
- No material legal proceedings were pending, and management concluded that disclosure controls and procedures were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether the $123.8 million cash and investment balance and management’s “funding through 2018” estimate remain adequate as clinical spending increases.
- Timing, enrollment, safety results and top-line data for the ANB020 and ANB019 clinical programs.
- Receipt and revenue recognition of the $3.0 million TESARO milestone and any future $4.0 million TSR-033 milestone.
- The pace of collaboration milestones and the extent of the company’s dependence on partner development decisions.
- Debt repayment requirements beginning in 2018, interest-rate exposure and compliance with loan covenants.
- Potential dilution from 2.7 million outstanding stock options, common-stock warrants and future equity financing.
- The July 25, 2017 expiration of lock-up restrictions covering approximately 14.5 million shares, which could increase potential selling pressure.