AN2 THERAPEUTICS, INC. The following discussion and analysis of our financial condition as of
This discussion and analysis and other parts of this Form 10-Q contain
forward-looking statements based upon current beliefs, plans and expectations
related to future events and our future financial performance that involve
risks, uncertainties and assumptions, such as statements regarding our
intentions, plans, objectives and expectations for our business. Our actual
results and the timing of selected events could differ materially from those
described in or implied by these forward-looking statements as a result of
several factors, including those set forth under "Risk Factors" in Part II, Item
1A of this Form 10-
Overview
We are a clinical-stage biopharmaceutical company developing treatments for
rare, chronic, and serious infectious diseases with high unmet needs. Our
initial product candidate is epetraborole, a once-daily, oral treatment for
patients with non-tuberculous mycobacterial ("NTM") lung disease, a rare,
chronic and progressive infectious disease caused by bacteria known as
mycobacteria that leads to irreversible lung damage and can be fatal.
Epetraborole has broad spectrum antimycobacterial activity through inhibition of
an essential and universal step in bacterial protein synthesis. Its novel
mechanism of action is enabled by boron chemistry, our core technology approach.
We have recently initiated patient enrollment in a pivotal Phase 2/3 clinical
trial in treatment-refractory mycobacterium avium complex ("MAC") lung disease,
which is the most common type of NTM lung disease. Data from our completed Phase
1b dose-ranging study of epetraborole administered orally for 28 days in healthy
volunteers in
25
--------------------------------------------------------------------------------
Since launching operations in
We do not have any products approved for sale and have not generated any revenue
since inception. Our net losses were
As of
Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate revenue from our product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, non-dilutive financing, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates.
We plan to continue to use third-party service providers, including outside research laboratories, clinical research organizations ("CROs"), and contract manufacturing organizations ("CMOs"), to carry out our preclinical, nonclinical, and clinical development, and to manufacture and supply the materials to be used during the development and commercialization of our product candidates. We do not currently have a sales force. If epetraborole is approved for the treatment of NTM lung disease, we intend to hire and deploy a specialty sales force, which will increase our operating costs.
Components of Our Operating Results
Operating Expenses
Research and Development Expenses
Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our initial product candidate. These expenses include fees incurred under arrangements with third parties, including CROs, CMOs, preclinical and nonclinical testing organizations, and academic and non-profit institutions. Research and development expenses also include consulting fees, license fees, payroll, and personnel-related expenses, including salaries and bonuses, payroll taxes, employee benefit costs, and non-cash stock-based compensation for our research and development employees. We expense both internal and external research and development expenses as they are incurred.
Costs are not tracked on a project-by-project basis, because substantially all of our research and development resources to date are focused primarily on our lead drug product candidate, epetraborole. Our research and development costs include internal costs, such as payroll and other personnel expenses, and external costs, such as license payments and fees paid to third parties to conduct research and development activities on our behalf.
26
--------------------------------------------------------------------------------
We expect our research and development expenses to increase substantially in the future, as we advance epetraborole and any future products into and through additional clinical trials and pursue regulatory approval. The process of conducting the necessary clinical studies to obtain regulatory approval is costly and time-consuming. Clinical studies generally become larger and more costly to conduct as they advance into later stages and we are required to make estimates for expense accruals related to clinical study expenses, which involve a degree of estimation. The successful development of our product candidates is highly uncertain. The actual probability of success for our product candidates may be affected by a variety of risks and uncertainties associated with drug development, including those set forth in the section of this Form 10-Q titled "Risk Factors." At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of our current or any future product candidates. As a result of these uncertainties, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.
General and Administrative Expenses
Our general and administrative expenses consist primarily of payroll and
personnel-related expenses, including salaries and bonuses, payroll taxes,
employee benefit costs, and non-cash stock-based compensation. Other general and
administrative expenses include legal costs of pursuing patent protection of our
intellectual property, and professional service fees for auditing, tax, general
legal services, and other external consulting and vendor services. We expect our
general and administrative expenses to continue to increase in the future as we
increase our headcount, expand our operating activities, prepare for potential
commercialization of our current and future product candidates, and support our
operations as a public company, including increased expenses related to legal,
accounting, regulatory, and tax-related services associated with maintaining
compliance with requirements of
Interest Income
Interest income consists of interest income and investment income earned on our cash, cash equivalents and investments.
Other Expense
Other expense consists of expense associated with foreign currency fluctuations.
Results of Operations
Comparison of the Three Months Ended
The following table sets forth the significant components of our results of
operations:
Three Months Ended
September 30,
2022 2021 Change % Change
(in thousands, except percentages)
Operating Expenses:
Research and development $ 7,428 $ 5,345 $ 2,083 39 %
Research and development-related party 1,000 - 1,000 *
General and administrative 3,342 1,587 1,755 111 %
Total operating expenses 11,770 6,932 4,838 70 %
Loss from operations (11,770 ) (6,932 ) (4,838 ) 70 %
Interest income 466 25 441 *
Other income (expense) (35 ) (36 ) 1 -3 %
Net loss $ (11,339 ) $ (6,943 ) $ (4,396 ) 63 %
*Change not meaningful
27
--------------------------------------------------------------------------------
Research and Development Expenses
Research and development expenses, including related-party research and
development expenses, were
The following table shows our research and development expenses by type of
activity:
Three Months Ended
September 30,
2022 2021 Change
(in thousands)
Clinical, nonclinical and preclinical expenses
823 233 590
Research and development-related party 1,000 - 1,000
Total research and development expenses $ 8,428 $ 5,345 $ 3,083 General and Administrative Expenses
General and administrative expenses were
Comparison of the Nine Months Ended
The following table sets forth the significant components of our results of
operations:
Nine Months Ended
September 30,
2022 2021 Change % Change
(in thousands, except percentages)
Operating Expenses:
Research and development $ 19,759 $ 10,844 $ 8,915 82 %
Research and development-related party 1,000 250 750 *
General and administrative 9,027 2,886 6,141 213 %
Total operating expenses 29,786 13,980 15,806 113 %
Loss from operations (29,786 ) (13,980 ) (15,806 ) 113 %
Interest income 721 42 679 *
Other income (expense) (49 ) (60 ) 11 -18 %
Net loss $ (29,114 ) $ (13,998 ) $ (15,116 ) 108 %
*Change not meaningful
28
--------------------------------------------------------------------------------
Research and Development Expenses
Research and development expenses, including related-party research and
development expenses, were
The following table shows our research and development expenses by type of
activity:
Nine Months Ended
September 30,
2022 2021 Change
(in thousands)
Clinical, nonclinical and preclinical expenses
2,026 333 1,693
Research and development-related party 1,000 250 750
Total research and development expenses $ 20,759 $ 11,094 $ 9,665 General and Administrative Expenses
General and administrative expenses were
Liquidity and Capital Resources
Sources of Liquidity
From our inception through
•
In
•
In January and
•
In
•
In
•
In
29
--------------------------------------------------------------------------------
•
In
Future Funding Requirements
We have incurred net losses since our inception. For the nine months ended
We do not have any products approved for sale, and we have never generated any revenue from contracts with customers. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval for and commercialize any of our current and future product candidates and we do not know when, or if, those events will occur. Historically, we have incurred operating losses and negative cash flows as a result of ongoing efforts to develop our lead drug product candidate, epetraborole, including conducting ongoing preclinical and nonclinical studies, clinical trials, clinical trial materials manufacturing, and providing general and administrative support for these operations. We expect our negative cash flows to increase significantly over the next several years as we advance epetraborole and any future product candidates through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization, and continue our research and development efforts. We are subject to all the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in connection with our continuing operations, as we do not expect positive cash flows from operations in the foreseeable future.
Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, if ever, we expect to finance our future cash needs through public or private equity offerings or debt financings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our current or future product candidates. If we raise additional funds by issuing equity or convertible debt securities, it could result in dilution to our existing stockholders and increased fixed payment obligations. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us. Any of the foregoing could significantly harm our business, financial condition and prospects.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements depend on many factors, including:
•
the scope, timing, rate of progress, results, and costs of our preclinical and nonclinical development activities and clinical trials for our current and future product candidates;
•
the timing of, and the costs involved in, obtaining regulatory approvals for our drug product candidates;
•
the scope and costs of development and commercial manufacturing activities;
•
the number and characteristics of any additional product candidates we develop or acquire;
30
--------------------------------------------------------------------------------
•
the cost of manufacturing our product candidates that we successfully commercialize;
•
the cost of building a specialty sales force in anticipation of product commercialization;
•
the cost of commercialization activities, including building a commercial infrastructure, marketing, sales, and distribution costs;
•
our ability to maintain existing, and establish new strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;
•
any product liability or other lawsuits related to our products;
•
the expenses needed to attract, hire, and retain skilled personnel;
•
our implementation of operational, financial, and management systems;
•
the ongoing costs associated with being a public company;
•
the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; and
•
the timing, receipt, and amount of sales of any future approved products, if any.
A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitation on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.
Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials or we may also be required to terminate rights to our current and future product candidates. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.
See the section of this Form 10-Q titled "Risk Factors" for additional risks associated with our substantial capital requirements.
© Edgar Online, source
