10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-41331

 

AN2 Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-0606654

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)


1800 El Camino Real, Suite D

Menlo Park, California

94027

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 331-9090

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

ANTX

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 6, 2024, the registrant had 29,829,040 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

Special Note Regarding Forward Looking Statements

1

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Balance Sheets

3

 

Condensed Statements of Operations and Comprehensive Loss

4

 

Condensed Statements of Stockholders’ Equity

5

 

Condensed Statements of Cash Flows

6

 

Notes to Unaudited Condensed Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

34

 

 

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

91

Item 3.

Defaults Upon Senior Securities

91

Item 4.

Mine Safety Disclosures

91

Item 5.

Other Information

92

Item 6.

Exhibits

93

Signatures

95

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, product candidates, planned preclinical and nonclinical studies and clinical trials, results of preclinical and nonclinical studies, clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:

the initiation, timing, progress, and results of our preclinical and nonclinical studies and clinical trials, and our research and development programs, including the manufacture of clinical trial material and drug product for launch;
the sufficiency of our existing cash to fund our future operating expenses and capital expenditure requirements;
the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;
our use of the net proceeds from financing activities;
the ability of our Phase 2/3 clinical trial in treatment-refractory Mycobacterium avium complex (“MAC”) lung disease or future trials to be sufficient for regulatory approval in the United States and Japan and potentially other territories;
our ability to reopen enrollment and complete our ongoing study in treatment-refractory MAC lung disease;
our ability to commence studies of epetraborole in new patient populations, which regulatory authorities may not allow or authorize or may delay allowing or authorizing;
the translation of our preclinical results and data and early clinical trial results, in particular relating to safety, efficacy and durability, into future clinical trial results;
our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;
our ability to advance our initial product candidate and any other product candidates we may develop into, and successfully complete, clinical trials;
the timing of and our ability to obtain and maintain regulatory approvals for our initial product candidate and any other product candidates we may develop;
the commercialization of our initial product candidate and any other product candidates we may develop, if approved;
the ability of epetraborole, if approved, to successfully compete with other therapies, including therapies currently in development;
the size of the market opportunity for epetraborole or any other product candidates we may develop in each of the diseases we target;
the pricing, coverage, and reimbursement of epetraborole, if approved;
the implementation of our business model, strategic plans for our business, and our initial product candidate and any other product candidates we may develop;

 

 

1

 

 


 

the scope of protection we are able to establish and maintain for intellectual property rights covering epetraborole;
the potential post-approval marketing exclusivities that may be granted to epetraborole based upon certain regulatory designations, and other non-patent exclusivities in the United States and Japan;
our ability to identify additional product candidates and advance them into clinical development;
our financial performance;
developments relating to our competitors and our industry;
our expectations regarding the impact of inflation, macroeconomic conditions, and geopolitical conflicts on our business and operations, including on our manufacturing suppliers, collaborators, contract research organizations (“CROs”) and employees; and
our expectations regarding the period during which we will qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations, and prospects and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

 

2

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AN2 THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,693

 

 

$

15,647

 

Short-term investments

 

 

89,517

 

 

 

91,648

 

Prepaid expenses and other current assets

 

 

2,103

 

 

 

3,212

 

Total current assets

 

 

116,313

 

 

 

110,507

 

Long-term investments

 

 

3,904

 

 

 

27,194

 

Other assets, long-term

 

 

1,043

 

 

 

1,043

 

Total assets

 

$

121,260

 

 

$

138,744

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,433

 

 

$

2,676

 

Accrued compensation

 

 

995

 

 

 

4,018

 

Accrued liabilities

 

 

6,914

 

 

 

6,681

 

Other current liabilities

 

 

321

 

 

 

668

 

Total liabilities

 

 

10,663

 

 

 

14,043

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.00001 par value; 500,000,000 shares authorized at March 31, 2024 and December 31, 2023; 29,815,663 and 29,741,445 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

281,616

 

 

 

278,881

 

Accumulated other comprehensive gain

 

 

53

 

 

 

275

 

Accumulated deficit

 

 

(171,072

)

 

 

(154,455

)

Total stockholders’ equity

 

 

110,597

 

 

 

124,701

 

Total liabilities and stockholders’ equity

 

$

121,260

 

 

$

138,744

 

 

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

 

 

3

 

 


 

AN2 THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

14,655

 

 

$

11,985

 

General and administrative

 

 

3,641

 

 

 

4,054

 

Total operating expenses

 

 

18,296

 

 

 

16,039

 

Loss from operations

 

 

(18,296

)

 

 

(16,039

)

Other income, net

 

 

1,679

 

 

 

716

 

Net loss attributable to common stockholders

 

$

(16,617

)

 

$

(15,323

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.56

)

 

$

(0.79

)

Weighted-average number of shares used in computing net loss per share, basic and diluted

 

 

29,763,278

 

 

 

19,385,646

 

Other comprehensive loss:

 

 

 

 

 

 

Unrealized (loss) gain on investments

 

 

(222

)

 

 

199

 

Comprehensive loss

 

$

(16,839

)

 

$

(15,124

)

 

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

 

 

4

 

 


 

AN2 THERAPEUTICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2023

 

 

29,741,445

 

 

$

 

 

$

278,881

 

 

$

275

 

 

$

(154,455

)

 

$

124,701

 

Issuance of common stock under the ESPP

 

 

45,288

 

 

 

 

 

 

124

 

 

 

 

 

 

 

 

 

124

 

Issuance of common stock upon exercise of stock options

 

 

28,930

 

 

 

 

 

 

225

 

 

 

 

 

 

 

 

 

225

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,385

 

 

 

 

 

 

 

 

 

2,385

 

Unrealized loss on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

(222

)

 

 

 

 

 

(222

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,617

)

 

 

(16,617

)

Balances at March 31, 2024

 

 

29,815,663

 

 

$

 

 

$

281,616

 

 

$

53

 

 

$

(171,072

)

 

$

110,597

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

19,402,658

 

 

$

 

 

$

185,469

 

 

$

(374

)

 

$

(89,723

)

 

$

95,372

 

Issuance of common stock under the ESPP

 

 

23,794

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

199

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,068

 

 

 

 

 

 

 

 

 

2,068

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

199

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,323

)

 

 

(15,323

)

Balances at March 31, 2023

 

 

19,426,452

 

 

$

 

 

$

187,738

 

 

$

(175

)

 

$

(105,046

)

 

$

82,517

 

 

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

 

 

5

 

 


 

AN2 THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Cash flows used in operating activities

 

 

 

 

 

 

Net loss

 

$

(16,617

)

 

$

(15,323

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,385

 

 

 

2,068

 

Non-cash operating lease expense

 

 

 

 

 

19

 

Net accretion of discount on investments

 

 

(1,091

)

 

 

(435

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

1,109

 

 

 

742

 

Accounts payable

 

 

(243

)

 

 

1,423

 

Accrued compensation

 

 

(3,023

)

 

 

(1,427

)

Accrued liabilities

 

 

233

 

 

 

1,356

 

Operating lease liabilities

 

 

 

 

 

(19

)

Other current liabilities

 

 

(346

)

 

 

 

Net cash used in operating activities

 

 

(17,593

)

 

 

(11,596

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments

 

 

 

 

 

(14,013

)

Maturities of investments

 

 

26,290

 

 

 

24,900

 

Net cash provided by investing activities

 

 

26,290

 

 

 

10,887

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock under the ESPP

 

 

124

 

 

 

199

 

Proceeds from exercise of stock options

 

 

225

 

 

 

 

Net cash provided by financing activities

 

 

349

 

 

 

199

 

Net increase (decrease) in cash and cash equivalents

 

 

9,046

 

 

 

(510

)

Cash and cash equivalents at the beginning of the period

 

 

15,647

 

 

 

27,219

 

Cash and cash equivalents at the end of the period

 

$

24,693

 

 

$

26,709

 

Supplemental disclosure of noncash financing items

 

 

 

 

 

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

 

 

$

48

 

 

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

 

 

6

 

 


 

AN2 Therapeutics, Inc.

Notes to Unaudited Condensed Financial Statements

Note 1. Organization and Description of the Business

Description of Business

AN2 Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on developing treatments for rare, chronic, and serious infectious diseases with high unmet needs. The Company’s initial product candidate, epetraborole, is under development as a once-daily, oral treatment for patients with non-tuberculous mycobacterial (NTM) lung disease. The Company was incorporated in the state of Delaware in February 2017, began operations in November 2019, began trading on the Nasdaq Global Select Market on March 25, 2022 under the symbol “ANTX”, and is based in Menlo Park, California.

Since launching operations in November 2019, the Company has devoted substantially all of its resources to performing research and development activities, including with respect to its initial product candidate, epetraborole, and other product candidates, business planning, hiring personnel, raising capital, and providing general and administrative support for these operations.

Initial Public Offering

On March 24, 2022, the Company’s registration statement on Form S-1 (File No. 333-263295) relating to its initial public offering (“IPO”) of common stock became effective. The IPO closed on March 29, 2022, at which time the Company issued an aggregate of 4,600,000 shares of its common stock at a price to the public of $15.00 per share. In addition, immediately prior to the closing of the IPO, all outstanding shares of the Company’s then existing redeemable convertible preferred stock automatically converted into 11,409,488 shares of common stock. The aggregate offering proceeds for shares sold in the IPO was $69.0 million. After deducting underwriting discounts and commissions of $4.8 million and offering costs paid or payable by the Company of $3.3 million, the net proceeds from the offering were approximately $60.9 million.

On April 8, 2022, the underwriters from the IPO exercised an option to purchase 690,000 additional shares of the Company's common stock at a public offering price of $15.00 per share, resulting in additional gross proceeds to the Company of $10.4 million, and additional net proceeds of approximately $9.5 million. After giving effect to this exercise of the overallotment option, the total number of shares sold by the Company in the IPO increased to 5,290,000 shares with total net proceeds to the Company of approximately $70.4 million.

At-The-Market Offering

On April 6, 2023, the Company entered into a sales agreement ("Sales Agreement") with Cowen and Company, LLC as the Company’s sales agent (“Agent”) to issue and sell up to an aggregate gross sales of $100.0 million in shares (“Shares”) of the Company’s common stock through an “at-the-market” equity offering program (“ATM Offering”). The Company will pay commissions to the Agent of up to 3.0% of the gross proceeds of the sale of the Shares sold under the Sales Agreement and reimburse the Agent for certain expenses. During the year ended December 31, 2023, the Company issued and sold 2,502,000 shares of common stock under the ATM Offering, resulting in net proceeds of $19.1 million, after deducting commissions and other offering costs. The Company did not sell any shares of common stock through the ATM offering during the three months ended March 31, 2024.

Underwritten Offering

On August 15, 2023, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Cowen and Company, LLC, Leerink Partners LLC and Evercore Group L.L.C., as representatives of several underwriters, to issue and sell 7,777,778 shares of common stock at an offering price of $9.00 per share, resulting in net proceeds of $65.5 million, after deducting commissions and other offering costs (the "Underwritten Offering").

 

 

7

 

 


 

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Certain reclassifications have been made to prior period amounts to conform to current period presentation. These reclassifications did not have an impact on the Company’s results of operations for the three months ended March 31, 2024 and 2023 or its financial position as of March 31, 2024 or December 31, 2023.

Unaudited Interim Condensed Financial Information

The accompanying condensed balance sheet as of March 31, 2024, the condensed statements of operations and comprehensive loss and the condensed statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed statements of cash flows for the three months ended March 31, 2024 and 2023 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of its operations and its cash flows for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are also unaudited. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period. The balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim condensed financial statements. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”), dated March 29, 2024.

Risks and Uncertainties

Liquidity

Prior to the IPO, the Company’s operations had historically been financed through the issuance of redeemable convertible preferred stock. Since inception, the Company has incurred significant losses and negative net cash flows from operations. During the three months ended March 31, 2024 and 2023, the Company incurred a net loss of $16.6 million and $15.3 million, respectively, and had cash flows used in operating activities of $17.6 million and $11.6 million, respectively. The Company has an accumulated deficit of $171.1 million and $154.5 million as of March 31, 2024 and December 31, 2023, respectively, and will require substantial additional capital for research and development activities. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidate currently in development.

As of March 31, 2024, the Company had cash, cash equivalents, and investments of $118.1 million. Management believes that its cash, cash equivalents, and investments as of March 31, 2024 will be sufficient to fund its current operating plan through at least 12 months from the issuance date of these condensed financial statements. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development, including costs for preclinical and nonclinical studies, clinical trials, and clinical trial and material manufacturing. There can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

 

 

8

 

 


 

Segments

The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on a company-wide basis for purposes of allocating resources and assessing financial performance.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to research and development accruals, fair value of assets and liabilities and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Research and Development Expenses

All research and development costs, including work performed by third parties, are expensed as incurred. Research and development costs consist of salaries and other personnel-related expenses, including associated stock-based compensation, consulting fees, and facility costs, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or services are rendered.

As part of the process of preparing its financial statements, the Company estimates its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of services performed and the associated cost incurred for services for which the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses at the end of each reporting period based on the facts and circumstances known to the Company at that time. The significant estimates in the Company’s accrued research and development expenses relate to expenses incurred with respect to contract manufacturing and clinical and other research organizations, academic research centers, and other vendors in connection with research and development activities for which the Company has not yet been invoiced.

Stock-Based Compensation

The Company measures and recognizes compensation expense for equity-classified stock-based awards made to employees, directors and non-employees based on the grant date estimated fair value of each award. Compensation expense for employee and director awards is recognized on a straight-line basis over the requisite service period which is generally the vesting period for the entire award. Expense is adjusted for forfeitures as they occur. Compensation expense for non-employee awards is recognized in the same period and manner as if the Company had paid cash for the goods or services provided.

The valuation model used for calculating the fair value of stock options for stock compensation expense is the Black-Scholes option-pricing model (the Black-Scholes model). The Black-Scholes model requires management to make assumptions and judgments about the variables used in the calculation, including the expected term, the expected volatility of common stock, an assumed risk-free interest rate, and expected dividends the Company may pay. Management uses the simplified calculation (based on the mid-point between the vesting date and the end of the contractual term) of the expected term for its stock options as the Company has concluded that its stock option history does not provide a reasonable basis upon which to estimate expected term. Volatility is based on an average of the historical volatilities of the common stock of entities with characteristics similar to the Company’s. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

 

 

9

 

 


 

For option awards that contain performance conditions, compensation cost is recognized in the period in which it becomes probable that the performance condition will be satisfied. For option awards that vest upon a liquidity event or a change in control, the performance condition is not probable of being achieved until the event occurs. As a result, no compensation expense would be recognized until the performance-based vesting condition is achieved.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, which consist of money market funds, are stated at fair value. As of March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents of $24.7 million and $15.6 million, respectively.

Investments

Investments consist of U.S. Treasury securities, commercial paper, U.S. Government agency securities, asset-backed securities, and corporate debt securities. All of the Company’s investments are classified as available-for-sale and are carried at estimated fair values and reported in cash equivalents, short-term investments or long-term investments. Management determines the appropriate classification of the investments at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. Investments with contractual maturities greater than 12 months are considered long-term investments. The cost of investments sold, if any, is based on the specific identification method.

Unrealized gains and losses on available-for-sale investments are reported in accumulated other comprehensive gain (loss) as a separate component of stockholders’ equity (deficit). For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value and recognized in other income (expense) in the statements of operations and comprehensive loss. If neither criterion is met, the Company evaluates whether the decline in fair value is related to credit-related factors or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Credit-related impairment losses, limited by the amount that the fair value is less than the amortized cost basis, are recorded through an allowance for credit losses in other income, net. Any unrealized losses from declines in fair value below the amortized cost basis as a result of non-credit factors are recognized in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity, along with unrealized gains. Realized gains and losses and declines in fair value, if any, on available-for-sale securities are included in other income, net in the statements of operations and comprehensive loss.

For purposes of identifying and measuring credit-related impairments, the Company’s policy is to exclude applicable accrued interest from both the fair value and amortized cost basis of the related security. The Company has elected to write-off uncollectible accrued interest receivable balances in a timely manner, which is defined by the Company as when interest due becomes 90 days delinquent. The accrued interest write-off will be recorded by reversing interest income. Accrued interest receivable is recorded to prepaid expenses and other current assets.

As of March 31, 2024 and December 31, 2023, the Company had investments of $93.4 million and $118.8 million, respectively.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s cash is invested through financial institutions in the United States. The Company’s investments consist of debt securities, issued by highly rated corporate entities or the U.S. government, and asset-backed securities. The Company’s exposure to any individual corporate entity is limited by its investment policy. Deposits have and will continue to exceed federally insured limits. The Company invests its cash equivalents in highly rated money market funds. The Company has not experienced any credit losses in such accounts.

 

 

10

 

 


 

The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash to the extent recorded on the condensed balance sheets. In March 2023, one of the financial institutions utilized by the Company was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Through March 31, 2024, the Company had no off-balance sheet concentrations of credit risk.

Government Contract

In September 2022, the Company received a cost-reimbursement contract award under which the Company is eligible to receive up to $17.8 million from the U.S. National Institute of Allergy and Infection Diseases (“NIAID”) to support preclinical, Phase 1 studies and other activities to enable advancement of epetraborole into late-stage development for acute systemic melioidosis and other biothreat pathogens. This project will be funded in whole or in part with Federal funds from the NIAID, National Institutes of Health, Department of Health and Human Services, under Contract No. 75N93022C00059. Accounting for this contract does not fall under ASC 606, Revenue from Contracts with Customers, as NIAID will not benefit directly from the advancement of epetraborole. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company applied International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for the NIAID contract payments to the Company. Under IAS 20, government contract proceeds are recognized when there is reasonable assurance the conditions of the contract will be met and the contract funding will be received. For the NIAID contract, this occurs after the qualifying expenses related to the contract have been incurred, or the Company concludes the conditions of the contract have been substantially met. The income related to the reimbursement of operating expenses is then recorded as a reduction of those expenses (see Note 4—Funding Arrangements).

Grant Agreements

In September 2022, the Company entered into a subcontract agreement with the University of Georgia Research Foundation (“UGARF”) to receive up to $1.4 million from UGARF to support preclinical development of a boron-containing small molecule for Chagas disease.

In September 2023, the Company entered into a grant agreement with the Bill and Melinda Gates Foundation (“BMGF”) to fund up to $1.8 million to generate new boron-based lead compounds with the potential to be developed into drugs that treat tuberculosis and malaria.

The Company recognizes grant proceeds in accordance with ASC 958-605, Revenue Recognition Not-for-Profit Entities, when qualifying costs are incurred and the conditions of the grant agreement have been met. When receipt of grant proceeds is reasonably assured, the Company records a reduction to the research and development expenses incurred and a corresponding grant receivable. Cash received from grants in advance of incurring qualifying costs is recorded as a liability and recognized as a reduction to the qualifying research and development expenses incurred (see Note 4—Funding Arrangements).

 

 

11

 

 


 

Comprehensive Loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss. The Company’s other comprehensive loss consists of net changes in unrealized gains and losses on its available-for-sale investments. For the three months ended March 31, 2024 and 2023, the Company had $0.2 million of net unrealized loss and $0.2 million of net unrealized gain, on available-for-sale investments, respectively.

Net Loss Per Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, unvested RSUs, and common stock subject to repurchase related to unvested early exercise of stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities. The Company also considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of early exercised shares subject to repurchase do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods because the impact of potentially dilutive securities would be anti-dilutive.

JOBS Act Accounting Election

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. The Company may take advantage of these provisions for up to five years (which is through March 2027), unless the Company ceases to be an emerging growth company at an earlier date. As a result, these financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise noted, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its condensed financial statements and disclosures. As an “emerging growth” company, it has been the Company’s intention to take advantage of certain temporary exemptions from various reporting requirements, as well as taking advantage of additional transitional relief.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments in ASU 2023-07 are intended to improve reportable segment disclosure, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is evaluating the impact of this standard on its financial statements and related disclosures.

 

 

12

 

 


 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this standard on its financial statements and related disclosures.

Note 3. Fair Value Measurements

The Company adopted ASU 2016-13 beginning January 1, 2023. The Company records certain financial assets and liabilities at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s primary financial instruments include cash, cash equivalents and investments, prepaid expenses, accounts payable, and accrued liabilities. The carrying amounts of the Company’s financial instruments, other than cash equivalents and investments, approximate fair value due to their relatively short maturities.

The following table presents the Company’s financial assets, which consist of cash equivalents and investments classified as available-for-sale investments, that are measured at fair value on a recurring basis (in thousands):

 

 

March 31, 2024

 

 

 

Level

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

13,381

 

 

$

 

 

$

 

 

$

13,381

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

31,128

 

 

 

20

 

 

 

(3

)

 

 

31,145

 

Commercial paper

 

Level 2

 

 

30,505

 

 

 

14

 

 

 

(1

)

 

 

30,518

 

U.S. Government agency securities

 

Level 2

 

 

14,010

 

 

 

18

 

 

 

(2

)

 

 

14,026

 

Asset-backed securities

 

Level 2

 

 

8,879

 

 

 

1

 

 

 

(1

)

 

 

8,879

 

Corporate debt securities

 

Level 2

 

 

4,948

 

 

 

1

 

 

 

 

 

 

4,949

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

3,898

 

 

 

6

 

 

 

 

 

 

3,904

 

Total

 

 

 

$

106,749

 

 

$

60

 

 

$

(7

)

 

$

106,802

 

 

 

 

13

 

 


 

 

 

December 31, 2023

 

 

 

Level

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

4,478

 

 

$

 

 

$

 

 

$

4,478

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

15,649

 

 

 

31

 

 

 

 

 

 

15,680

 

U.S. Treasury securities

 

Level 2

 

 

1,247

 

 

 

 

 

 

(1

)

 

 

1,246

 

Commercial paper

 

Level 2

 

 

41,472

 

 

 

47

 

 

 

(2

)

 

 

41,517

 

U.S. Government agency securities

 

Level 2

 

 

19,479

 

 

 

30

 

 

 

(5

)

 

 

19,504

 

Asset-backed securities

 

Level 2

 

 

8,770

 

 

 

12

 

 

 

(3

)

 

 

8,779

 

Corporate debt securities

 

Level 2

 

 

4,914

 

 

 

8

 

 

 

 

 

 

4,922

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

23,542

 

 

 

131

 

 

 

 

 

 

23,673

 

U.S. Government agency securities

 

Level 2

 

 

3,494

 

 

 

28

 

 

 

(1

)

 

 

3,521

 

Total

 

 

 

$

123,045

 

 

$

287

 

 

$

(12

)

 

$

123,320

 

 

The Company classifies its money market funds and U.S. Treasury securities, which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy.

The Company classifies its investments in commercial paper and U.S. government agency securities as Level 2 within the fair value hierarchy. The fair values of these investments are estimated by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs. There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2024.

As of March 31, 2024, none of the Company’s available-for-sale investments that were in an unrealized loss position had been in an unrealized loss position for more than 12 months. During the three months ended March 31, 2024 and 2023, the Company did not sell any available-for-sale investments.

The Company’s short-term investments had maturities of less than one year from the balance sheet date. The Company’s long-term investments had maturities of between one and two years from the balance sheet date.

The Company does not intend to sell the securities in an unrealized loss position and does not expect they will be required to sell the securities before recovery of the unamortized cost basis. Additionally, the Company evaluated its securities for credit losses and considered the decline in market value to be primarily attributable to current economic and market conditions and not credit related. Accordingly, no allowance for credit losses had been recognized as of March 31, 2024 and December 31, 2023. During the three months ended March 31, 2024 and 2023, the Company did not recognize any impairment losses related to investments.

As of March 31, 2024 and December 31, 2023, the Company had accrued interest receivable of $0.4 million and $0.4 million, respectively, which was included in prepaid expenses and other current assets on the balance sheets.

 

 

14

 

 


 

Note 4. Funding Arrangements

NIAID Contract

In September 2022, the Company received a cost-reimbursed contract award from the NIAID (“NIAID Agreement”) to support preclinical, Phase 1 studies and other activities to enable the advancement of epetraborole into late-stage development for acute systemic melioidosis and other biothreat pathogens. The Company can receive up to $17.8 million in funding over a total term of 48 months, consisting of a base period and seven option periods. In July 2023, the NIAID exercised one of seven available options under the NIAID contract (No: 75N93022C00059), resulting in an increase in committed contract funding of $0.7 million, for a total of $5.0 million. Funding for this option extends the estimated completion of the contract by 13 months beyond the base period of 18 months (April 2025). As of March 31, 2024, a total of $5.0 million of funding for the 18-month base period plus an additional 13 months for a total of 31 months has been committed.

During the three months ended March 31, 2024 and 2023, the Company did not record any income under the NIAID contract as a reduction in research and development operating expenses. As of March 31, 2024 and December 31, 2023, the Company had recorded a receivable of zero and $0.4 million, respectively, which was included in prepaid expenses and other current assets on the balance sheets.

UGARF Grant

In September 2022, the Company entered into a subcontract agreement with the UGARF to conduct preclinical activities on behalf of UGARF (“UGARF Agreement”). UGARF reimburses the Company under an award from The Wellcome Trust. The Company is eligible to receive up to $1.4 million from UGARF to support preclinical development of a boron-containing small molecule for Chagas disease. As of March 31, 2024 and December 31, 2023, the Company had recorded a grant receivable of $0.1 million and $0.6 million, respectively, which was included in prepaid expenses and other current assets on the balance sheets. During the three months ended March 31, 2024, the Company recorded income of $0.1 million as a reduction in research and development operating expenses under the UGARF agreement. During the three months ended March 31, 2023, the Company did not record any income under this agreement.

BMGF Grant

In September 2023, the Company received a cost-reimbursement contract award from the Bill and Melinda Gates Foundation (“BMGF Agreement”) under which the Company was awarded $1.8 million to support the discovery of novel, boron containing small molecules for the treatment of tuberculosis and malaria. The Company is required to apply the funds it receives under the BMGF Agreement solely toward direct costs related to this research program. The Company received $1.0 million of funding in advance and tracks and reports eligible expenses incurred to the BMGF. Any unspent funds and any funds spent that have not yet been incurred are recorded as part of other current liabilities on the balance sheets. As of March 31, 2024 and December 31, 2023, the Company had recorded $0.3 million and $0.7 million, respectively, to other current liabilities. During the three months ended March 31, 2024, the Company recorded income of $0.3 million as a reduction in research and development operating expenses under the BMGF agreement.

 

 

15

 

 


 

Note 5. Collaboration and License Agreements

Anacor Licensing Agreement

In November 2019, the Company entered into an exclusive worldwide license agreement with Anacor Pharmaceuticals, Inc. (“Anacor”) for certain compounds and other intellectual property controlled by Anacor for the treatment, diagnosis, or prevention of all human diseases (the “Anacor License”). The Anacor License will expire upon expiration of the last to expire royalty term. Either party may terminate the Anacor License for the other party’s material breach following a cure period or immediately upon certain insolvency events relating to the other party. The Company has the right to terminate the agreement at its convenience upon 90-day written notice until the first regulatory approval or one-year notice thereafter. Furthermore, upon termination of the Anacor License for any of the foregoing reasons, the rights and licenses within will terminate.

In exchange for the worldwide, sublicensable, exclusive right and licenses to develop, manufacture, and commercialize the specified compounds, the Company paid Anacor a non-refundable $2.0 million upfront payment and granted Anacor shares of Series A redeemable convertible preferred stock.

The Company agreed to make further payments to Anacor upon achievement of various development milestones for an aggregate maximum of $2.0 million, upon achievement of various commercial and sales threshold milestones for an aggregate maximum payment of $125.0 million, and up to 50% of royalties received under certain sublicensing arrangements. Royalties are subject to certain customary reductions, including lack of patent coverage and generic product entry. The Company also agreed to pay Anacor non-refundable, non-creditable sales royalties on a tiered marginal royalty rate based on the country’s status as a developing or developed country as defined in the license agreement. Sales royalties are a percentage of net sales, as specified in the Anacor License, and range from mid-single digits for developing countries (as classified by the World Bank) and single to mid-teens for all other countries or the China, Hong Kong, Taiwan, and Macau territories, upon reaching a minimum of net sales in the low-teen millions. The sales royalties are required to be paid on a product-by-product and country-by-country basis, until the latest to occur of 15 years following the date of first commercial sale of a product, the expiration of all regulatory or data exclusivity, or the date upon of the expiration of the last to expire valid claim of a licensed patent covering such product in such country. Currently, the date of the expiration of the last to expire valid claim of a licensed patent covering epetraborole in the licensed territory is June 2028. In addition, Anacor is entitled to certain milestone payments upon a change of control of the Company.

In December 2021, the Company entered into an amendment to the Anacor License for certain compounds and other intellectual property controlled by Anacor for the treatment, diagnosis, or prevention of certain bacterial pathogens (the “Anacor License Amendment”). The Anacor License Amendment has no impact on the Anacor License financial terms.

None of the development, regulatory, commercial or sales milestones or royalty payments were recognized during the three months ended March 31, 2024 and 2023. As a result, the Company did not record any research and development expense—related party in the condensed statements of operations for the three months ended March 31, 2024 and 2023.

 

 

16

 

 


 

Brii Biosciences Agreement

In November 2019, the Company entered into a license agreement granting Brii Biosciences Limited the exclusive development and commercialization rights of certain compounds in China, Hong Kong, Taiwan, and Macau for the treatment of human diseases. The Company did not receive an upfront payment but is eligible to receive up to $15.0 million in the aggregate for development and regulatory milestones and up to $150.0 million in commercial milestones upon achieving sales thresholds. The Company is also entitled to tiered mid-single digits to high-first decile percentage sales-based royalties. The sales royalties are required to be paid on a product-by-product and region-by-region basis, until the latest to occur of 15 years following the date of first commercial sale of a product, the expiration of all regulatory or data exclusivity, or the date upon the expiration of the last to expire claim of a licensed patent covering the composition of matter or approved use of such product in such region. The last to expire valid claim of a licensed patent covering the composition of matter or approved use of such product in the licensed territory is June 2028. Future milestone payments and royalties will be accounted for under ASC 606.

Note 6. Balance Sheet Components

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued research and development-related expenses

 

$

6,785

 

 

$

6,555

 

Accrued professional services expenses

 

 

38

 

 

 

24

 

Other

 

 

91

 

 

 

102

 

Total accrued liabilities

 

$

6,914

 

 

$

6,681

 

 

Note 7. Commitments and Contingencies

Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings as of March 31, 2024 and December 31, 2023, and the Company is not currently a party to any legal proceeding that, if determined adversely to the Company, in management’s opinion, is currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, financial condition or results of operations taken as a whole.

Guarantees and Indemnifications

The Company, as permitted under Delaware law and in accordance with its certification of incorporation, as amended, and bylaws, and pursuant to indemnification agreements with certain of its officers and directors, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, which the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.

 

 

17

 

 


 

Adjuvant Global Health Agreement

In conjunction with Adjuvant Global Health Technology Fund L.P.’s (“Adjuvant”) investment in the Company’s Series A redeemable convertible preferred stock financing in 2019 and 2020, the Company entered into a Global Health Agreement with Adjuvant, pursuant to which the Company agreed to support the creation of innovative and affordable drugs to treat disease, through public health programs and private purchasers in Low and Lower-Middle-Income Countries (as such terms are defined by the World Bank and in the agreement).

Adjuvant’s investment supports the development of the Company’s product candidate, epetraborole, for use in melioidosis-endemic and melioidosis-at-risk countries as defined in the agreement. These global access commitments became effective as of the Series A redeemable convertible preferred stock financing closing date and will remain in effect until the latter of either that Adjuvant ceases to be a shareholder of the Company, or ten years following epetraborole approval for the treatment of melioidosis by a regulatory authority.

The Global Health Agreement contains various affirmative and negative covenants agreed to by the Company, including its use of reasonably diligent endeavors to develop the agreed-upon products using non-dilutive funding and make accessible to people in need in the target countries so long as the Company does not sell products at a loss. Other covenants include prohibition of use of investment for propaganda, attempt to influence legislation, influence of any public election or voter registration drive or promotion of terrorist activities, as well as compliance with certain environmental, social, and governance requirements and anti-corruption requirements. If the Company does not maintain compliance with these non-financial covenants, Adjuvant may be entitled to repayment for any portion of its investment that is not used for the purposes outlined in the Global Health Agreement.

In conjunction with Adjuvant’s investment in the Company’s Series B redeemable convertible preferred stock financing in 2021, the Company entered into an Amended and Restated Global Health Agreement (the “Adjuvant Amendment”). The Adjuvant Amendment expands Adjuvant’s investment support to include the development of the Company’s product candidate, epetraborole, for use in tuberculosis-endemic and tuberculosis-at-risk countries as defined in the agreement.

In connection with Adjuvant’s investment in the Company’s common stock as part of the IPO, the Company entered into an Amended and Restated Global Health Agreement dated March 24, 2022 (the “Adjuvant IPO Amendment”). As part of the Adjuvant IPO Amendment, Adjuvant purchased 166,666 shares of the Company's common stock in March 2022 for a total additional investment of $2.5 million, which was subject to Adjuvant’s right of repayment should the Company not utilize the proceeds from Adjuvant’s investment towards the agreed-upon purpose.

Note 8. Equity

Common Stock

The Company’s certificate of incorporation, as amended, authorizes the Company to issue up to 500,000,000 shares of $0.00001 par value common stock. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company.

Subject to the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors. No dividends have been declared to date.

On April 6, 2023, the Company entered into a Sales Agreement with Cowen and Company, LLC as the Company’s Agent, to issue and sell up to an aggregate gross sales of $100.0 million in Shares of the Company’s common stock through the ATM Offering. During the year ended December 31, 2023, the Company issued and sold 2,502,000 shares of common stock under the ATM program, resulting in net proceeds of $19.1 million, after deducting commissions and other offering costs.

 

 

18

 

 


 

On August 15, 2023, the Company entered into an Underwriting Agreement with Cowen and Company, LLC, Leerink Partners LLC and Evercore Group L.L.C. as representatives of several underwriters to issue and sell 7,777,778 shares of common stock at an offering price of $9.00 per share through the Underwritten Offering, resulting in net proceeds of $65.5 million, after deducting commissions and other offering costs.

Shares of common stock reserved for future issuance, on an as-if-converted basis, as of March 31, 2024 and December 31, 2023, consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Stock options, issued and outstanding

 

 

4,798,651

 

 

 

3,930,306

 

Stock options, authorized for future issuance

 

 

1,088,857

 

 

 

1,254,721

 

ESPP, authorized for future issuance

 

 

589,143

 

 

 

337,017

 

Total

 

 

6,476,651

 

 

 

5,522,044

 

Preferred Stock

The Company’s certificate of incorporation, as amended, authorizes the Company to issue up to 10,000,000 shares of $0.00001 par value preferred stock. The preferred stock is not convertible. No shares of preferred stock were issued and outstanding as of March 31, 2024 and December 31, 2023.

 

Note 9. Equity Incentive Plan and Stock-Based Compensation

2022 Equity Incentive Plan

The Company adopted the 2022 Equity Incentive Plan (the “2022 Plan”) effective upon the closing of the IPO, which provides for the granting of incentive stock options (“ISOs”) to the Company's employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance awards, and other forms of awards to employees, directors, and consultants. As of March 31, 2024, no stock appreciation rights, restricted stock awards or performance awards were issued.

The Company initially reserved for issuance 1,870,000 new shares of common stock pursuant to the 2022 Plan. The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) was terminated in 2022; however, shares underlying outstanding stock awards granted under the 2017 Plan will continue to be governed by the 2017 Plan. Shares available under the 2017 Plan were added to the available shares in the 2022 Plan. Shares underlying outstanding stock awards granted under the 2017 Plan that expire or are repurchased by, forfeited to, cancelled or withheld by the Company will also be reserved for issuance under the 2022 Plan.

The maximum number of shares of the Company’s common stock that may be issued under the 2022 Plan will not exceed 4,423,920 shares of the Company's common stock, which is the sum of (i) 1,870,000 new shares, plus (ii) 2,553,920 shares related to the 2017 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2022 Plan will automatically increase on January 1 of each year for a period of ten years, beginning on January 1, 2023 and continuing through January 1, 2032, in an amount equal to (1) 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company's board of directors no later than December 31 of the immediately preceding year. Accordingly, effective January 1, 2024, the number of shares in the 2022 Plan increased by 1,189,657 shares, representing 4% of the prior year end’s common stock outstanding. The maximum number of shares of the Company's common stock that may be issued on the exercise of stock options or RSUs under the 2022 Plan is 13,271,760 shares.

Since the date of incorporation and through March 31, 2024, the Company issued stock options and RSUs to its employees, directors, and consultants. As of March 31, 2024, 1,088,857 shares of common stock remained available for future issuance under the 2022 Plan.

 

 

19

 

 


 

ISOs granted to newly hired employees under the 2022 Plan generally vest 25% after the completion of 12 months of service, and the balance vests in equal monthly installments over the next 36 months of service and expire ten years from the grant date, unless subject to provisions regarding 10% stockholders. ISOs granted to existing employees generally vest ratably over a 48-month period of service and expire ten years from the grant date. NSOs vest in accordance with the terms of the specific agreement under which the options were provided and expire ten years from the date of grant. RSUs granted to employees generally vest quarterly over a four year period of service and expire ten years from the grant date.

Stock-Based Compensation Expense

The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed statements of operations and comprehensive loss during the three months ended March 31, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development expenses

 

$

1,198

 

 

$

989

 

General and administrative expenses

 

 

1,187

 

 

 

1,013

 

Total

 

$

2,385

 

 

$

2,002

 

Stock Option Activity

A summary of the stock option activity is as follows:

 

 

 

Total Options Outstanding

 

 

Weighted-Average
Exercise Price

 

 

Weighted-Average Remaining Contractual Life
(in years)

 

 

Aggregate Intrinsic Value
(in thousands)

 

Outstanding at December 31, 2023

 

 

3,930,306

 

 

$

10.86

 

 

 

8.14

 

 

$

37,853

 

Granted

 

 

931,475

 

 

$

3.00

 

 

 

 

 

 

 

Exercised

 

 

(28,930

)

 

$

7.78

 

 

 

 

 

 

 

Forfeited

 

 

(34,200

)

 

$

13.92

 

 

 

 

 

 

 

Vested and expected to vest at March 31, 2024

 

 

4,798,651

 

 

$

9.33

 

 

 

8.28

 

 

$

1,002

 

Exercisable as of March 31, 2024

 

 

2,072,581

 

 

$

9.51

 

 

 

7.41

 

 

$

778

 

As of March 31, 2024, there was unrecognized stock-based compensation expense of $19.1 million related to unvested stock options which the Company expects to recognize over a weighted-average period of 2.4 years.

Weighted-average grant-date fair value of the options granted during the three months ended March 31, 2024 was $2.58 per share.

 

 

20

 

 


 

RSU Activity

RSUs entitle the holder to receive shares of the Company’s common stock upon vesting. The fair value of RSUs is based upon the closing sales price of the Company’s common stock on the grant date.

A summary of the RSU activity is as follows:
 

 

 

Number of Units

 

 

Weighted-Average
Grant Date Fair Value

 

Unvested at December 31, 2023

 

 

 

 

$

 

Issued

 

 

458,246

 

 

$

3.00

 

Vested and released

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested at March 31, 2024

 

 

458,246

 

 

$

3.00

 

2022 Employee Stock Purchase Plan

The Company’s 2022 Employee Stock Purchase Plan (“ESPP”) has two components: a component that is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code (the 423 Component) and a component that is not intended to qualify (the Non-423 Component). The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period.

Subject to adjustment in the case of certain capitalization events, 187,000 shares of the Company’s common stock were available for purchase at the adoption of the ESPP. Pursuant to the ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 1% of the Company’s common stock outstanding as of December 31 of the immediately preceding year, (ii) 561,000 shares, or (iii) such number of shares as determined by the Board. Accordingly, effective January 1, 2024, the number of shares in the ESPP increased by 297,414 shares, representing 1% of the prior year end’s common stock outstanding. As of March 31, 2024, 589,143 shares of common stock remained available for issuance under the ESPP.

The Company began recording stock-based compensation expense for its ESPP on October 1, 2022. During the three months ended March 31, 2024 and 2023, the Company recognized $0.1 million and $0.1 million in stock-based compensation expense related to the ESPP, respectively.

Note 10. Net Loss Per Share

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(16,617

)

 

$

(15,323

)

Denominator:

 

 

 

 

 

 

Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders, basic and diluted

 

 

29,763,278

 

 

 

19,385,646

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.56

)

 

$

(0.79

)

 

 

 

21

 

 


 

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Options issued and outstanding

 

 

4,798,651

 

 

 

3,718,241

 

Unvested RSUs

 

 

458,246

 

 

 

 

Early exercised common stock subject to future vesting

 

 

2,785

 

 

 

14,092

 

Total

 

 

5,259,682

 

 

 

3,732,333

 

 

Note 11. Related Party Transactions

In the three months ended March 31, 2024 and 2023, the Company had no material related party transactions.

 

Note 12. Subsequent Events

In May 2024, the NIAID exercised one of six remaining available options under the NIAID contract (No: 75N93022C00059), resulting in an increase in contract funding of $3.8 million, for a total of $8.8 million. Funding for this option extends the estimated completion of the current contract to August 2026.

 

 

22

 

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition as of March 31, 2024 and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and our audited financial statements and the related notes thereto included as a part of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as otherwise indicated herein or as the context otherwise requires, references in this Form 10-Q to “AN2” “the Company,” “we,” “us” and “our” refer to AN2 Therapeutics, Inc.

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-Q. See also the section titled “Special Note Regarding Forward-Looking Statements.”

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. NTM lung disease is 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 received Fast Track designation by the U.S. Food and Drug Administration (the “FDA”) to investigate epetraborole for treatment-refractory Mycobacterium avium complex (“MAC”) lung disease. Epetraborole has also been designated as a Qualified Infectious Disease Product (“QIDP”) for treatment-refractory MAC lung disease by the FDA and has received orphan drug designation from the FDA and orphan medicinal product designation from the European Commission for the treatment of NTM lung disease. Based on clinical and preclinical data generated with epetraborole, its novel mechanism of action, and the convenience associated with once-daily, oral dosing, we believe that epetraborole has the potential to become an important component of a multi-drug treatment regimen for patients suffering from NTM lung disease.

We are conducting a Phase 2/3 seamless design trial to study epetraborole for treatment-refractory MAC lung disease. The Phase 2 portion of the trial has completed enrollment, with topline data expected in August 2024. In February 2024, we paused enrollment of the Phase 3 portion of trial pending review of further study data and discussion with the FDA after observing potentially lower than anticipated efficacy in blinded aggregate data from the Phase 2 portion of the trial. A blinded review of the aggregate baseline patient demographics points to a highly refractory patient population with high incidence of resistance to background regimens, prolonged nontuberculous mycobacteria (NTM) lung disease and high levels of cavitary disease; the study population also includes patients who are refractory to Arikayce, the only FDA-approved drug for refractory NTM caused by MAC. While the Phase 3 part of the trial is paused for new enrollment, we are continuing to dose existing patients enrolled in the Phase 2/3 trial under the existing protocol. We continue to progress in areas that will allow for timely commercialization of epetraborole, if approved. We completed the manufacturing of active pharmaceutical ingredient (“API”) for registration batches in the third quarter of 2023, and have completed manufacturing of drug product registration batches in the first quarter of 2024. We have completed a Phase 1 thorough QT study (EBO-104) clinical trial required for registration.

Since launching operations in November 2019, we have devoted substantially all of our resources to developing our initial product candidate. We have incurred significant operating losses to date. We expect that our operating expenses will increase significantly as we advance our current and future product candidates through preclinical, nonclinical, and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate, and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; hire additional personnel; and incur costs associated with operating as a public company.

 

 

23

 

 


 

We do not have any products approved for sale and have not generated any revenue since inception. Our net losses were $16.6 million and $15.3 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $171.1 million. We have funded our operations from the sale and issuance of redeemable convertible preferred stock and proceeds from our initial public offering (“IPO”), “at-the-market” equity offering program (“ATM Offering”) and an underwritten offering (the “Underwritten Offering”). From November 2019 through October 2020, we raised an aggregate of $12.0 million from the sale of Series A redeemable convertible preferred stock. In March 2021, we raised an aggregate of $80.0 million from the sale of Series B redeemable convertible preferred stock. In March and April 2022, we completed our IPO, with gross proceeds of $79.4 million and net proceeds of $70.4 million, net of underwriting discounts, commissions and offering expenses. In June 2023, we raised gross proceeds of $20.0 million from the ATM Offering and net proceeds of $19.1 million, after deducting commissions and offering expenses. In August 2023, we raised gross proceeds of $70.0 million from the Underwritten Offering and net proceeds of $65.5 million, after deducting commissions and offering expenses.

As of March 31, 2024, we had cash, cash equivalents, and investments of $118.1 million. We believe that our available cash wil