AN2 Therapeutics Inc

Previous wording

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.

Current wording

The following discussion and analysis of our financial condition as of June 30, 2024 and results of operations for the three and six months ended June 30, 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

We do not have any products approved for sale and have not generated any revenue since inception. Our net losses were $31.1 million and $31.1 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $185.5 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.

Previous wording

As of March 31, 2024, we had cash, cash equivalents, and investments of $118.1 million. We believe that our available cash will be sufficient to fund our planned operations through at least twelve months following the date of this Form 10-Q.

Current wording

As of June 30, 2024, we had cash, cash equivalents, and investments of $104.5 million. We believe that our available cash will be sufficient to fund our planned operations through at least twelve months following the date of this Form 10-Q.

Previous wording

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 we obtain regulatory approval for epetraborole or any of our other product candidates, we intend to hire and deploy a specialty sales force, which will increase our operating costs.

Current wording

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 we obtain regulatory approval for any of our product candidates, we intend to hire and deploy a specialty sales force, which will increase our operating costs.

Previous wording

We expect our research and development expenses to increase substantially in the future, as we advance epetraborole and any other product candidates 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.

Current wording

We expect our research and development expenses to increase substantially in the future, as we advance our product candidates into and through 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.

Previous wording

Other income, net was $1.7 million for the three months ended March 31, 2024 compared to $0.7 million for the three months ended March 31, 2023. The increase of $1.0 million was due to higher interest rates and higher cash, cash equivalents, and investment balances in 2024 as compared to 2023.

Current wording

Other income, net was $1.4 million for the three months ended June 30, 2024 compared to $0.8 million for the three months ended June 30, 2023. The increase of $0.6 million was due to higher interest rates and higher cash, cash equivalents, and investment balances in 2024 as compared to 2023.

Previous wording

Research and development expenses were $14.7 million for the three months ended March 31, 2024 compared to $12.0 million for the three months ended March 31, 2023. The increase of $2.7 million was primarily due to increases in clinical trial costs, personnel-related expenses, and consulting and outside services, partially offset by lower chemistry manufacturing and controls (“CMC”) expenses and lower costs associated with research studies. Clinical trials expenses increased by $3.7 million due to increased costs associated with our Phase 2/3 clinical trial in 2024 due to an increase in enrollment and other activities. Personnel-related costs increased by $0.9 million due to increased research and development headcount, higher bonuses based on target performance achievement, and stock-based compensation expense. Consulting and outside services increased by $0.6 million to support our clinical trial and research activities. These increases were partially offset by decreases in costs related to CMC activities by $1.9 million due to completion of intermediate and registration batch manufacturing activities in 2023 and a decrease in costs related to research and preclinical studies by $0.6 million. During the three months ended March 31, 2024, a total reimbursement of $0.4 million of operating expenses was recognized related to our funding arrangements.

Current wording

Research and development expenses were $26.8 million for the six months ended June 30, 2024 compared to $25.5 million for the six months ended June 30, 2023. The increase of $1.3 million was primarily due to increases in clinical trial costs, personnel-related expenses, and consulting and outside services, partially offset by lower chemistry manufacturing and controls (“CMC”) expenses and lower costs associated with research studies. Clinical trials expenses increased by $3.3 million due to increased costs associated with our Phase 2/3 clinical trial in early 2024 due to an increase in enrollment and other activities. Personnel-related costs increased by $1.3 million due to increased research and development headcount, higher bonuses based on target performance achievement, and stock-based compensation expense. Consulting and outside services increased by $1.1 million to support our clinical trial and research activities. These increases were partially offset by a decrease of $4.2 million in costs related to CMC activities due to completion of certain registration batch manufacturing activities in 2023, a decrease of $0.1 million in costs related to research and preclinical studies, and a $0.1 million decrease in other expenses, including rent, utilities, and information technology expenses. During the six months ended June 30, 2024, a total reimbursement of $0.9 million of operating expenses was recognized related to our funding arrangements.

Previous wording

General and administrative expenses were $3.6 million for the three months ended March 31, 2024 compared to $4.1 million for the three months ended March 31, 2023. The decrease of $0.4 million was primarily attributable to a $0.3 million decrease in professional and outside services due to IPO-related expenses in 2023, a $0.3 million decrease in directors and officers liability insurance premiums, and a $0.1 million decrease in facility-related expenses, including rent, utilities, and information technology expenses. These decreases were partially offset by a $0.3 million increase in personnel-related costs primarily related to higher salaries, higher bonuses based on target performance achievement, and stock-based compensation expense.

Current wording

General and administrative expenses were $7.4 million for the six months ended June 30, 2024 compared to $7.1 million for the six months ended June 30, 2023. The increase of $0.3 million was primarily attributable to a $0.6 million increase in personnel-related costs primarily related to higher salaries, higher bonuses based on target performance achievement, and stock-based compensation expense and a $0.1 million increase in professional and outside services, partially offset by a $0.3 million decrease in directors and officers liability insurance premiums and a $0.1 million decrease in facility-related expenses, including rent, utilities, and information technology expenses.

Previous wording

We have incurred net losses since our inception. For the three months ended March 31, 2024 and 2023, we had net losses of $16.6 million and $15.3 million, respectively, and we expect to incur substantial additional losses in future periods. As of March 31, 2024, we had an accumulated deficit of $171.1 million. As of March 31, 2024, we had cash, cash equivalents, and investments of $118.1 million. Based on our current business plan, we believe that our available cash will be sufficient to fund our planned operations for at least 12 months following the date of this Form 10-Q.

Current wording

We have incurred net losses since our inception. For the six months ended June 30, 2024 and 2023, we had net losses of $31.1 million and $31.1 million, respectively, and we expect to incur substantial additional losses in future periods. As of June 30, 2024, we had an accumulated deficit of $185.5 million. As of June 30, 2024, we had cash, cash equivalents, and investments of $104.5 million. Based on our current business plan, we believe that our available cash will be sufficient to fund our planned operations for at least 12 months following the date of this Form 10-Q.

Previous wording

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 initial drug product candidate, epetraborole, including conducting ongoing preclinical and nonclinical studies, clinical trials, registration API and drug product 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 other 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 continue to incur 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.

Current wording

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 initial drug product candidate, epetraborole, including conducting ongoing preclinical and nonclinical studies, clinical trials, registration API and drug product 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 our 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 continue to incur 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.

Previous wording

Net cash used in operating activities was $17.6 million for the three months ended March 31, 2024, which consisted of a net loss of $16.6 million, due to the use of funds to develop our initial drug product candidate, and a net decrease of $2.3 million in our net operating assets and liabilities, partially offset by $1.3 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to an increase in accrued liabilities, accounts payable, and other current liabilities and a decrease in prepaid expenses and other assets. The non-cash charges consisted of stock-based compensation expense of $2.4 million, partially offset by net accretion of discounts on investments of $1.1 million.

Current wording

Net cash used in operating activities was $32.0 million for the six months ended June 30, 2024, which consisted of a net loss of $31.1 million, primarily due to the use of funds to develop our initial drug product candidate, and a net decrease of $3.6 million in our net operating assets and liabilities, partially offset by $2.7 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to an increase in accrued liabilities, accounts payable, and other current liabilities and a decrease in prepaid expenses and other assets. The non-cash charges consisted of stock-based compensation expense of $4.7 million, partially offset by net accretion of discounts on investments of $2.0 million.

Previous wording

Net cash used in operating activities was $11.6 million for the three months ended March 31, 2023, which consisted of a net loss of $15.3 million, due to the use of funds to develop our initial drug product candidate offset by a net decrease of $2.1 million in our net operating assets and liabilities and $1.7 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to a decrease of $1.4 million in accounts payable, accrued compensation, and accrued liabilities due to an increase in accrued research and development expenses and a decrease of $0.7 million in prepaid expenses. The non-cash charges consisted of stock-based compensation expense of $2.1 million and partially offset by net accretion of discounts on investments of $0.4 million.

Current wording

Net cash used in operating activities was $24.4 million for the six months ended June 30, 2023, which consisted of a net loss of $31.1 million, due to the use of funds to develop our initial drug product candidate, offset by a net decrease of $3.6 million in our net operating assets and liabilities and $3.1 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to an increase of $4.0 million in accounts payable, accrued compensation and accrued liabilities due to an increase in accrued research and development expenses, partially offset by an increase of $0.4 million in prepaid expenses. The non-cash charges consisted of stock-based compensation expense of $4.0 million, partially offset by net accretion of discounts on investments of $0.9 million.

Previous wording

Net cash used in investing activities was $10.9 million for the three months ended March 31, 2023, which primarily consisted of $24.9 million in proceeds from the maturity of investments, partially offset by $14.0 million in purchases of investments.

Current wording

Net cash provided by investing activities was $42.8 million for the six months ended June 30, 2024, which primarily consisted of $55.3 million in proceeds from the maturity of investments, partially offset by $12.6 million in purchases of investments.

Previous wording

Net cash provided by investing activities was $26.3 million for the three months ended March 31, 2024, which primarily consisted of $26.3 million in proceeds from the maturity of investments.

Current wording

Net cash provided by investing activities was $18.8 million for the six months ended June 30, 2023, which primarily consisted of $45.9 million in proceeds from the maturity of investments, partially offset by $27.1 million in purchases of investments.

Previous wording

Net cash provided by financing activities was $0.3 million for the three months ended March 31, 2024, which consisted of $0.1 million in proceeds from the issuance of common stock under the employee stock purchase plan and $0.2 million from the exercise of stock options.

Current wording

Net cash provided by financing activities was $0.3 million for the six months ended June 30, 2024, which consisted of $0.1 million in proceeds from the issuance of common stock under the employee stock purchase plan and $0.2 million from the exercise of stock options.

Previous wording

Net cash provided by financing activities was $0.2 million for the three months ended March 31, 2023, which primarily consisted of proceeds from issuance of common stock under the employee stock purchase plan.

Current wording

Net cash provided by financing activities was $19.3 million for the six months ended June 30, 2023, which consisted of $19.1 million in net proceeds from issuance of common stock under the ATM Offering, and $0.2 million in proceeds from the issuance of common stock under the employee stock purchase plan.

Previous wording

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed financial statements and accompanying notes. “Note 2—Summary of Significant Accounting Policies” to the financial statements in our 2023 Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Annual Report on Form 10-K include, but are not limited to, the discussion of estimates used for research and development and stock-based compensation. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed financial statements, and actual results could differ materially from the amounts reported.

Current wording

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed financial statements and accompanying notes. “Note 2—Summary of Significant Accounting Policies” to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 describes the significant accounting policies and methods used in the preparation of the financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K include for the year ended December 31, 2023, but are not limited to, the discussion of estimates used for research and development and stock-based compensation. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed financial statements, and actual results could differ materially from the amounts reported.