ANNOVIS BIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read "Cautionary Note Regarding Forward-Looking Statements" and Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
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Overview
Company Overview
We are a clinical stage, drug platform company addressing Alzheimer's disease ("AD"), Parkinson's disease ("PD") and other chronic neurodegenerative diseases such as AD in Down Syndrome ("AD-DS"). Our lead compound, Buntanetap, is a small molecule administered orally that attacks neurodegeneration by entering the brain and inhibiting the translation of neurotoxic proteins-amyloid precursor protein APP/A? ("APP"), tau/phospho-tau ("tau") and ?-Synuclein ("?SYN")-thereby improving axonal transport. Human studies in four mildly cognitive impaired patients have shown that Buntanetap lowered the levels of neurotoxic proteins and inflammatory factors. In preclinical studies, lower neurotoxic protein levels led to improved axonal transport, reduced inflammation, lower nerve cell death and improved function.
AD is a substantial market affecting over 30 million people worldwide and is
expected to grow to over 100 million by 2050. While the market for
neurodegeneration is over
Buntanetap is a small lipophilic molecule that is orally available and readily enters the brain, as demonstrated by preclinical pharmacokinetics analyses showing brain concentrations approximately six to eight times higher than plasma concentrations. Buntanetap has a mechanism of action that we believe to be unique, in that it inhibited the over-translation of and, therefore, reduced the levels of several neurotoxic proteins both in vitro and in vivo including APP, tau and ?SYN.
By targeting multiple neurotoxic proteins, Buntanetap resembles a combination therapy approach, with the added convenience of being a single drug with a single drug target. Therefore, we have worked to understand how Buntanetap is able to inhibit the translation of more than one neurotoxic protein.
We recently completed two Phase 2a clinical trials. In 2021 we completed a Phase
2a clinical trial in 14 AD and 54 PD patients (the "AD/PD Trial") which began
treating patients in
We have never been profitable and have incurred net losses since inception. Our
accumulated deficit at
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
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Research and Development Expenses
Our research and development expenses consist of expenses incurred in development and clinical studies relating to our product candidates, including:
? expenses associated with clinical development;
? personnel-related expenses, such as salaries, benefits, travel and other
related expenses, including stock-based compensation; and
? payments to third-party contract research organizations ("CROs"), contractor
laboratories and independent contractors.
We expense all research and development costs as incurred. Clinical development expenses for our product candidates are a significant component of our current research and development expenses. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We track and record information regarding external research and development expenses for each study or trial that we conduct. From time to time, we use third-party CROs, contractor laboratories and independent contractors in clinical studies. We recognize the expenses associated with third parties performing these services for us in our clinical studies based on the percentage of each study completed at the end of each reporting period.
Our research and development expenses in 2021 and 2020 primarily related to the
AD/PD Trial which began treating patients in
? the number of sites included in the clinical trials;
? the length of time required to enroll suitable patients;
? the size of patient populations participating in the clinical trials;
? the duration of patient follow-ups;
? the development stage of the product candidates; and
? the efficacy and safety profile of the product candidates.
Due to the stage of our research and development, we are unable to determine the duration or completion costs of our development of Buntanetap. As a result of the difficulties of forecasting research and development costs of Buntanetap as well as the other uncertainties discussed above, we are unable to determine when and to what extent we will generate revenues from the commercialization and sale of approved product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance, accounting, and administrative functions. Our
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general and administrative expenses also include professional fees for legal services, including patent-related expenses, consulting, tax and accounting services, insurance, rent and general corporate expenses. We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates. We expect that our general and administrative expenses in 2022 and for the next several years will be higher than in 2021 as we increase our employee count.
Grant Income
Grants received are recognized as grant income in the statements of operations
as and when they are earned for the specific research and development projects
for which these grants are designated. In
Income Taxes
As of
NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (the "IRS") and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code. This could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
Critical Accounting Policies and Use of Estimates
We have based our management's discussion and analysis of financial condition
and results of operations on our financial statements, which have been prepared
in accordance with accounting principles generally accepted in
While our significant accounting policies are more fully discussed in Note 2 to our audited financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.
Research and Development Expenses
We rely on third parties to conduct our clinical studies and to provide services, including data management, statistical analysis and electronic compilation. At the end of each reporting period, we compare the payments made to each service provider to the estimated progress towards completion of the related project. Factors that we consider in preparing these estimates include the number of patients enrolled in studies, milestones achieved and other criteria
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related to the efforts of our vendors. These estimates are subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.
Stock-Based Compensation
We account for grants of stock options to employees and non-employees based on their grant date fair value and recognize compensation expense over the vesting periods. We estimate the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculations, including the expected term, the expected volatility of our common stock, the risk-free interest rate and the expected dividend rate. Given the lack of a public market for our common stock prior to the IPO, the expected stock price volatility is based on a weighted approach that incorporates the historic daily volatility of our common stock since the IPO and the historic daily volatility of similar companies that have been publicly traded for a period commensurate with the expected term of the option.
Grant Income
Grants received are recognized as grant income in the statements of operations as and when they are earned for the specific research and development projects for which these grants are designated. Grants payments received in excess of grant income earned are recognized as deferred grant on the balance sheet and grant income earned in excess of grant payments received is recognized as grant receivable on the balance sheets.
Results of Operations
Operating expenses and other income (expense) were comprised of the following:
Year Ended
December 31,
2021 2020
(in thousands)
Operating expenses:
Research and development $ 8,479.0 $ 3,054.0
General and administrative 6,058.2 3,586.2Other income (expense): Change in fair value of derivative liability - (26.5) Interest income, net
13.3 47.2
Grant income 36.8 1,157.4
Years ended
Research and Development Expenses
Research and development expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
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Change in Fair Value of Derivative Liability
The derivative liability represents an embedded derivative in our convertible
promissory notes which were issued in
Interest Income, Net
Interest income, net decreased
Grant Income
Grant income decreased
Liquidity and Capital Resources
Since our inception in 2008, we have devoted most of our cash resources to
research and development and general and administrative activities. We have
financed our operations primarily with the proceeds from the sale of common
stock, convertible preferred stock and convertible promissory notes. To date, we
have not generated any revenues from the sale of products, and we do not
anticipate generating any revenues from the sales of products for the
foreseeable future. We have incurred losses and generated negative cash flows
from operations since inception. As of
Equity Financings
We closed our IPO on
We closed an equity offering on
Debt Financings
In
Future Capital Requirements
We expect that current cash and cash equivalents will be sufficient to fund our operations and capital requirements for at least the next 12 months. We believe that these available funds will be sufficient to complete a Phase 3 clinical trial for Buntanetap in PD and conduct a second Phase 3 study in AD or PD for this product candidate. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and
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licensing arrangements or other financing alternatives. We have no committed external sources of funds. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.
Cash Flows
The following table summarizes our cash flows from operating, investing and
financing activities.
Year Ended
December 31,
2021 2020
(in thousands)
Statement of Cash Flows Data:
Total net cash provided by (used in):
Operating activities $ (9,132.1) $ (3,970.8)
Financing activities 46,743.5 12,043.6
Increase in cash and cash equivalents
Years ended
Operating Activities
For the year ended
We expect cash used in operating activities to increase in 2022 as compared to 2021 due to an expected increase in our operating losses associated with ongoing development of our product candidates and planned increases in our personnel count.
Financing Activities
Cash provided by financing activities was
Cash provided by financing activities was
Recent Accounting Pronouncements
In
Significant Contractual Obligations and Commitments
We lease our office facilities under a month-to-month operating lease.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable
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JOBS Act
Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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