The following discussion of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report and the audited financial statements and notes included in our Annual Report on Form 10-K, filed with theSEC onMarch 30, 2023 . In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Quarterly Report, including under Part I, Item 1A. "Risk Factors" and under "Special Note Regarding Forward-Looking Statements." In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a clinical-stage biotechnology company focused on pioneering a new approach to treat complex diseases using compositions of endogenous metabolic modulators, or EMMs. Our product candidates are comprised of multiple EMMs that are engineered in distinct combinations and ratios with the goal of simultaneously impacting multiple biological pathways. Our pipeline includes lead therapeutic candidates for the treatment of non-alcoholic steatohepatitis, or NASH, and for the treatment of Long COVID (also known as Post COVID-19 Condition and Post-Acute Sequelae of COVID-19, or "PASC") associated fatigue. InDecember 2022 , we announced that we discontinued our EMMPACT Phase 2b clinical trial of AXA1125 for the treatment of NASH to focus on AXA1125 for the treatment of Long COVID associated fatigue. We also announced a corporate restructuring, whereby we reduced our workforce by approximately 85%, and that we have initiated a process to explore a range of strategic alternatives to maximize stakeholder value and we have engaged an investment bank to act as a strategic advisor for this process. Since the discontinuation of the NASH program and reduction-in-force, we have devoted and expect to continue to devote substantial time and resources to exploring strategic alternatives that our board of directors believes will maximize enterprise value. Despite devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We have not set a timetable for completion of this strategic review process, and our board of directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any additional cash distributions to our stakeholders. Funding Overview To date, we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and with proceeds from our public offerings. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2008. For the three months endedMarch 31, 2023 and 2022, we reported net losses of$4.0 million and$19.0 million , respectively. As ofMarch 31, 2023 , we had an accumulated deficit of$422.4 million . As noted elsewhere in this report, based on our current cash and cash equivalents, we continue to operate as a going concern as we believe we do not have sufficient cash and cash 20 -------------------------------------------------------------------------------- Table of Contents equivalents available to fund our planned operations for the next twelve months from the issuance date of this Quarterly Report on Form 10-Q.
COVID-19 Pandemic
The extent to which COVID-19 impacts our business, operations or financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 or the nature or effectiveness of actions to contain COVID-19 or treat its impact, among others. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. However, if we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition.
Components of our Condensed Consolidated Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or we execute license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from collaborations or license agreements that we may enter into with third parties, or any combination thereof.
Research and Development Expenses
Our research and development expenses consist primarily of costs incurred in connection with our research activities, including our drug discovery efforts, and the development of our product candidates, which include: •direct external research and development expenses, including fees, reimbursed materials and other costs paid to consultants, contractors, contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our clinical and preclinical development and manufacturing activities;
•employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;
•expenses incurred in connection with the preclinical and clinical development of our product candidates, including any Clinical Studies, Clinical Trials and other research programs, including under agreements with third parties, such as consultants, contractors and CROs;
•the cost of developing and scaling our manufacturing process and manufacturing products for use in our preclinical studies, Clinical Studies and Clinical Trials, including under agreements with third parties, such as consultants, contractors and CMOs;
•patent-related costs incurred in connection with filing and prosecuting patent applications; and
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance.
We expense research and development costs as incurred. We often contract with CROs and CMOs to facilitate, coordinate and perform agreed-upon research, design, development, and manufacturing of our product candidates. To ensure that research and development costs are expensed as incurred, we record monthly accruals for Clinical Studies, Clinical Trials and manufacturing costs based on the work performed under the contract. 21 -------------------------------------------------------------------------------- Table of Contents These CRO and CMO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical or manufacturing milestones. In the event that we prepay CRO or CMO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development or manufacturing services are performed. Most professional fees, including project and clinical management, data management, monitoring and manufacturing fees are incurred throughout the contract period. These professional fees are expensed based on their estimated percentage of completion at a particular date. Our CRO and CMO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs and raw materials. We expense the costs of pass through fees under our CRO and CMO contracts as they are incurred, based on the best information available to us at the time. A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform, and, as such, are not separately classified. We anticipate that our future research and development expenses will decrease compared to 2022 levels due to the discontinuation of the NASH clinical trial and reduction-in-workforce. Many factors can affect the cost and timing of our Clinical Studies and Clinical Trials, including, without limitation, slow patient enrollment and the availability of supplies, including as a result of the COVID-19 pandemic, and real or perceived lack of effect on biology or safety of our product candidates. In addition, the development of all of our product candidates may be subject to extensive governmental regulation. These factors make it difficult for us to predict the timing and costs of the further development of our product candidates.
See "Risk Factors" in "Item 9A." of our Annual Report on Form 10-K for further discussion of these and additional risks and uncertainties associated with product development and commercialization that may significantly affect the timing and cost of our research and development expenses and our ability to obtain regulatory approval for and successfully commercialize our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.
We anticipate that our future general and administrative expenses will decrease from 2022 levels due to our corporate restructuring.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income and interest expense. Interest income consists of interest earned on our investments in cash equivalents, money market funds, and high-quality fixed income securities. Interest expense primarily consists of interest on outstanding borrowings under a loan and security agreement and the amortization expense of the debt discount and debt issuance costs. Income Taxes Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss, or NOLs, carryforwards and tax credits will not be realized. 22
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31, 2023 2022 Change Operating expenses: Research and development$ 1,433 $ 13,544 $ (12,111) General and administrative 2,750 4,786 (2,036) Total operating expenses 4,183 18,330 (14,147) Loss from operations (4,183) (18,330) 14,147 Other income (expense): Other income (expense), net 207 (709) 916 Total other income (expense), net 207 (709) 916 Net loss$ (3,976) $ (19,039) $ 15,063
Research and Development Expenses
The following table summarizes our research and development expenses incurred
during the three months ended
Three Months Ended March 31, 2023 2022 Change Salary and benefits-related$ 962 $ 4,182 $ (3,220) Clinical research, outside services and other expenses 471 9,362 (8,891) Total research and development expenses$ 1,433
Research and development expenses were$1.4 million for the three months endedMarch 31, 2023 , compared to$13.5 million for the same period in 2022. The decrease in research and development expenses of$12.1 million , of which$8.9 million is attributed to the completion of the Phase 2a Long COVID Clinical Trial, the discontinuation of the Phase 2b Clinical Trial of AXA1125 for NASH and the Phase 2 Clinical Trial of AXA1665 for reduction in risk of recurrent OHE. During the first quarter of 2022, we had three ongoing Phase 2 clinical trials. Personnel-related expenses decreased by$3.2 million resulting from our headcount reductions as part of theDecember 2022 corporate restructuring. 23
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General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred
during the three months ended
Three Months Ended March 31, 2023 2022 Change Salary and benefits-related$ 1,333 $ 3,004 $ (1,671) Other contract services, outside costs and other expenses 1,417 1,782 (365) Total general and administrative expenses$ 2,750
General and administrative expenses were
Other Income (Expense), Net
For the three months endedMarch 31, 2023 , we recorded$0.1 million of interest income on our cash balances and a gain on the sale of property and equipment of$0.1 million .
For the three months ended
Liquidity and Capital Resources
Exploring Strategic Alternatives
We require substantial additional capital to sustain our operations and pursue our strategy, including the development of our Long COVID product candidate. We have engaged an investment bank to assist with the exploration of strategic alternatives that may include, but are not limited to, the sale of all or substantially all of our assets; a strategic merger or other business combination transaction; or another change of control transaction between us and a third party. If a strategic process is unsuccessful, we may be unable to continue our operations at planned levels and be forced to further reduce or terminate our operations. These factors raise substantial doubt about our ability to continue as a going concern.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Three Months Ended March 31, 2023 2022 Cash used in operating activities$ (5,105) $
(16,862)
Cash provided by investing activities 525
13,160
Cash (used in) provided by financing activities (27)
25,318
Net (decrease) increase in cash and cash equivalents
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Operating Activities
During the three months endedMarch 31, 2023 , operating activities used$5.1 million of cash, primarily resulting from a net loss of$4.0 million and changes in our operating assets and liabilities of$1.2 million , partially offset by non-cash charges of$0.1 million . During the three months endedMarch 31, 2022 , operating activities used$16.9 million of cash, primarily resulting from a net loss of$19.0 million , partially offset by non-cash charges of$1.8 million , including$1.5 million of stock-based compensation, and changes in our operating assets and liabilities of$0.4 million . Investing Activities During the three months endedMarch 31, 2023 , net cash provided by investing activities includes proceeds from the sale of property and equipment of$0.5 million .
During the three months ended
Financing Activities
During the three months ended
During the three months endedMarch 31, 2022 , net cash provided by financing activities consisted of net proceeds from the issuance of common stock, which were partially offset by payments of the principal portion of a finance lease and a terminal fee obligation and debt issuance costs.
Loan and Security Agreement
OnSeptember 2, 2021 , we entered into a loan and security agreement with SLR Investment Corp., or SLR, (formerly known as Solar Capital Ltd.), for term loans in an aggregate principal amount of$26.0 million . The loan and security agreement replaced the loan and security agreement between us and SLR, dated as ofJanuary 9, 2018 and further amended onOctober 5, 2018 ,November 30, 2018 andAugust 28, 2020 (as amended, the "Prior Loan and Security Agreement"). InSeptember 2022 , we paid SLR approximately$6.4 million , including principal, accrued interest, fees and costs. InOctober 2022 , we satisfied an equity related condition under the loan and security agreement that extended the date on which repayment of principal commences fromJanuary 2023 toJuly 2023 . OnDecember 15, 2022 , we entered into a payoff letter with SLR, under which we voluntarily accelerated the debt and paid SLR approximately$21.0 million , in full satisfaction of all obligations, including all outstanding principal, accrued interest, fees, costs, expenses and other amounts chargeable, under the loan and security agreement. The payoff letter also provided for the termination of all commitments and obligations under the loan and security agreement and release of all liens held by SLR on our assets.
Funding Requirements
Since our inception, we have incurred significant operating losses. We have not yet commercialized any product candidates and we do not expect to generate revenue from sales of any product candidates we may develop for several years, if at all. To date, we have funded our operations with proceeds from the sale of preferred and common stock and borrowing of debt. 25 -------------------------------------------------------------------------------- Table of Contents As ofMarch 31, 2023 , we had cash and cash equivalents of$12.5 million . Based on our current financial resources and forecasted operating plan, we believe that we will be able to operate into the second quarter of 2023. Our operating expenses have been reduced as a result of the termination of the NASH clinical trial and corporate restructuring, allowing us to pursue any viable strategic alternatives. There is no guarantee that this plan will be successful. We may not be able to successfully pursue any strategic alternatives and, even if certain strategic alternatives may be available, we cannot provide any assurance that the strategic alternatives review process will result in any particular alternative, transaction or value. We need to raise additional capital to support continuing operations. Until such time as we can generate significant revenue to fund operations, we expect to seek additional capital from the issuance of equity, debt, or other capital transactions or a strategic transaction. If we fail to raise capital or enter into such agreements as, and when, needed, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. See "Risk Factors" in "Item 1A." in our Annual Report on Form 10-K for further discussion of these and additional risks and uncertainties that may significantly affect the timing and amount of expenditures of our capital resources. Based on our current operating plan, we believe we do not have sufficient cash and cash equivalents to support current operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q and we continue to operate as a going concern.
Nasdaq Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
OnDecember 30, 2022 , we received a deficiency letter from theListing Qualifications Department , or the Staff, ofThe Nasdaq Stock Market LLC , or Nasdaq, notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the$1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (which we refer to as the "Minimum Bid Price Requirement"). The Nasdaq deficiency letter has no immediate effect on the listing of our common stock, and our common stock will continue to trade on the Nasdaq Global Market under the symbol "AXLA" at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), or the Compliance Period Rule, we have been provided a period of 180 calendar days, or untilJune 28, 2023 (which we refer to as the "Compliance Date"), to regain compliance with the Minimum Bid Price Requirement. If, at any time endingJune 28, 2023 , the bid price for our common stock closes at$1.00 or more for a minimum of ten consecutive business days, as required under the Compliance Period Rule, the Staff will provide written notification to us that we have regained compliance with the Minimum Bid Price Requirement and our common stock will continue to be eligible for listing on the Nasdaq Global Market, unless the Staff exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). If we do not regain compliance with the Minimum Bid Price Requirement by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to transfer the listing of our common stock to The Nasdaq Capital Market, provided that we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and would need to provide written notice to Nasdaq of our intention to cure the deficiency during the additional compliance period. To effect such a transfer, we would also need to pay an application fee to Nasdaq and provide written notice to the Staff of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split if necessary. As part of its review process, the Staff will make a determination of whether it believes we will be able to cure the deficiency. Should the Staff conclude that we will not be able to cure the deficiency, the Staff will provide written notification to us that our common stock will be subject to delisting. At that time, we may appeal the Staff's delisting determination to aNasdaq Listing and Hearing Review Panel . However, there can be no assurance that, if we receive a delisting notice and appeal the delisting determination by the Staff to the panel, such appeal would be successful. 26
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We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement, which could include seeking to effect a reverse stock split. However, there can be no assurance that we will be able to regain, or even pursue, compliance with the Minimum Bid Price Requirement, secure a second period of 180 days to regain compliance, or maintain compliance with any of the other Nasdaq continued listing requirements. OnApril 3, 2023 , we received written notice from the Staff of Nasdaq that (i) we are not in compliance with the requirement of a minimum Market Value of Publicly Held Shares ("MVPHS") of$15,000,000 for continued listing on the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(b)(2)(C); and (ii) we are not in compliance with the requirement of a minimum Market Value ofListed Securities ("MVLS") of$50,000,000 , as set forth in Nasdaq Listing Rule 5450(b)(2)(A). In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have a period of 180 calendar days, or untilOctober 2, 2023 , to regain compliance with the minimum MVPHS and MVLS requirements. To regain compliance, the minimum MVPHS of our common stock is required to meet or exceed$15,000,000 for at least ten consecutive business days during this 180-calendar day compliance period; and to regain compliance, the minimum MVLS of our common stock is required to meet or exceed$50,000,000 for at least ten consecutive business days during this 180 calendar day compliance period. There can be no assurance that we will be able to regain compliance the MVPHS or MVLS requirements or maintain compliance with the other Nasdaq listing requirements. In the event that we do not regain compliance within the 180 calendar day compliance period, we may be eligible to transfer to the Nasdaq Capital Market prior to the expiry of this period. However, if it appears to Nasdaq that we will not be able to cure the deficiencies, or if we are not otherwise eligible, Nasdaq will provide notice to us that our listed securities will be subject to delisting. In the event of such notification, we may appeal Nasdaq's determination to delist our securities, but there can be no assurance Nasdaq would grant our request for continued listing. The MVPHS and MVLS notices are only a notification of deficiency, not of imminent delisting, and have no immediate effect on the listing of our securities on Nasdaq. If it appears to the Staff that we will not be able to cure the deficiencies, the Staff will provide written notice to us that our common stock will be subject to delisting. At that time, we may appeal the Staff's delisting determination to aNasdaq Hearing Panel (the "Panel"). We expect that our stock would remain listed pending the Panel's decision. There can be no assurance that, if we do appeal the Staff's delisting determination to the Panel, such appeal would be successful.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates. There were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , which was filed with theSEC onMarch 30, 2023 .
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report. 27
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Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and, as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than$1.235 billion in annual revenue, we have more than$700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than$1.0 billion of non-convertible debt securities over a three-year period.
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