AXCA HEALPAR 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 the
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, for the treatment of Long COVID (also known as Post COVID-19 Condition and Post-Acute Sequelae of COVID-19, or "PASC") associated fatigue, and for the reduction in risk of recurrent overt hepatic encephalopathy, or OHE.
Using our discovery platform, we have efficiently designed product candidates that are comprised of amino acids and their derivatives, which have a general history of safe use. The orally administered EMM compositions that we have tested clinically to date in our development model have shown the potential to generate multifactorial effects in our initial Clinical Studies.
To date, we have funded our operations with proceeds from the sale of preferred
stock and common stock, and borrowing of debt. Since our inception, we have
incurred significant operating losses. Our ability to generate product revenue
sufficient to achieve profitability will depend heavily on the successful
development and eventual commercialization of one or more of our current or
future product candidates. Our net losses were
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Table of Contents Based on our current operating plan, we believe we do not have sufficient cash, cash equivalents, and marketable securities to support current operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q. We will need substantial additional funding to continue development of our current and potential future pipeline candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt re-financings, collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all, including as a result of market volatility following the COVID-19 pandemic. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Further, inflation may affect our use of capital resources by increasing our cost of labor and clinical trial expenses. We also intend to continue to evaluate options to refinance our outstanding long-term debt with SLR Investment Corp. The amounts involved in any such transactions, individually or in the aggregate, may be material. These factors individually and collectively raise substantial doubt about our ability to continue as a going concern.
An overview of our current therapeutic product candidates and their planned next development steps is illustrated below:
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AXA1125 for Nonalcoholic Steatohepatitis (NASH)
AXA1125 is currently being developed as an oral product candidate for the treatment of NASH. In 2021, our IND for this candidate was cleared by the FDA, enabling us to proceed directly into a global Phase 2b Clinical Trial that was initiated in the second quarter of 2021. We branded this global trial EMMPACT based on the potential for AXA1125, an EMM composition, to deliver meaningful, multifactorial clinical benefits to patients with NASH. Based on AXA1125's differentiated, multi-targeted design and data from our earlier Clinical Studies, we believe this candidate holds the potential, if approved, to serve as a first-line NASH monotherapy for both adult and pediatric patients and be used in combination with other agents if required.
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Table of Contents We have conducted two prior Clinical Studies of AXA1125 in subjects with presumed NASH. AXA1125 was generally well tolerated in both of these studies with meaningful and sustained reductions shown in key measures of hepatic fat, insulin resistance, inflammation and fibrosis. In 2020, Axcella completed its most recent Clinical Study of AXA1125, AXA1125-003. This was a 16-week (with a two-week follow-up), randomized, single-blind, placebo-controlled Clinical Study to assess safety, tolerability and impact on the liver structure and function of two distinct EMM compositions, AXA1125 and AXA1957, in 102 adult subjects with NAFLD. Key inclusion criteria for this study included having at least 10% fat by MRI-PDFF and a corrected T1, or cT1, a measure of liver injury by multiparametric MRI, of at least 830 mSec. Subjects were stratified by the presence or absence of T2D. In this study, subjects received either AXA1125, two different doses of AXA1957 or a calorie-matched placebo control twice a day, or BID. Results from the study showed that AXA1125 and AXA1957 were generally well-tolerated, with sustained reductions noted for both product candidates versus placebo in key biomarkers of metabolism, inflammation and fibrosis over 16 weeks.
Following FDA clearance of an IND application for AXA1125, we initiated our EMMPACT Phase 2b Clinical Trial for this candidate in the second quarter of 2021. This global randomized, double-blind, placebo-controlled, multi-center Clinical Trial is evaluating the efficacy, safety and tolerability of AXA1125 in adult patients with biopsy-confirmed F2/F3 NASH. Approximately 270 patients will be enrolled and randomized 1:1:1 to receive either 45.2 or 67.8 grams per day of AXA1125 or a matched placebo in two divided doses for 48 weeks, with a four-week safety follow-up period. Patients will be stratified based on the presence or absence of type 2 diabetes.
AXA1125 for the Treatment of Long COVID
AXA1125 is also currently being developed as a product candidate for the
treatment of Long COVID. In
Following clearance of a CTA filing by the
The Phase 2a trial's primary endpoint will assess the improvement of
mitochondrial function within the skeletal muscle as measured by changes in
phosphocreatine (PCr) recovery time, as measured by 31-phosphorus magnetic
resonance spectroscopy (MRS), from baseline to Day 28. PCr recovery time is a
well-established and highly sensitive measure that has been strongly correlated
with the 6-minute walk (6MW) test, a functional measure that has been used as a
registrational endpoint in several other diseases in which fatigue and muscle
weakness play a central role. Key secondary endpoints include lactate levels, a
6MW test, fatigue scores, and safety and tolerability.
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Table of Contents AXA1665 for the Reduction in Risk of Overt Hepatic Encephalopathy (OHE) Recurrence
AXA1665 is currently being developed as a product candidate for the reduction in risk of OHE recurrence in adult patients with liver cirrhosis. In 2021, we announced that our IND for this candidate was cleared by the FDA, enabling us to proceed directly into a Phase 2 Clinical Trial, which was initiated in the second quarter of 2021. We have branded the Phase 2 trial EMMPOWER based on the potential for AXA1665, an EMM composition, to help patients, physicians and other caregivers overcome significant challenges associated with cirrhosis and OHE. Based on AXA1665's differentiated, multi-targeted design and data gathered to date, we believe this candidate holds the potential to reduce OHE events and improve the quality of life for cirrhotic patients.
We have conducted two prior Clinical Studies of AXA1665 in subjects with mild (Child Pugh A) and moderate (Child Pugh B) hepatic insufficiency. AXA1665 was generally well tolerated in both studies, with multifactorial effects seen in subjects. In 2020, Axcella completed its most recent Clinical Study of AXA1665, AXA1665-002. This was a 12-week (with a four-week follow-up) randomized, placebo-controlled Clinical Study to assess AXA1665's safety, tolerability and impact on normal liver and muscle structures and functions in approximately 60 subjects with mild (Child A) and moderate (Child B) hepatic insufficiency. Results from the study showed that AXA1665 demonstrated dose dependent improvements across all three psychometric tests that were utilized.
Following FDA clearance of an IND application for AXA1665, we initiated our EMMPOWER Phase 2 Clinical Trial for this candidate in the second quarter of 2021. This global randomized, double-blind, placebo-controlled, multi-center investigation is evaluating the efficacy and safety of AXA1665 in patients who have experienced at least one prior OHE event and have neurocognitive dysfunction at screening. Approximately 150 patients on lactulose ± rifaximin (stratified by rifaximin use) will be randomized 1:1 to receive either 53.8 grams per day of AXA1665 or a matched placebo in three divided doses for 24 weeks, with a four-week safety follow-up period.
Effects of 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.
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Table of Contents 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.
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.
Research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the stage of preclinical and clinical activities and development. 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.
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Table of Contents See "Risk Factors" 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. We expect research and development expenses to increase as we advance existing product candidates into additional Clinical Trials and Clinical Studies and develop new 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 general and administrative expenses will increase in the future to support our continued research and development of our product candidates. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
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 consists of interest on outstanding borrowings under our loan and security agreement, the amortization expense of the debt discount and debt issuance costs, and interest paid for leased capital equipment.
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.
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,
2022 2021 Change
Operating expenses:
Research and development $ 13,544 $ 10,240 $ 3,304
General and administrative 4,786 4,256 530
Total operating expenses 18,330 14,496 3,834
Loss from operations (18,330) (14,496) (3,834)
Other income (expense):
Other income (expense), net (709) (693) (16)Total other income (expense), net (709) (693) (16) Net loss
$ (19,039) $ (15,189) $ (3,850) 29
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Table of Contents Research and Development Expenses
The following table summarizes our research and development expenses incurred
during the three months ended
Three Months Ended
March 31,
2022 2021 Change
Salary and benefits-related $ 4,182 $ 3,352 $ 830 Clinical research and outside services 8,271 5,420 2,851 Facility-related and other
1,091 1,468 (377)
Total research and development expenses
Salary and benefits-related costs increased by
General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred
during the three months ended
Three Months Ended
March 31,
2022 2021 Change
Salary and benefits-related $ 3,004 $ 2,665 $ 339
Other contract services and outside costs 1,514 1,293 221
Facility-related and other 268 298 (30)
Total general and administrative expenses
Salary and benefits-related costs increased by
Other Income (Expense), Net
Other income (expense), net was
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Table of Contents
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue and have incurred
significant operating losses and negative cash flows from our operations. Our
net losses were
To date, we have primarily financed our operations with proceeds from the sale of preferred and common stock and borrowing of debt, including the following significant transactions:
•On
•From time to time, we may offer and sell shares of our common stock having an
aggregate offering price of up to
As of
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Table of Contents
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,
2022 2021
Cash used in operating activities $ (16,862) $ (14,145)
Cash provided by (used in) investing activities 13,160 (14,392)
Cash provided by (used in) financing activities 25,318 (4)
Net increase (decrease) in cash and cash equivalents
Operating Activities
During the three months ended
During the three months ended
Investing Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
During the three months ended
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Table of Contents Loan and Security Agreement
On
In conjunction with the execution of the New Loan and Security Agreement, we
also agreed to a new terminal fee obligation totaling
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance existing product candidates and develop new clinical and pre-clinical programs. Our cash requirements depend on numerous factors, including, without limitation, expenditures in connection with our research and development programs, including with respect to the timing and progress of Clinical Trials, Clinical Studies and preclinical development activities; payments to CROs, CMOs and other third-party providers; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; our ability to raise additional equity or debt financing; potential repayments of our long-term debt; and our ability to enter into collaboration or license agreements and our receipt of any upfront, milestone or other payments thereunder. Changes in our research and development plans or other changes affecting our operating expenses may result in changes in the timing and amount of expenditures of our capital resources. Further, inflation may affect our use of capital resources by increasing our cost of labor and clinical trial expenses. See "Risk Factors" 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, cash equivalents, and marketable securities to support current operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt re-financings, collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all, including as a result of market volatility following the COVID-19 pandemic. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Further, inflation may affect our use of capital resources by increasing our cost of labor and clinical trial expenses. We also intend to continue to evaluate options to refinance our outstanding long-term debt. The amounts involved in any such transactions, individually or in the aggregate, may be material. These factors individually and collectively raise substantial doubt about our ability to continue as a going concern.
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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 with
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.
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
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