Annovis Bio, Inc.: Form 10-Q for the period ended Mar 31, 2024

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

• our cash and cash equivalents balance, runway and needs as well as financing plans;
• our business strategies;
• the timing of regulatory submissions;
• our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;
• risks relating to the timing and costs of clinical trials and the timing and costs of other expenses;
• risks related to market acceptance of products;
• risks associated with our reliance on third-party organizations;
• our competitive position;
• assumptions regarding the size of the available market, product pricing and timing of commercialization of our product candidates;
• our intellectual property position and our ability to maintain and protect our intellectual property rights;
• our results of operations, financial condition, liquidity, prospects, and growth strategies;
• the industry in which we operate; and
• the trends that may affect the industry or us.

You should refer to Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Those factors are updated, as applicable, in “Factors that May Affect Future Results” below. As a result of the risks, uncertainties and assumptions described above and elsewhere, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with: (i) the interim financial statements and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) our annual financial statements for the year ended December 31, 2023 which are included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Company Overview

We are a clinical stage, drug platform company addressing neurodegeneration, such as Alzheimer’s disease (“AD”) and Parkinson’s disease (“PD”). We are developing our lead product candidate, Buntanetap, which is designed to address AD, PD, and potentially other chronic neurodegenerative diseases. Buntanetap is a synthetically produced small molecule, orally administered, brain penetrant compound. In several studies, Buntanetap was observed to inhibit the synthesis of neurotoxic proteins - APP/Aβ (“APP”), tau/phospho-tau (“tau”) and α-Synuclein (“αSYN”) - that are one of the main causes of neurodegeneration. High levels of neurotoxic proteins lead to impaired axonal transport, which is responsible for the communication between and within nerve cells. When that communication is impaired, the immune system is activated and attacks the nerve cells, eventually killing them. We have observed in our clinical studies in early AD and early PD patients and pre-clinical studies in mice and rats that Buntanetap lowered neurotoxic protein levels leading to improved axonal transport, reduced inflammation, lower nerve cell death and improved affected function.

In 2021, we completed two Phase 1/2 clinical studies: one in 14 early AD patients, and one in 54 early PD patients (together, the “AD/PD Trials”). In the AD/PD Trials, early AD patients were defined as those with a Mini Mental State Examination (“MMSE”) score between 19 and 28 and early PD patients as those patients at Hoehn & Yahr stages 1, 2 or 3. MMSE is a brief screening instrument used to assess cognitive function, with total scores ranging from 0 to 30 and a lower score indicating greater disease severity, while the Hoehn & Yahr scale is a medical assessment used to measure staging of the functional disability associated with PD, where a higher stage indicates greater disease severity. In collaboration with the Alzheimer’s Disease Cooperative Study (“ADCS”), we also conducted a trial in 16 early AD patients (the “ADCS Trial”). In the ADCS Trial, early AD patients were defined as those patients with a MMSE score between 19 and 28. All three clinical trials were double-blind, placebo-controlled studies. We designed the studies by applying our understanding of the underlying neurodegenerative disease states, and measured both target and pathway validation in the spinal fluid of patients to determine whether patients improved following treatment. In addition to meeting their primary endpoints of safety and tolerability and secondary endpoint of pharmacokinetics of Buntanetap, our AD/PD Trials met exploratory endpoints of measures of biomarkers and improvements in cognition in AD patients, and in function in PD patients. We believe that the AD/PD Trials represent the first double-blind placebo-controlled studies that showed improvements in AD patients, as measured by ADAS-Cog, and in PD patients, as measured by UPDRS. Following completion of the AD/PD Trials, we submitted our data to the U.S. Food and Drug Administration (“FDA”) and requested direction to further pursue the development of Buntanetap in early PD patients. With the FDA’s guidance, we initiated a Phase 3 study in early PD patients in August 2022 (our “Phase 3 PD Study”). In the Phase 3 PD Study, early PD patients were defined as those at Hoehn & Yahr stages 1, 2 or 3 and OFF times of less than two hours per day. OFF time refers to when PD motor and/or non-motor symptoms occur between medication doses. We also submitted a proposed protocol for the treatment of moderate AD to the FDA, and after receiving permission to proceed, we initiated a Phase 2/3 study in mild to moderate AD patients in February 2023 (our “Phase 2/3 AD Study”). In the Phase 2/3 AD Study, mild to moderate AD patients were defined as those with a MMSE score between 14 and 24. At the completion of the ADCS Trial, the data showed that Buntanetap is a translational inhibitor in humans just like in animals, and we further observed that there was statistical improvement in cognition in early AD patients, just like in the AD/PD Trials.

Our Phase 3 PD Study and Phase 2/3 AD Study each had built in interim analyses. Our Phase 3 PD Study incorporated an interim analysis at two months, the results of which were disclosed on March 31, 2023. The pre-planned interim analysis was conducted by our data analytics provider based on 132 patients from all cohorts collectively for which baseline and two-month data was available. As the interim analysis was conducted at two months of the six-month endpoint and only on 132 patients, it may not be indicative of the results at six months for the full patient population. Based on the results of the interim analysis, we proceeded with the Phase 3 PD Study as planned in accordance with the previously established protocol. The study was completed on December 4, 2023, and we have been organizing and cleaning data since that date. On May 9, 2024, we announced unblinding of the Phase 3 PD data. We expect to release topline PD Study efficacy data in June 2024.

We disclosed the results of the interim analysis for our Phase 2/3 AD Study on October 23, 2023, and similar to our PD study, based on the outcome of the interim analysis we proceeded with the study as planned. The Phase 2/3 AD study was completed on February 13, 2024. On April 29, 2024, we announced data from the AD study. We will report the data to the FDA and ask for an end-of-Phase 2 meeting for AD. We expect to discuss the AD data with the FDA in the two to three months following the release and then move on to the next Phase 3 study to confirm and expand these findings in an 18-month disease-modifying trial, focusing on biomarker-positive early AD patients. We further plan to present the data at AAIC 2024 and to publish it in a peer-reviewed journal.

By the end of 2026, our goal is to have conducted the required pivotal studies for Buntanetap to be able to file two new drug applications (“NDAs”) with the FDA.

We believe that we are the only company developing a drug for AD and PD that is designed to inhibit more than one neurotoxic protein and has a mechanism of action designed to restore nerve cell axonal and synaptic activity. By improving brain function, our goal is to treat memory loss and dementia associated with AD, as well as body and brain function associated with PD. Based on pre-clinical and clinical data collected to date, we believe that Buntanetap has the potential to be the first drug to interfere with the underlying mechanism of neurodegeneration, potentially enabling Buntanetap to be the only drug to improve cognition in AD and motor function in PD. The industry has encountered challenges in specifically targeting one neurotoxic protein, be it APP, tau or αSYN, indicating that doing so does not change the course of neurodegeneration. Our goal is to develop a disease modifying drug (“DMD”) for patients with neurodegeneration by leveraging our clinical and pre-clinical data to inhibit the three most relevant neurotoxic proteins. Studies have found that AD and PD are the most common neurodegenerative diseases in the U.S. and accordingly, these diseases present two unmet needs of the aging population and two potentially large U.S. markets if a DMD is developed and approved.

Funding Requirements

We have never been profitable and have incurred net losses since inception. Our accumulated deficit at March 31, 2024 was $111,326.0 thousand. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.

We do not have sufficient capital on hand to fund our operations for the next 12 months and will need to raise additional capital to meet our obligations as they become due. We believe that actively managing our cash and working capital as of March 31, 2024, as well as the additional $0.8 million of proceeds received under our ELOC Purchase Agreement during May 2024, will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2024. We will need to raise substantial additional capital to complete the development and commercialization of our product candidates through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. However, there can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital or defer sufficient operating expenses, we may be compelled to reduce the scope of our operations.

In order to fund operations and additional clinical trials, we plan to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. We have no committed external sources of funds other than our ELOC facility, which was announced on April 25, 2024. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.

Results of Operations

Operating expenses and other income were comprised of the following:

(in thousands)

Three Months Ended March 31, 2024 and 2023

Research and Development Expenses

Research and development expenses decreased by $1,271.2 thousand for the three months ended March 31, 2024, compared to the prior year period. This decrease was primarily the result of a net decrease of $980.9 thousand in contract research expenditures, driven by timing of study costs with respect to our Phase 3 study in early PD patients and Phase 2/3 in AD patients. Additionally, there was a decrease of $644.2 thousand in stock-based compensation expense compared to the prior year period, driven by lower fair values being amortized in 2024 as compared to 2023, as a result of lower stock price. These decreases were partially offset by increases in employee related costs, due primarily to additional headcount in 2024, compared to the same period in 2023.

General and Administrative Expenses

General and administrative expenses decreased by $888.8 thousand for the three months ended March 31, 2024, compared to the prior year period. The decrease was primarily the result of a decrease of $533.4 thousand in stock-based compensation expense, driven by lower fair values being amortized in 2024 as compared to 2023, as a result of lower stock price. Additionally, there was a decrease of $385.1 thousand in professional fees compared to the prior year period, as a result of lower legal and investor relations costs incurred during the first quarter.

Change in Fair Value of Warrants

Change in fair value of warrants was a gain of $6,698.7 thousand for the three months ended March 31, 2024, as compared to zero for the prior year period. This increase was attributable to the fair value remeasurement with respect to our liability-classified Canaccord Warrants during the first quarter of 2024. The associated gain recorded in Results of Operations was primarily driven by the decrease in our stock price during the first quarter of 2024, which caused the fair value of the liability to decrease substantially.

Interest Income

Interest income decreased $188.3 thousand for the three months ended March 31, 2024 compared to the prior year period. This decrease was primarily the result of lower cash and cash equivalent balances when compared to the prior year period.

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 and warrants. To date, we have not generated any revenue from the sale of products, and we do not anticipate generating any revenue from the sale of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of March 31, 2024, our principal source of liquidity was our cash and cash equivalents, which totaled $3,137.0 thousand.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:

(in thousands)

Operating Activities

For the three months ended March 31, 2024, cash used in operations decreased $4,593.5 thousand compared to the same period in the prior year. The decrease in cash used in operations was primarily the result of a decrease in cash paid for clinical trial expenses given the planned timing of study costs and related disbursements.

Contingent upon continued achievement of our fundraising objectives, we expect cash used in operating activities to continue to be elevated during and after 2024 due to expected operating losses associated with ongoing development of our product candidates, including clinical trial expenses for our additional studies in early PD patients and a next Phase 3 study in AD patients.

Financing Activities

For the three months ended March 31, 2024, cash provided by financing activities increased by $4,407.6 thousand due primarily to proceeds from the issuance of common stock and the exercise common stock warrants. In the prior year period, there were amounts provided by financing activities solely with respect to minor stock option exercise proceeds.

Contractual Obligations and Other Commitments

This item is not required for smaller reporting companies.

Factors that May Affect Future Results

You should refer to Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of important factors that may affect our future results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable SEC regulations.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of financial statements in conformity with GAAP requires us to use judgment in making certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in our financial statements and accompanying notes. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require difficult, subjective and complex judgments by Management in order to make estimates about the effect of matters that are inherently uncertain. During the three month period ended March 31, 2024, there were no significant changes to our critical accounting policies from those described in our annual financial statements for the year ended December 31, 2023, which we included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Evaluation of Disclosure Controls and Procedures

Our Management, with the participation of our principal executive officer who is also our interim principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and Management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our principal executive officer/interim principal financial officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer/interim principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(f) and 15d-15(f) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Risk factors that may affect our business and financial results are discussed within Item 1A “Risk Factors” of our annual report on Form 10-K filed with the SEC on March 29, 2024 (“2023 Form 10-K”). There have been no material changes to the disclosures relating to this item from those set forth in our 2023 Form 10-K.