Annovis Bio, Inc.: Form 10-Q for the period ended Sep 30, 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 2023 fiscal year, which are included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Company Overview

We are a late-stage clinical, 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 reduced axonal transport, which is responsible for the communication between and within nerve cells. When that communication is compromised, 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 an MMSE score between 19 and 28. 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.

All three clinical trials above 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 for measures of biomarkers and improvements in cognition in AD patients, as well as 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 an MMSE score between 14 and 24.

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. 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 released the topline PD Study efficacy data on July 2, 2024. The data showed that in two subgroups, Buntanetap improved UPDRS 2, 3, 2+3 and total. It also showed that in the whole ITT population, Buntanetap stopped the loss of cognition and that in the 12% of patients that already had cognitive issues, Buntanetap improved cognition in a dose-dependent, statistically significant way. We expect to discuss the PD data with the FDA at an end-of-study meeting in early 2025. During that meeting, we plan to propose continued development of Buntanetap with pivotal Phase 3 trials.

For the AD Study, we disclosed the results of the pre-planned interim analysis on October 23, 2023 and similar to our PD study, based on the outcome of the interim analysis we proceeded with the study as expected. The Phase 2/3 AD study was completed on February 13, 2024 and on April 29, 2024, we announced topline efficacy data. The data showed that in early AD patients, Buntanetap improved ADAS-Cog11 in a dose-dependent fashion and was statistically significant from placebo and from baseline.

On October 10, 2024, the Company met with the FDA in an end-of-phase 2 meeting to discuss its Phase 2/3 AD data and to agree on a path forward. Annovis and the FDA have now aligned on a development path for Buntanetap towards the filing of New Drug Applications (NDAs), one for short-term and one for long-term efficacy. The Phase 3 program will investigate Buntanetap in patients with early AD and will consist of two trials: a 6-month study aimed at confirming Buntanetap’s symptomatic effects and an 18-month study designed to demonstrate potential disease-modifying effects. While the Company plans to run both studies, the completion of a well-designed and well-executed 6-month trial may be sufficient to support an NDA filing, potentially within one year of the study’s initiation.

Additionally, the FDA raised no concerns with the Company’s data on Buntanetap’s safety, including liver enzymes, drug interactions, dose selection, pharmacokinetics, population pharmacokinetics, and confirmed that development can proceed using the new crystal form of Buntanetap.

We believe that we are the only company developing a drug for AD and PD that inhibits 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. Further, Buntanetap may be the only drug to improve cognition in AD and cognition 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 only modestly or does not change the course of neurodegeneration. Our ultimate goal is to develop a disease-modifying drug (“DMD”) for patients with neurodegeneration by leveraging our clinical and pre-clinical data to inhibit the four 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 September 30, 2024 was $129.0 million. 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 our cash and cash equivalents as of September 30, 2024, will be sufficient to fund our operating expenses and capital expenditure requirements until we initiate the aforementioned 6-month Phase 3 study for AD, which we expect to take place during the first quarter of 2025. 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 Purchase Agreement, which was announced on April 25, 2024 and is discussed further below. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.

Results of Operations

Comparison of the Three Months Ended September 30, 2024 and 2023

The following table summarizes the results of our operations for the three months ended September 30, 2024 and 2023:

(in thousands)

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2024 were $2.7 million, compared to $13.8 million for the three months ended September 30, 2023. The $11.1 million decrease was attributable to decreased contract research expenditures of $11.8 million, given the wind-down of activities for our completed Phase 3 study in early PD patients and Phase 2/3 in AD patients during 2024, partially offset by an increase of $0.6 million in contract manufacturing and drug substance costs incurred for planned Phase 3 clinical supply.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2024 were $1.7 million, compared to $1.0 million for the three months ended September 30, 2023. The $0.7 million increase was attributable to warrant commission payments currently expensed in July 2024 of $0.4 million, as well as $0.3 million of increased professional fees associated with legal, accounting and investor relations costs.

Financing Costs

Financing costs were $0.5 million for the three months ended September 30, 2024. We did not incur any financing costs for the three months ended September 30, 2023. The change was attributable to issuance costs as well as changes in derivative fair value associated with our ELOC financing with the ELOC Purchaser, described further below.

Change in Fair Value of Warrants

Change in fair value of warrants was a loss of $7.9 million for the three months ended September 30, 2024. There was no change in fair value for the three months ended September 30, 2023. This change was attributable to the fair value remeasurement with respect to our liability-classified Canaccord Warrants during the third quarter of 2024. The associated loss recorded in the statements of operations was primarily driven by warrant exercises made at higher stock prices during the third quarter of 2024, triggering remeasurement.

Interest Income

Interest income was $0.1 million for the three months ended September 30, 2024. Interest income was $0.1 million for the three months ended September 30, 2023. There were no significant drivers of the change between each period.

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table summarizes the results of our operations for the nine months ended September 30, 2024 and 2023:

(in thousands)

Research and Development Expenses

Research and development expenses for the nine months ended September 30, 2024 were $15.0 million, compared to $29.9 million for the nine months ended September 30, 2023. The decrease of $14.9 million was attributable to a decrease of $18.8 million in contract research expenditures, given the wind down of activities for our completed Phase 3 study in early PD patients and Phase 2/3 in AD patients during 2024, offset by an increase of $2.8 million in contract manufacturing and drug substance costs incurred for planned Phase 3 clinical supply, as well as an increase of $1.0 million resulting from various biostatistical and bioanalytical projects associated with the completed PD and AD clinical studies.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2024 were $5.0 million, compared to $4.7 million for the nine months ended September 30, 2023. The $0.3 million increase was attributable to warrant commission payments currently expensed in 2024 of $0.5 million, offset by $0.2 million of decreased professional fees associated with legal and accounting costs.

Financing Costs

Financing costs were $1.9 million for the nine months ended September 30, 2024. We did not incur any financing costs for the nine months ended September 30, 2023. The change was attributable to issuance costs as well as changes in derivative fair value associated with our ELOC financing with the ELOC Purchaser, described further below.

Change in Fair Value of Warrants

Change in fair value of warrants was a gain of $2.9 million for the nine months ended September 30, 2024. There was no change in fair value for the nine months ended September 30, 2023. This change was attributable to the fair value remeasurement with respect to our liability-classified Canaccord Warrants, as well as the impacts of warrant exercises, during 2024. The associated gain recorded in statements of operations was primarily driven by the decrease in our stock price since the end of 2023, which caused the liability fair value to decrease, offset by the impacts of warrant exercises in the third quarter of 2024, triggering remeasurement.

Interest Income

Interest income was $0.2 million for the nine months ended September 30, 2024. Interest income was $0.6 million for the nine months ended September 30, 2023. The decrease of $0.4 million was 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 September 30, 2024, our principal source of liquidity was our cash and cash equivalents, which totaled $12.6 million. We do not believe that our cash on hand will be sufficient to fund our operations for at least twelve months beyond the date of this filing.

2024 ELOC Purchase Agreement

On April 25, 2024, we entered into an ELOC Purchase Agreement with the ELOC Purchaser, whereby we may offer and sell, from time to time at our sole discretion, and whereby the ELOC Purchaser has committed to purchase, up to 2,051,428 shares of shares of our common stock. The term of the agreement runs until the expiration of our active S-3 Registration Statement, unless earlier terminated or exhausted.

Upon execution of the ELOC Purchase Agreement, we agreed to issue 33,937 shares of common stock as commitment shares to the ELOC Purchaser. In addition to the commitment shares referenced above, as of September 30, 2024 we have sold approximately 1.2 million shares of our common stock under the purchase agreement and received net proceeds of $8.6 million. The ELOC Purchaser has agreed that during the term of the Purchase Agreement, neither it nor any of its affiliates will engage in any short sales or hedging transactions involving the Company’s common stock.

March 2024 Registered Direct Offerings

On both March 15, 2024 and March 21, 2024, we entered into separate securities purchase agreements with an institutional investor. When aggregating the results of both purchase agreements, we issued 0.4 million shares for net proceeds of $3.9 million.

April 2023 Private Placement

On April 7, 2023, we sold 0.1 million shares of common stock in a private placement to individual members of our Board of Directors and management, for net proceeds of $1.1 million.

March 2023 ATM

On March 31, 2023, we entered into an ATM Equity Offering Sales Agreement with BofA Securities, Inc. and ThinkEquity LLC, as sales agents, pursuant to which the Company could offer and sell, shares of the Company’s common stock from time to time, having an aggregate offering price of up to $50.0 million. Prior to termination of the Sales Agreement, the Company sold 0.7 million shares, for net proceeds of $7.5 million.

Cash Flows

The following table provides a summary of our cash flows for the nine months ended September 30, 2024 and 2023:

(in thousands)

Operating Activities

Cash used in operating activities was $13.6 million for the nine months September 30, 2024, compared to $30.6 million for the nine months ended September 30, 2023. The decrease in cash used in operations was primarily driven by decreases in clinical trial expenditures year over year, given the wind-down of our AD and PD studies during 2024.

Contingent upon continued achievement of our fundraising requirements, we expect cash used in operating activities to return to elevated levels after 2024, due to expected operating expenditures associated with continued development of our product candidates, including but not limited to clinical trial expenses for our planned pivotal Phase 3 studies for both AD and PD.

Financing Activities

Cash provided by financing activities was $20.5 million for the nine months ended September 30, 2024, compared to $8.6 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, cash provided by financing activities primarily consisted of proceeds of $8.0 million from warrant exercises, a combined $3.9 million received from our March registered direct offerings and $8.6 million of proceeds from share issuances under our ELOC Purchase Agreement. During the nine months ended September 30, 2023, cash provided by financing activities primarily consisted of $1.1 million in proceeds from our April 2023 Private Placement and $7.5 million in proceeds from our March 2023 ATM.

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 and nine month periods ended September 30, 2024, there were no significant changes to our critical accounting policies from those described in our annual financial statements for the 2023 fiscal year, 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 of September 30, 2024. 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 September 30, 2024, 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.