Annexon, Inc. quarterly report, Q1 FY2023

Annexon, Inc. — 10-Q Summary

Reporting period: Three months ended March 31, 2023; filed May 8, 2023. Annexon is a clinical-stage biopharmaceutical company developing complement medicines for autoimmune, neurodegenerative and ophthalmic disorders. It has no products approved for commercial sale and generated no product revenue.

Financial Performance and Position

Metric	Q1 2023	Q1 2022	Change
Revenue	$0	$0	No product revenue
Research and development expense	$32.3 million	$27.0 million	Up 20%
General and administrative expense	$8.9 million	$8.4 million	Up 6%
Total operating expenses	$41.2 million	$35.4 million	Up 16%
Interest and other income, net	$2.6 million	$0.1 million	Up $2.5 million
Net loss	$38.7 million	$35.4 million	Loss increased $3.3 million
Basic and diluted net loss per share	$0.52	$0.92	Improved due primarily to higher share count
Net cash used in operating activities	$33.0 million	$30.3 million	Use increased $2.7 million

Operating margins are not meaningful because the Company has no revenue. Research and development represented approximately 78% of operating expenses. R&D growth primarily reflected $3.6 million of additional contract manufacturing costs and $2.3 million of higher compensation and personnel costs, partly offset by lower clinical and nonclinical outside-service costs.

At March 31, 2023, cash and cash equivalents were $144.1 million, short-term investments were $84.0 million, and cash, cash equivalents and short-term investments totaled $228.2 million. Total assets were $268.8 million, total liabilities were $53.9 million, and stockholders’ equity was $214.9 million. The filing reports no debt financing; liabilities primarily comprise operating lease obligations, accounts payable and accrued liabilities. Operating lease liabilities totaled $32.5 million, including $31.0 million non-current.

Stock-based compensation expense was $4.6 million, compared with $4.3 million in the prior-year quarter. Accumulated deficit was $476.9 million at March 31, 2023.

Cash Flow and Liquidity

Investing activities provided $19.5 million, reflecting $51.1 million of investment maturities, partly offset by $31.4 million of investment purchases and $0.1 million of equipment purchases.
Financing activities provided $17.6 million, primarily from $17.5 million of net proceeds under the at-the-market program.
Cash, cash equivalents and restricted cash increased by $4.1 million during the quarter to $145.2 million.
Management stated that cash on hand was sufficient to support operations for at least the next 12 months. Based on its operating plan, the Company expects existing cash and investments to fund current clinical-trial and capital requirements into 2025, although actual spending could be higher.
The Company expects continued operating losses and negative operating cash flow for at least several years and expects to seek additional financing in the future.

Material Changes and Capitalization

The Company sold 2,646,458 common shares at $6.80 per share under its 2021 ATM program, generating approximately $18.0 million gross and $17.5 million net proceeds. Approximately $82.0 million remained available under the program at March 31, 2023.
Shares outstanding increased to 53,080,673 at March 31, 2023, from 47,722,995 at December 31, 2022. The filing reported 53,083,947 shares outstanding as of May 1, 2023.
Potential additional dilution includes 22,113,062 shares issuable upon exercise of pre-funded warrants and 8,427,508 shares issuable upon exercise of common warrants. The common warrants have a $5.806875 exercise price and expire June 30, 2025.
The Company’s July 2022 private placement generated approximately $122.5 million of net proceeds and remains a significant source of liquidity.

Programs, Outlook and Management Commentary

ANX005 for Guillain-Barré syndrome: A pivotal Phase 3 trial was ongoing, with enrollment of approximately 225 patients expected to be completed in the second half of 2023 and data anticipated in the first half of 2024.
ANX007 for geographic atrophy: The approximately 270-patient Phase 2 ARCHER trial had completed enrollment. Twelve-month treatment-period data were expected in mid-2023, with additional data after the six-month off-treatment period expected by year-end 2023.
ANX1502: Phase 1 single- and multiple-ascending-dose studies were ongoing. Multiple-ascending-dose data were expected in the second half of 2023. The Company reported no dose-limiting safety signals to date in the single-ascending-dose study.
ANX005 for Huntington’s disease: The Company planned to initiate a randomized Phase 2/3 trial in 2023 after obtaining funding for full program development.
Other programs included Phase 1b ANX009 for lupus nephritis, Phase 2a ANX005 for amyotrophic lateral sclerosis, and Phase 1 ANX105. Additional data were expected during 2023.
Management expects R&D and general and administrative expenses to increase substantially as programs advance, clinical trials expand, regulatory activities continue and the organization grows.

Principal Risks, Contingencies and Unusual Items

The Company has a limited operating history, no approved products and no product revenue; success depends on clinical development, regulatory approval, manufacturing and eventual commercialization.
Clinical trials may be delayed, fail to meet endpoints, produce safety concerns or require additional studies. The FDA may not accept a single pivotal trial as sufficient for ANX005 in Guillain-Barré syndrome.
The Company relies on third parties for clinical trials, manufacturing and supply. It reported a significant cyberattack at one third-party drug component supplier that could cause supply delays or higher costs.
Future financing may be required sooner than expected and could cause dilution, restrictive debt covenants or loss of rights through collaborations. Capital availability may be affected by interest rates, inflation, bank failures, market volatility and supply-chain disruptions.
The Company relies on contract manufacturers and has not yet engaged commercial-scale manufacturers. Manufacturing failures, quality issues or insufficient supply could delay development or commercialization.
The Company is subject to substantial intellectual property, regulatory, data privacy, cybersecurity, product liability, reimbursement and competitive risks.
The Company reported no material legal proceedings, no material indemnification claims and no off-balance-sheet arrangements. Disclosure controls and procedures were deemed effective, with no material change in internal control over financial reporting during the quarter.

Important Facts for Investors to Verify

Progress, enrollment completion and results for the ANX005 Phase 3 Guillain-Barré syndrome trial, including the anticipated 2024 data timing.
ANX007 ARCHER trial results and whether efficacy and safety support pivotal development or regulatory interaction.
Actual cash burn relative to the stated funding runway into 2025 and the timing and terms of future capital raises.
Remaining ATM capacity, outstanding pre-funded and common warrants, and the resulting potential dilution.
Clinical safety, efficacy and regulatory status of ANX1502, ANX009, ANX005 in Huntington’s disease and ALS, and ANX105.
Manufacturing capacity, supplier concentration and remediation or consequences related to the reported third-party cyberattack.