Annexon, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing C1q and classical complement pathway inhibitors for autoimmune, neurodegenerative and ophthalmic diseases. The filing covers the quarter and six months ended June 30, 2021, with comparisons to the same 2020 periods. The company has no approved products and has generated no product revenue.
- Lead candidates include ANX005, ANX007 and ANX009; preclinical programs include ANX105 and ANX1502.
- Ongoing or planned development includes Guillain-Barré syndrome, warm autoimmune hemolytic anemia, Huntington’s disease, ALS, geographic atrophy, lupus nephritis and multifocal motor neuropathy.
- The company reported 57 full-time employees as of June 30, 2021.
Financial condition and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $24.6 million | $45.3 million |
| General and administrative expense | $6.8 million | $12.3 million |
| Total operating expenses | $31.4 million | $57.6 million |
| Net loss | $31.3 million | $57.4 million |
| Net loss per share | $0.82 | $1.50 |
| Net cash used in operating activities | Not separately provided | $48.1 million |
- Cash and cash equivalents were $99.6 million and short-term investments were $202.8 million at June 30, 2021, for combined liquidity of approximately $302.4 million.
- Total assets were $331.8 million; total liabilities were $36.4 million; stockholders’ equity was $295.3 million.
- There was no material outstanding debt reported. Operating lease liabilities totaled $26.4 million, including $0.3 million current and $26.2 million non-current.
- Cash, cash equivalents and restricted cash declined by $167.8 million during the first six months, ending at $100.8 million.
- Investing cash outflows were $120.7 million, primarily reflecting purchases of available-for-sale securities, partly offset by maturities and sales.
- Stock-based compensation was $4.5 million in the quarter and $7.5 million year to date.
- Margins are not meaningful because the company has no product revenue and remains loss-making.
Material changes versus the prior comparable period
- Second-quarter R&D expense increased $15.3 million, or 165%, to $24.6 million. The increase reflected higher clinical and nonclinical services, contract manufacturing, personnel costs, stock-based compensation and facilities costs.
- Second-quarter G&A expense increased $3.9 million, or 131%, to $6.8 million, primarily from increased headcount, stock-based compensation, professional fees and facilities costs.
- First-half R&D expense increased $25.8 million, or 132%, and G&A expense increased $7.1 million, or 137%.
- First-half net loss increased $32.8 million, or 133%, to $57.4 million from $24.6 million.
- Operating cash burn increased to $48.1 million from $20.2 million in the first half of 2020.
- The company adopted ASC 842 lease accounting in 2021 and recognized right-of-use assets and lease liabilities, including obligations associated with its new Brisbane, California facility.
- The Brisbane lease commenced in May 2021. Tenant improvements were expected to be completed by October 2021, with move-in anticipated in November 2021.
Guidance, outlook, commentary and risks
- Management stated that existing cash and investments were sufficient to support operations for at least the next 12 months and, based on its current operating plan, through 2023. This estimate depends on assumptions that may change.
- The company expects substantial increases in R&D and G&A expenses as clinical programs advance, trial sizes increase, regulatory activities expand and the organization grows.
- Management expects continuing losses and negative operating cash flows for at least the next several years and expects to require additional financing in the future.
- Potential future financing sources include equity offerings, debt, credit facilities, collaborations or combinations thereof. Equity financing could dilute existing holders; debt could impose restrictive covenants and repayment obligations.
- COVID-19 caused clinical-site staffing shortages, longer site-initiation timelines, interruptions in Bangladesh trial activities and temporary shortages of laboratory kits and supplies. Further effects on enrollment, trial timing, vendors, manufacturers and regulators remain uncertain.
- Clinical and regulatory execution remains the principal risk. Product candidates are early-stage, C1q inhibition is a novel approach, and clinical efficacy, safety, regulatory approval and commercialization are not assured.
- The company relies on third parties for clinical research, manufacturing and supply. Delays, quality issues, capacity constraints or failures by these providers could delay development.
- The company has no material legal proceedings reported as of the filing date.
- After quarter-end, on August 16, 2021, the company entered into an at-the-market sales agreement allowing issuance of up to $100 million of common stock. No sales under the agreement were reported in this filing.
- Disclosure controls and procedures were determined to be effective. The company implemented a NetSuite ERP system and modified related internal control processes.
Most important facts for investors to verify
- Clinical-trial enrollment, safety, efficacy and regulatory milestones for ANX005, ANX007 and ANX009, including the timing and quality of anticipated data through 2023.
- Whether the stated liquidity runway through 2023 remains valid as R&D spending and trial activity increase.
- Future operating cash burn, investment balances and the timing and terms of any additional capital raise, including use of the $100 million ATM facility.
- Impact of COVID-19 and other site, enrollment, manufacturing and supply-chain disruptions on development timelines.
- Lease obligations and the operational and financial impact of the Brisbane facility.
- Potential dilution from stock options, the employee stock purchase plan and future equity financing; 5.7 million options were outstanding at June 30, 2021.
- Whether management’s transition to large accelerated filer status and related Section 404(b) auditor-attestation requirements creates additional compliance costs or control deficiencies.