Annexon, Inc. 2022 Q3 Form 10-Q Summary
Business Context and Reporting Period
Annexon is a clinical-stage biopharmaceutical company developing complement-targeted medicines for autoimmune, neurodegenerative and ophthalmic disorders. The company has no approved products and has generated no product revenue. This report covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key programs include ANX005 in Guillain-Barré syndrome, warm autoimmune hemolytic anemia, Huntington’s disease and ALS; ANX007 in geographic atrophy; ANX009 in lupus nephritis; and early-stage ANX105 and ANX1502 programs.
Financial Performance and Liquidity
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $27.9 million | $27.6 million | $84.0 million | $72.8 million |
| General and administrative expense | $8.2 million | $8.1 million | $24.9 million | $20.4 million |
| Total operating expenses | $36.1 million | $35.7 million | $108.9 million | $93.3 million |
| Net loss | $35.1 million | $35.6 million | $107.6 million | $93.0 million |
| Net loss per share | $0.51 | $0.93 | $2.21 | $2.43 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $89.2 million | $77.8 million |
Because Annexon has no revenue, gross and operating margins are not meaningful. Interest and other income increased to $1.0 million in Q3 and $1.3 million for the first nine months, primarily because of higher cash and investment balances.
- Cash and cash equivalents at September 30, 2022: $210.7 million.
- Short-term investments: $58.9 million; combined cash and short-term investments were approximately $269.5 million.
- Accumulated deficit: $403.9 million.
- Total liabilities: $52.1 million, consisting primarily of operating lease liabilities. The filing does not report funded debt.
- Operating lease liabilities: $33.7 million at September 30, 2022, with total undiscounted future payments of $48.7 million.
- Stock-based compensation expense: $13.7 million for the first nine months of 2022.
Material Changes Versus the Prior Comparable Period
- First-nine-month R&D expense increased 15%, or $11.1 million, primarily because clinical and nonclinical outside services increased $9.0 million as multiple trials progressed.
- First-nine-month G&A expense increased 22%, or $4.5 million, driven mainly by higher personnel costs, stock-based compensation, professional services and facilities expenses.
- First-nine-month operating cash burn increased to $89.2 million from $77.8 million.
- Q3 operating expenses increased only 1%, while Q3 net loss improved by $0.5 million because higher interest income largely offset the modest increase in expenses.
- Weighted-average shares used in Q3 loss-per-share calculations increased to 68.7 million from 38.3 million, primarily reflecting the pre-funded warrants issued in the July financing.
Financing, Outlook and Risks
- On July 11, 2022, Annexon completed a private placement of common stock, pre-funded warrants and common warrants, generating approximately $122.6 million of net proceeds.
- The financing included 9.0 million common shares, pre-funded warrants for 24.7 million shares and common warrants for 8.4 million shares. The common warrants have a $5.806875 exercise price and expire June 30, 2025.
- As of September 30, 2022, none of the pre-funded or common warrants had been exercised. The potential issuance of 33.1 million shares represents substantial potential dilution.
- The company stated that existing cash and investments should fund operations for at least the next 12 months and, under its current operating plan, into the second half of 2025. Management also expects continued losses and negative operating cash flow for several years.
- No shares had been sold under the company’s $100 million 2021 at-the-market program as of September 30, 2022.
- Management expected data in December 2022 from multiple autoimmune signal-finding studies and ANX1502 safety and target-engagement studies, data from the ANX007 geographic atrophy Phase 2 program in the first half of 2023, and a broader portfolio update in early January 2023.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, adverse events, dependence on third-party manufacturers and clinical research organizations, COVID-19-related disruption, competition, intellectual-property challenges, future financing needs and potential equity dilution.
- Annexon reported no material legal proceedings, no material indemnification claims and no off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of September 30, 2022.
Important Facts for Investors to Verify
- Clinical-trial enrollment, safety, efficacy and regulatory milestones for ANX005, ANX007, ANX009, ANX105 and ANX1502.
- The company’s actual quarterly cash burn and whether the stated runway into the second half of 2025 remains achievable as programs advance.
- The potential dilution from 24.7 million pre-funded warrant shares, 8.4 million common warrant shares, stock options, restricted stock units and any future capital raises.
- Whether operating expenses continue to rise as later-stage trials and regulatory activities expand.
- Effects of COVID-19, site staffing, patient enrollment, supply-chain availability and third-party manufacturing performance on development timelines.
- Future financing requirements, including possible use of the unused $100 million ATM facility and the terms of any new financing.