Annexon, Inc. — Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing complement-targeting medicines for autoimmune, neurodegenerative and ophthalmic diseases. The filing covers the three and nine months ended September 30, 2023, filed November 13, 2023. The company has no approved products and has generated no product revenue.
Priority programs include ANX005 for Guillain-Barré syndrome, ANX007 for geographic atrophy and ANX1502 for autoimmune indications. The company also discusses programs in Huntington’s disease, lupus nephritis and amyotrophic lateral sclerosis.
Financial condition and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $27.9 million | $90.5 million |
| General and administrative expense | $6.9 million | $23.2 million |
| Total operating expenses | $34.8 million | $113.7 million |
| Loss from operations | $(34.8) million | $(113.7) million |
| Interest and other income, net | $2.3 million | $7.4 million |
| Net loss | $(32.5) million | $(106.3) million |
| Net loss per share | $(0.43) | $(1.42) |
| Operating cash flow | Not separately provided for the quarter | $(97.7) million |
The filing does not provide a meaningful profitability margin because the company has no revenue. Stock-based compensation was $4.5 million for the quarter and $13.8 million year to date.
At September 30, 2023, cash and cash equivalents were $133.2 million, short-term investments were $32.1 million and cash, cash equivalents and restricted cash totaled $134.2 million. Cash and short-term investments totaled approximately $165.3 million. Total liabilities were $47.0 million, consisting largely of operating lease liabilities; the company had no reported debt financing.
Total assets were $203.8 million and stockholders’ equity was $156.8 million. The accumulated deficit was $544.6 million.
Material changes versus the prior comparable period
- Third-quarter research and development expense was essentially unchanged year over year, increasing by $31,000, as lower clinical and nonclinical outside-service costs were offset by higher contract manufacturing costs.
- For the quarter, contract manufacturing expense increased 50% to $5.6 million, primarily reflecting supply for the pivotal ANX005 development program. Clinical and nonclinical outside-service costs declined 20% to $10.3 million, primarily following completion of the ARCHER geographic atrophy trial.
- Third-quarter general and administrative expense decreased 16% to $6.9 million, primarily because of lower consulting, professional services, compensation and insurance costs.
- Nine-month research and development expense increased 8% to $90.5 million. Contract manufacturing increased $6.6 million, while clinical and nonclinical outside services decreased $6.2 million.
- Nine-month net loss improved modestly from $107.6 million to $106.3 million, principally because interest and other income increased by $6.0 million, partly offset by higher operating expenses.
- Net cash used in operating activities increased to $97.7 million from $89.2 million in the prior-year period.
- During the first quarter of 2023, Annexon raised approximately $17.5 million net through its at-the-market program by selling 2,646,458 shares to an entity related to a director. Approximately $82.0 million remained available under the program at September 30, 2023.
- During the first quarter, 2,582,557 shares were issued upon the cashless exercise of pre-funded warrants.
Guidance, outlook, commentary and risks
- Management stated that existing cash, cash equivalents and short-term investments should fund operating expenses and capital requirements for currently ongoing clinical trials into the second quarter of 2025, although actual cash usage could be higher than projected.
- The company expects to continue incurring losses and negative operating cash flows for at least the next several years and expects future research and development spending to vary substantially based on clinical, regulatory, manufacturing and pipeline priorities.
- The Phase 3 ANX005 trial in Guillain-Barré syndrome reached approximately 225 patients, with data anticipated in the first half of 2024.
- ANX007 geographic atrophy Phase 3 planning was subject to ongoing U.S. and European regulatory discussions, with an update planned by year-end 2023. The EMA granted PRIME designation in October 2023.
- Results from the Phase 1 ANX1502 trial were expected by year-end 2023. Full on-treatment data from the ANX005 ALS Phase 2a trial were expected by early 2024.
- Annexon may need additional equity, debt or collaboration financing before achieving product revenue. Additional financing may dilute shareholders, impose restrictive covenants or be unavailable on acceptable terms.
- Key risks include clinical-trial delays or failures, uncertain regulatory approval, safety events, reliance on contract manufacturers and clinical research organizations, competition, intellectual-property disputes, reimbursement uncertainty, cybersecurity incidents and macroeconomic or supply-chain disruptions.
- The company leases its Brisbane, California facilities through October 2031. Operating lease liabilities totaled $31.5 million at September 30, 2023, with undiscounted future lease payments of $44.0 million.
- The company reported no material legal proceedings, no defaults on senior securities and no material indemnification claims. Management concluded that disclosure controls and procedures were effective and that no material change occurred in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the timing, enrollment status, safety profile and efficacy results of the ANX005 Phase 3 Guillain-Barré syndrome trial.
- Assess regulatory feedback and the design, cost and financing implications of the planned ANX007 geographic atrophy Phase 3 program.
- Monitor cash burn, clinical-trial spending and whether the stated cash runway into the second quarter of 2025 remains achievable.
- Include potential dilution from 22.1 million pre-funded warrant shares, 8.4 million common warrant shares, stock options, restricted stock units and remaining ATM capacity.
- Evaluate whether clinical and regulatory results support commercial development of the company’s novel C1q-complement inhibition approach.
- Review contract manufacturing capacity, supply continuity and costs for pivotal-stage programs.