Annexon, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing complement medicines targeting autoimmune, neurodegenerative and ophthalmic disorders. The report covers the three and six months ended June 30, 2023, and was filed August 7, 2023. The company has no approved products and has generated no product revenue.
- Key programs include ANX005 in Guillain-Barré syndrome and Huntington’s disease, ANX007 in geographic atrophy, ANX1502 in autoimmune indications, ANX009 in lupus nephritis and ANX005 in ALS.
- As of June 30, 2023, Annexon had 77 full-time employees and 53.2 million common shares outstanding.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $30.3 million | $29.1 million | Up 4% |
| General and administrative expense | $7.4 million | $8.3 million | Down 10% |
| Total operating expenses | $37.7 million | $37.4 million | Up 1% |
| Loss from operations | $(37.7) million | $(37.4) million | Loss increased $0.3 million |
| Interest and other income, net | $2.5 million | $0.3 million | Up $2.2 million |
| Net loss | $(35.2) million | $(37.1) million | Loss improved $1.9 million |
| Basic and diluted net loss per share | $(0.47) | $(0.96) | Improved, primarily due to higher share count |
For the six months ended June 30, 2023, revenue was $0, operating expenses were $78.9 million, operating loss was $78.9 million and net loss was $73.9 million, compared with a $72.5 million net loss in the prior-year period. No meaningful profit margin exists because the company has no commercial revenue.
- Cash and cash equivalents were $113.6 million and short-term investments were $79.3 million at June 30, 2023, totaling approximately $192.9 million. Including restricted cash, cash, cash equivalents and restricted cash totaled $114.6 million.
- Six-month operating cash burn was $69.4 million, compared with $58.5 million in the prior-year period.
- Investing activities provided $25.0 million, primarily reflecting net maturities of available-for-sale securities.
- Financing activities provided $17.9 million, including $17.5 million of net proceeds from an ATM sale to an entity related to a director.
- Cash, cash equivalents and restricted cash declined by $26.4 million during the first six months of 2023.
- The company reported no debt financing. Operating lease liabilities totaled $32.0 million, including $1.6 million current and $30.4 million non-current, with undiscounted future lease payments of $45.2 million.
Material changes versus the prior comparable period
- Six-month R&D expense increased $6.5 million, or 12%, driven primarily by a $4.7 million increase in contract manufacturing, a $3.9 million increase in compensation and personnel costs, and higher consulting, laboratory and facility expenses.
- Clinical and nonclinical outside-service costs declined $3.6 million for the six-month period, primarily because enrollment in the ARCHER geographic-atropy trial was completed in 2022.
- G&A expense decreased $0.4 million for the six-month period, mainly from lower accounting, legal, audit and directors’ and officers’ insurance costs, partially offset by higher personnel costs.
- Interest and other income increased $4.7 million for the six-month period because of higher interest rates and larger investment balances following the July 2022 private placement.
- During the first quarter of 2023, 2.6 million pre-funded warrants were cashlessly exercised. Annexon also issued 2.6 million common shares under its ATM program for approximately $17.5 million of net proceeds.
- Accumulated deficit increased from $438.3 million at December 31, 2022 to $512.1 million at June 30, 2023. Stockholders’ equity declined from $231.2 million to $184.7 million.
Guidance, outlook, risks and unusual items
- Management expects to complete enrollment of approximately 225 patients in the Phase 3 GBS trial in the second half of 2023, with data anticipated in the first half of 2024.
- Management plans to engage U.S. and European regulators on ANX007 for geographic atrophy by the end of 2023 after completion of the ARCHER off-treatment follow-up.
- Data from the ANX1502 multiple-ascending-dose study, initial ANX009 lupus nephritis data and additional ANX005 ALS data were expected in the second half of 2023.
- A planned Phase 3 Huntington’s disease trial is now expected to begin in 2024 as the company prioritizes near-term geographic-atrophy development.
- Management states that existing cash and short-term investments are expected to fund planned operating expenses and capital requirements related to ongoing clinical trials into 2025, while also stating that cash on hand is sufficient for at least the next 12 months following issuance of the financial statements.
- The company expects continued losses and negative operating cash flows for at least several years and expects R&D and G&A expenses to increase substantially as programs advance.
- Annexon may require additional equity, debt, credit facilities or collaboration financing. Additional financing may be unavailable or may dilute existing stockholders and impose restrictive terms.
- Clinical, regulatory, manufacturing and supply-chain risks are material. Product candidates may fail to demonstrate safety or efficacy, clinical trials may be delayed or terminated, and regulators may require additional studies.
- The company relies on third parties for clinical trials and manufacturing and has no commercial manufacturing arrangements or sales organization.
- There were no material legal proceedings, material indemnification claims, defaults on senior securities or off-balance-sheet arrangements reported.
- Disclosure controls and procedures were assessed as effective, and no material change in internal control over financial reporting was reported during the quarter.
Most important facts for investors to verify
- Progress, enrollment completion and forthcoming data from the Phase 3 ANX005 GBS trial, including the anticipated first-half 2024 readout.
- Regulatory interactions and the final ARCHER results supporting ANX007’s geographic-atrophy development path.
- Whether the stated funding runway into 2025 remains valid as clinical, manufacturing and personnel spending increases.
- Cash burn relative to the approximately $192.9 million of cash and short-term investments at June 30, 2023.
- Potential dilution from 22.1 million outstanding pre-funded warrant shares, 8.4 million common-warrant shares and the remaining approximately $82.0 million capacity under the ATM program.
- Safety, efficacy, enrollment and regulatory risks across the company’s clinical programs, particularly its novel C1q-inhibition approach.