Annexon, Inc. Form 10-Q Summary
Business Context and Reporting Period
Annexon, Inc. is a clinical-stage biopharmaceutical company developing therapies targeting C1q and the classical complement pathway for autoimmune and neurodegenerative disorders. The filing covers the three and nine months ended September 30, 2020, with comparative periods ended September 30, 2019.
The company has no products approved for commercial sale and has generated no product revenue. Lead candidates include ANX005, ANX007 and ANX009. The company completed its initial public offering in July 2020 and began trading on Nasdaq.
Financial Highlights
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $11.8 million, up 66% | $31.3 million, up 76% |
| General and administrative expense | $3.8 million, up 92% | $9.0 million, up 59% |
| Total operating expenses | $15.6 million, up 72% | $40.3 million, up 72% |
| Net loss | $15.6 million, compared with $10.2 million | $40.2 million, compared with $28.2 million |
| Net loss attributable to common stockholders | $22.0 million | $47.1 million |
| Basic and diluted loss per share | $0.77 | $4.79 |
| Cash used in operating activities | $33.8 million for the nine months |
Profitability and conventional margins are not meaningful because the company has no revenue. Research and development spending increased primarily from clinical and preclinical activities, contract manufacturing, professional services and higher personnel costs. General and administrative spending increased largely because of public-company readiness costs, including accounting, legal, audit and insurance expenses.
At September 30, 2020, cash and cash equivalents were $370.7 million, compared with $43.9 million at December 31, 2019. Total assets were $375.6 million, total liabilities were $10.1 million, and stockholders’ equity was $365.5 million. The company had no outstanding redeemable convertible preferred stock after its IPO and no material debt. A $0.5 million Paycheck Protection Program loan obtained in April 2020 was repaid in May 2020.
Material Changes Versus the Prior Comparable Period
- Operating expenses rose 72% in both the quarter and nine-month period, driven by advancing clinical programs, manufacturing and increased headcount.
- Net loss increased by $5.5 million, or 53%, in the quarter and by $12.0 million, or 42%, for the nine months.
- The company raised approximately $262.4 million in net IPO proceeds and approximately $96.8 million, net of issuance costs, from Series D preferred stock before its conversion into common stock.
- All outstanding preferred stock converted into 20.8 million shares of common stock immediately before the IPO. Common shares outstanding increased to 38.2 million at September 30, 2020 from 0.4 million at December 31, 2019, reflecting the reverse stock split, preferred-stock conversion and IPO.
- Unlike 2019, the company recorded no loss from remeasurement of the redeemable convertible preferred stock liability in 2020. The 2019 comparative period included a $1.3 million quarterly and $5.7 million nine-month loss from that liability.
- Operating cash use increased to $33.8 million from $19.6 million in the prior-year nine-month period.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued losses and negative operating cash flow for at least several years and expects research and development and general and administrative expenses to increase substantially.
- Based on its operating plan, management expects existing cash and cash equivalents to fund operations and capital expenditures through 2023. Management also stated that cash on hand was sufficient for at least the next 12 months following issuance of the financial statements.
- Planned development includes multiple Phase 2 studies for ANX005 in 2020 and 2021, including Guillain-Barré syndrome, warm autoimmune hemolytic anemia, Huntington’s disease and amyotrophic lateral sclerosis, and a planned Phase 2 study for ANX007 in geographic atrophy in 2021.
- The COVID-19 pandemic could delay enrollment, site activity, clinical milestones, regulatory interactions, laboratory work and third-party manufacturing. The filing does not quantify the potential financial impact.
- The company is dependent on successful clinical development, regulatory approval and commercialization of early-stage product candidates. It has not demonstrated product efficacy sufficient for approval and has no commercial sales organization.
- Annexon relies substantially on contract research organizations, clinical sites and third-party manufacturers. Delays, quality failures, supply interruptions or regulatory deficiencies could materially affect development timelines and costs.
- The company expects to require additional financing in the future. Additional equity financing could dilute existing stockholders, while debt or collaboration financing could impose restrictive terms or require surrendering rights.
- The company reported no material legal proceedings, no material indemnification claims and no off-balance-sheet arrangements. Disclosure controls and procedures were assessed as effective, and no material changes to internal control over financial reporting were reported during the quarter.
Important Facts for Investors to Verify
- Whether clinical enrollment, trial timelines and regulatory interactions for ANX005, ANX007 and ANX009 are progressing as planned, particularly under continuing COVID-19 conditions.
- Whether the projected cash runway through 2023 remains valid as research, manufacturing, personnel and public-company costs increase.
- Future financing needs, potential dilution and the terms of any equity, debt or collaboration transactions.
- Clinical safety, efficacy and biomarker data, including the limitation that ANX005 trials conducted in combination with IVIg will not establish ANX005 monotherapy efficacy.
- Third-party manufacturing capacity, supply continuity and compliance with applicable quality and regulatory requirements.
- Potential effects of the January 2021 IPO lock-up expiration and the sale or registration of additional shares by existing holders.