Annexon, Inc. — 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 and neurodegenerative disorders. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
The company has no approved products and has generated no product-sales revenue. Key programs include ANX005, ANX007 and ANX009. ANX005 was being advanced in Guillain-Barré syndrome and Huntington’s disease, ANX007 was in a Phase 2 geographic atrophy trial, and ANX009 was in a first-in-human trial.
Financial and Operating Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Product revenue | $0 | $0 | No change |
| Research and development expense | $20.7 million | $10.2 million | Up 103% |
| General and administrative expense | $5.5 million | $2.2 million | Up 144% |
| Total operating expenses | $26.1 million | $12.5 million | Up 110% |
| Net loss | $26.0 million | $12.3 million | Loss increased $13.7 million |
| Net loss attributable to common stockholders per share | $0.68 | $29.10 | Improved due primarily to post-IPO share count |
| Net cash used in operating activities | $23.4 million | $10.0 million | Use increased $13.4 million |
| Net cash used in investing activities | $37.6 million | $0 | Primarily securities purchases |
Other income was $142,000, including $135,000 of research-grant funding. Stock-based compensation was $3.0 million versus $663,000 in the prior-year quarter. No meaningful profitability or operating margin is applicable because the company has no revenue and remains loss-making.
At March 31, 2021, cash and cash equivalents were $206.7 million, short-term investments were $120.0 million, and total cash, cash equivalents and short-term investments were approximately $326.7 million. Total current assets were $330.5 million and current liabilities were $10.7 million. Total liabilities were $11.6 million; the filing does not identify outstanding debt. Restricted cash was $1.2 million for a lease-related letter of credit.
Cash, cash equivalents and restricted cash declined from $268.6 million at December 31, 2020 to $207.8 million at March 31, 2021. The decline reflected operating cash burn and purchases of available-for-sale securities, partially offset by $5.0 million of investment maturities and $268,000 from stock-option exercises.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased $10.5 million, driven by higher clinical and nonclinical services, contract manufacturing, personnel costs and consulting expenses as programs advanced.
- General and administrative expense increased $3.2 million, primarily from increased headcount, public-company compliance costs, accounting, legal and audit fees, and directors’ and officers’ insurance.
- Operating cash use more than doubled, from $10.0 million to $23.4 million.
- The company invested $42.5 million in available-for-sale securities during the quarter and received $5.0 million from maturities.
- Common shares outstanding increased materially following the July 2020 IPO and related underwriter option exercise. The IPO generated approximately $262.4 million of net proceeds.
- Stock options outstanding increased from 3.9 million at December 31, 2020 to 5.4 million at March 31, 2021; 1.6 million options were granted during the quarter.
Outlook, Liquidity, Risks and Unusual Items
Management stated that existing cash and cash equivalents were expected to fund operating expenses and capital expenditures through 2023, although actual cash usage could be faster than projected. Management also stated that available cash was sufficient to support operations for at least the next 12 months after issuance of the financial statements.
The company expects substantial increases in research and development and general and administrative expenses as clinical programs advance, larger trials are conducted, personnel are added, regulatory activities continue and public-company requirements expand. Management expects continued losses and negative operating cash flow for at least the next several years.
Additional financing will likely be required through equity offerings, debt financing, credit facilities, collaborations or other sources. Potential consequences include shareholder dilution, restrictive debt covenants, repayment obligations or the loss of rights to technologies or product candidates.
COVID-19 caused interruptions in clinical activities in Bangladesh, including quarantines, shortages of clinical-site staff, slower site initiation and temporary shortages of laboratory kits and supplies. Further effects could include delays in enrollment, trial execution, manufacturing, regulatory interactions and product development timelines.
The company entered into a Brisbane, California lease expected to begin in November 2021 and run through October 2031, with a tenant-improvement allowance of up to $10.8 million and a $1.0 million letter of credit. The existing South San Francisco lease is expected to terminate when the new lease begins.
Material risks include clinical-trial failure or delay, regulatory non-approval, unforeseen safety issues from the novel C1q-inhibition approach, reliance on third-party manufacturers and contract research organizations, intellectual-property disputes, future financing needs, competition, cybersecurity and data-privacy risks, and continued pandemic-related disruptions. The company reported no material legal proceedings.
Disclosure controls and procedures were assessed as effective. The company launched a NetSuite enterprise resource planning system during the quarter and modified related internal-control processes, but reported no material effect on internal control over financial reporting.
Important Facts for Investors to Verify
- Whether clinical enrollment, timelines and regulatory plans for ANX005, ANX007 and ANX009 remain on schedule.
- Whether cash usage is tracking consistently with the projection that capital resources would fund operations through 2023.
- The expected timing, size and potential dilution of future financing transactions.
- The impact of COVID-19 and any continuing disruptions at clinical sites, contract research organizations or manufacturers.
- Clinical safety, efficacy and biomarker data, recognizing that preliminary or interim data may change after additional analysis.
- Manufacturing capacity, quality compliance and supply continuity for clinical-stage product candidates.
- Lease-transition costs, tenant improvements and obligations associated with the Brisbane facility.
- Future stock-based compensation, option dilution and the $57.3 million of unrecognized compensation cost expected to be recognized over approximately 3.29 years.