Annexon, Inc. annual report, FY2021

Annexon, Inc. Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a quarterly filing, although the request identifies 2021 Q4.

Business context

Annexon is a clinical-stage biopharmaceutical company developing therapies that inhibit C1q and the classical complement pathway for autoimmune, neurodegenerative and ophthalmic diseases. The company has no approved products and has not generated product-sales revenue.

ANX005: Intravenous antibody in Phase 2/3 development for Guillain-Barré syndrome and Phase 2 trials for warm autoimmune hemolytic anemia, Huntington’s disease and ALS.
ANX007: Intravitreal Fab in a Phase 2 geographic atrophy trial.
ANX009: Subcutaneous Fab; Phase 1 completed, with a planned Phase 1b lupus nephritis trial.
Preclinical programs: ANX105 and oral small molecule ANX1502.

As of December 31, 2021, Annexon had 61 full-time employees, including 45 primarily engaged in research and development. The company holds worldwide development and commercialization rights to its product candidates, including rights obtained through licenses.

Financial performance and liquidity

Metric	2021	2020	Change
Revenue from product sales	None	None	No change
Research and development expense	$100.1 million	$49.3 million	+103%
General and administrative expense	$30.6 million	$14.2 million	+116%
Total operating expenses	$130.7 million	$63.5 million	+106%
Net loss	$130.3 million	$63.4 million	+106%
Net loss per share	$3.40	$4.15	Improved, primarily due to higher share count
Net cash used in operating activities	$106.1 million	$53.1 million	Higher cash burn

Research and development increases were driven by clinical and nonclinical outside services, contract manufacturing, personnel costs and facility expenses.
Stock-based compensation increased to $16.3 million from $4.9 million.
Cash, cash equivalents and short-term investments totaled $242.7 million at year-end, comprising $74.8 million of cash and cash equivalents and $167.9 million of short-term investments.
Total assets were $287.0 million and stockholders’ equity was $231.9 million at December 31, 2021.
The company had $55.1 million of total liabilities, including $34.6 million of operating lease liabilities. The filing does not identify material outstanding borrowings or conventional debt.
Management expects existing capital resources to fund planned operating expenses and capital expenditures into the first quarter of 2024, subject to operating-plan assumptions.

Material changes versus the prior comparable period

Operating expenses and net loss more than doubled as Annexon advanced multiple clinical programs and expanded its organization.
Operating cash burn increased by $53.0 million to $106.1 million.
Investing cash outflows were $88.2 million, primarily reflecting purchases of available-for-sale securities.
Financing cash inflows fell to $1.8 million from $360.9 million in 2020, when the company completed its initial public offering and issued preferred stock.
The company commenced its Brisbane, California facility lease and recorded substantial lease assets and liabilities under the adoption of ASC 842.
Annexon ceased to qualify as an emerging growth company as of December 31, 2021 and became a large accelerated filer, although it remained eligible for certain smaller reporting company disclosures through this filing.
In August 2021, the company established a $100.0 million at-the-market equity offering program; no shares had been sold under the program as of December 31, 2021.

Guidance, outlook and management commentary

Data from the ANX005 warm autoimmune hemolytic anemia trial were expected in the second half of 2022.
Full Huntington’s disease data, including a three-month follow-up period, were expected in the second quarter of 2022.
Data from the ANX009 lupus nephritis Phase 1b trial were expected in the second half of 2022.
Data from the ANX005 Guillain-Barré syndrome Phase 2/3 trial, the ANX005 ALS trial and the ANX007 geographic atrophy trial were expected in 2023.
Annexon planned to initiate first-in-human trials of ANX105 in the first half of 2022 and ANX1502 in the second half of 2022, with data anticipated in 2023.
Management expects research and development and general and administrative expenses to increase substantially as clinical programs advance, trial sizes expand and regulatory and public-company activities continue.

Risks, contingencies and unusual items

The company has incurred losses every year since inception, had an accumulated deficit of $296.3 million, and expects continued losses and negative operating cash flows for at least several years.
Additional financing will likely be required. Future equity financing could dilute shareholders, while debt financing could impose restrictive covenants and repayment obligations.
All product candidates remain investigational and require successful clinical development, regulatory approval, manufacturing and commercialization. No assurance is provided that any candidate will be approved or commercially successful.
Clinical results may be inconclusive or may not translate across indications. Interim Huntington’s disease results were preliminary and subject to change as additional data became available.
The ANX005 and IVIg drug-drug interaction study was designed for safety, pharmacokinetics and pharmacodynamics and was not powered to establish efficacy.
COVID-19 caused interruptions in clinical activities, staffing shortages, slower site initiation and shortages of laboratory supplies, and could further delay trials or manufacturing.
Annexon relies on third parties for clinical research, manufacturing and supply. Failure or disruption by these providers could delay development.
The company faces significant competition from complement-directed and other therapies, including products in development for its target indications.
Patent protection is subject to challenges, expiration and potential infringement claims. Certain licensed U.S. patents are expected to expire between 2026 and 2030, while other company-owned patents are expected to expire later.
The company disclosed no material legal proceedings and no off-balance-sheet arrangements.
KPMG issued an unqualified audit opinion and concluded that internal control over financial reporting was effective as of December 31, 2021. The critical audit matter involved estimating accrued clinical and preclinical study expenses.

Important facts for investors to verify

Cash burn, investment balances and whether the stated funding runway to the first quarter of 2024 remains valid under updated trial plans and costs.
Enrollment status, statistical design, endpoints and final results for the ANX005, ANX007 and ANX009 clinical programs.
Whether preliminary Huntington’s disease findings are confirmed by final data and whether they support a registrational strategy.
Any safety signals, clinical holds, protocol changes or COVID-19-related delays affecting the pipeline.
Potential dilution from the $100.0 million ATM program, equity awards and other financing needs.
Manufacturing capacity, supply continuity and regulatory compliance of contract manufacturers.
Patent-term coverage, license obligations and freedom-to-operate for the C1q platform and individual product candidates.