Annexon, Inc. Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing therapies targeting C1q and the classical complement pathway for autoimmune and neurodegenerative disorders. Lead candidates include ANX005, ANX007 and ANX009. The company has no approved products and has generated no product-sales revenue. This unaudited report covers the three and six months ended June 30, 2020, with comparisons to the corresponding 2019 periods.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $9.3 million vs. $6.0 million | $19.5 million vs. $10.6 million |
| General and administrative expense | $3.0 million vs. $2.2 million | $5.2 million vs. $3.7 million |
| Total operating expenses | $12.2 million vs. $8.2 million | $24.7 million vs. $14.3 million |
| Net loss | $12.2 million vs. $9.4 million | $24.6 million vs. $18.1 million |
| Net loss attributable to common stockholders | $12.5 million vs. $9.7 million | $25.1 million vs. $18.6 million |
| Net loss per share | $28.87 vs. $22.30 | $57.96 vs. $42.90 |
| Operating cash flow | Not separately presented | $(20.2) million vs. $(12.7) million |
Operating margins are not meaningful because the company has no revenue. Cash and cash equivalents were $124.8 million at June 30, 2020, compared with $43.9 million at December 31, 2019. Total liabilities were $13.9 million, including $12.7 million of current liabilities; the filing does not report outstanding long-term debt. A $0.5 million Paycheck Protection Program loan obtained in April 2020 was repaid in full in May 2020.
Financing activities provided $101.1 million during the first six months, primarily from approximately $102.0 million of Series D preferred-stock proceeds, net of related costs, partly offset by offering costs and repayment of the PPP loan. Accumulated deficit was $127.2 million at June 30, 2020.
Material changes versus the prior comparable period
- Second-quarter research and development expense increased 55% to $9.3 million; the increase reflected clinical and preclinical services, contract manufacturing for ANX005, and higher personnel costs.
- First-half research and development expense increased 83% to $19.5 million, driven by ANX005 manufacturing, GBS and Huntington’s disease trial activities, ANX009 toxicology work, and expanded staffing.
- General and administrative expense increased 32% in the quarter and 41% year to date, principally due to public-company readiness, accounting, legal and audit costs, and increased headcount.
- The company recorded no preferred-stock liability remeasurement loss in 2020, compared with $1.6 million in the second quarter and $4.3 million in the first half of 2019; the liability was settled in August 2019.
- Other income declined to $1,000 in the quarter and $116,000 year to date, compared with $376,000 and $597,000, respectively, in 2019. The 2019 amounts included sponsored-research funding and higher interest income.
- Series D financing added 71.7 million preferred shares and approximately $96.8 million of net proceeds in June 2020. The financing included a $6.3 million beneficial conversion feature.
Guidance, outlook, risks and unusual items
- Management expects research and development and general and administrative expenses to increase substantially as clinical programs advance, trials expand, regulatory activities continue and public-company costs rise.
- Based on the operating plan disclosed in the filing, existing cash and cash equivalents were expected to fund operating and capital requirements through 2023; management also stated that cash on hand and subsequent IPO proceeds were sufficient to support operations for at least the next 12 months.
- The company expects continuing operating losses and negative operating cash flows for at least several years and expects to require additional financing in the future. Future equity financing could dilute shareholders, while debt financing could impose restrictive covenants and repayment obligations.
- In July 2020, after the reporting date, the company completed an IPO and sold 16,889,403 common shares, including the underwriters’ partial overallotment exercise, at $17.00 per share. Net proceeds were approximately $262.7 million. Outstanding preferred stock converted into 20,824,938 common shares.
- A one-for-8.81 reverse stock split became effective July 17, 2020; share and per-share information in the filing was retroactively adjusted.
- COVID-19 may delay patient enrollment, clinical-site activity, regulatory interactions, laboratory work, manufacturing and supply, and may adversely affect development timelines and access to capital.
- Key development risks include early-stage clinical programs, uncertain safety and efficacy, regulatory delays or additional trial requirements, reliance on contract research organizations and manufacturers, complex supply chains, intellectual-property challenges, competition and future reimbursement uncertainty.
- The company previously identified a material weakness in internal control over financial reporting and stated that it was remediated as of December 31, 2019. Management concluded that disclosure controls and procedures were effective as of June 30, 2020.
- No material legal proceedings or material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Verify the post-quarter IPO proceeds, updated share count, preferred-stock conversion and the effect of the reverse stock split on ownership and dilution.
- Monitor quarterly cash burn, clinical-trial spending and whether the stated runway through 2023 remains achievable.
- Track ANX005, ANX007 and ANX009 clinical milestones, regulatory interactions, enrollment and any COVID-19-related delays.
- Review future financing needs, potential equity dilution and any debt or collaboration arrangements.
- Assess clinical safety and efficacy data independently; the filing emphasizes that early or interim results may change and that ANX005’s combination trial with IVIg is not designed to establish ANX005 monotherapy efficacy.
- Review manufacturing, contract research, intellectual-property, regulatory and product-liability exposures before assigning commercial value to the pipeline.