Annexon, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing complement-targeted medicines for autoimmune, neurodegenerative and ophthalmic disorders. The report covers the three months ended March 31, 2022, with comparative figures for the three months ended March 31, 2021. The company has no approved products and has generated no product revenue.
Key pipeline updates include ongoing Phase 2/3 and Phase 2 studies of ANX005, a planned Phase 1b lupus nephritis study for ANX009, a fully enrolled Phase 2 geographic atrophy study of ANX007, and planned 2022 Phase 1 trials for ANX105 and ANX1502.
Financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No product revenue |
| Research and development expense | $27.0 million | $20.7 million | Up 30% |
| General and administrative expense | $8.4 million | $5.5 million | Up 53% |
| Total operating expenses | $35.4 million | $26.2 million | Up 35% |
| Operating loss | $35.4 million | $26.2 million | Up 35% |
| Net loss | $35.4 million | $26.1 million | Up 36% |
| Basic and diluted loss per share | $0.92 | $0.68 | Loss increased |
| Net cash used in operating activities | $30.3 million | $23.4 million | Use increased |
Gross margin and operating margin are not meaningful because the company has no revenue. R&D represented approximately 76% of operating expenses in Q1 2022. Stock-based compensation was $4.3 million, compared with $3.0 million in the prior-year period.
At March 31, 2022, cash and cash equivalents were $112.8 million, short-term investments were $93.8 million, and total cash, cash equivalents and restricted cash were $114.0 million. Cash and short-term investments totaled approximately $206.7 million. Accumulated deficit was $331.7 million, compared with $296.3 million at December 31, 2021.
Total liabilities were $50.0 million, including $34.2 million of operating lease liabilities. The filing does not identify outstanding borrowings or conventional debt. Future undiscounted lease payments totaled $50.6 million, with $34.2 million recorded as the present-value lease liability.
Material changes versus the prior comparable period
- R&D expense increased $6.3 million, primarily from higher clinical and nonclinical outside services for multiple ongoing trials and preparation for additional first-in-human programs.
- Clinical and nonclinical outside services increased 53% to $12.1 million, while contract manufacturing expense declined 10% to $4.7 million after completion of prior-year ANX005 production runs.
- Personnel-related R&D expense increased 36% to $6.7 million as headcount expanded. Facilities and depreciation expense increased 121% to $1.3 million, mainly due to the new Brisbane lease.
- G&A expense increased $2.9 million, driven by higher compensation, stock-based compensation, accounting, legal, audit, insurance and other public-company costs.
- Operating cash use increased $6.8 million to $30.3 million. Investing activities provided $68.3 million, primarily because $79.4 million of available-for-sale securities matured; the company also purchased $5.2 million of property and equipment.
- The March 31, 2021 comparative financial statements were restated for adoption of ASC 842, increasing prior-year first-quarter G&A expense and net loss by $54,000.
- Cash and short-term investments declined from $242.1 million at December 31, 2021 to approximately $206.7 million at March 31, 2022, while cash and cash equivalents increased because investments matured and were redeployed.
Guidance, outlook, risks and unusual items
- Management expects continued losses and negative operating cash flows for at least the next several years.
- The filing states that existing cash and cash equivalents are expected to fund operating expenses and capital expenditures into 2024, although management cautions that actual cash usage could be faster than projected. It also states that cash on hand is sufficient for at least the next 12 months following issuance of the financial statements.
- R&D and G&A expenses are expected to increase substantially as clinical programs advance, trials expand, regulatory activities continue and the organization grows.
- Reported development milestones include anticipated wAIHA data in the second half of 2022, ANX009 lupus nephritis initial data in the second half of 2022, Huntington’s disease data in Q2 2022, geographic atrophy data in the first half of 2023, and GBS and ALS data in 2023.
- Annexon may require additional capital through equity, debt, credit facilities, collaborations or other financing. An August 2021 at-the-market program permits up to $100.0 million of sales, but no shares had been sold under the program as of March 31, 2022.
- COVID-19 caused clinical-trial interruptions, clinical-site staffing shortages, longer site-initiation timelines and temporary shortages of laboratory kits and supplies. Future effects on enrollment, trial timing, manufacturing and regulatory activities remain uncertain.
- Principal risks include clinical or regulatory failure, adverse events, trial enrollment and execution delays, reliance on contract manufacturers and CROs, intellectual-property challenges, competition, the need for additional financing, dilution, and volatility in the common stock.
- The company reported no material legal proceedings, no material indemnification claims, no off-balance-sheet arrangements and effective disclosure controls as of March 31, 2022.
Most important facts for investors to verify
- Whether the projected cash runway into 2024 remains adequate as clinical spending increases and whether additional financing will be required sooner.
- Progress, enrollment, safety and efficacy data for ANX005, ANX009, ANX007, ANX105 and ANX1502, including the stated 2022 and 2023 data timelines.
- The impact of COVID-19, site staffing, patient enrollment, supply availability and third-party execution on clinical development schedules.
- The company’s ability to convert its clinical pipeline into regulatory approvals and eventual product revenue; no product is approved or generating sales in this filing.
- Future equity issuance under the $100.0 million ATM program and potential dilution from outstanding options, RSUs and other reserved shares.
- Cash investment balances, unrealized losses on available-for-sale securities, lease obligations and the absence of identified conventional debt.
- Changes in stock-based compensation, headcount, facilities costs and clinical outsourcing expenses as key drivers of future cash burn.