Annexon, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Annexon is a clinical-stage biopharmaceutical company developing complement medicines targeting C1q and the classical complement pathway for autoimmune, neurodegenerative and ophthalmic diseases. The filing covers the three and nine months ended September 30, 2021; financial statements are unaudited.
The company had no approved products and generated no product revenue. Clinical programs included ANX005, ANX007 and ANX009, with additional preclinical programs ANX105 and ANX1502. Ongoing or planned studies addressed Guillain-Barré syndrome, warm autoimmune hemolytic anemia, Huntington’s disease, amyotrophic lateral sclerosis, geographic atrophy, lupus nephritis and multifocal motor neuropathy.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $27.6 million | $72.8 million |
| General and administrative expense | $8.1 million | $20.4 million |
| Total operating expenses | $35.7 million | $93.3 million |
| Net loss | $35.6 million | $93.0 million |
| Net loss per share | $0.93 | $2.43 |
| Net cash used in operating activities | Not provided for the quarter | $77.8 million |
Operating and net margins were not meaningful because the company had no revenue. Stock-based compensation was $4.4 million for the quarter and $11.9 million for the nine months. Other income was $82,000 for the quarter and $303,000 year to date, including research grant income and investment income.
At September 30, 2021, cash and cash equivalents were $68.5 million, short-term investments were $202.8 million, and cash, cash equivalents and restricted cash totaled $69.7 million. Total liabilities were $45.7 million, consisting primarily of operating lease liabilities; the filing does not report funded debt. Accumulated deficit was $258.9 million.
Material changes versus the prior comparable periods
- Third-quarter research and development expense increased 134% to $27.6 million from $11.8 million; the nine-month increase was 133% to $72.8 million from $31.3 million.
- Third-quarter general and administrative expense increased 113% to $8.1 million from $3.8 million; the nine-month increase was 127% to $20.4 million from $9.0 million.
- Third-quarter net loss increased to $35.6 million from $15.6 million. The prior-year quarter also included a $6.2 million deemed dividend and $145,000 of preferred-stock accretion attributable to common stockholders, so the comparable common-stockholder loss was $22.0 million in 2020.
- Nine-month net loss increased to $93.0 million from $40.2 million, while net loss attributable to common stockholders increased to $93.0 million from $47.1 million in 2020.
- Operating cash burn increased to $77.8 million from $33.8 million for the comparable nine-month period.
- Investing cash outflow increased to $121.9 million, principally because the company purchased $191.1 million of available-for-sale securities, partly offset by maturities and sales.
- Cash and cash equivalents declined substantially from $268.6 million at December 31, 2020, while short-term investments increased from $82.6 million to $202.8 million.
- The company adopted lease accounting guidance and recognized operating lease right-of-use assets of $20.7 million and operating lease liabilities of $33.8 million at September 30, 2021. A new Brisbane, California facility commenced tenant improvements in May 2021.
Guidance, outlook, risks and unusual items
- Management expects research and development and general and administrative expenses to increase substantially as clinical programs advance, trial sizes grow, personnel are added and public-company costs continue.
- Management stated that existing cash and cash equivalents and short-term investments were sufficient to support operations for at least the next 12 months and, based on the current operating plan, to fund operating expenses and capital expenditures into 2024. This estimate depends on assumptions that may prove incorrect.
- The company expects continuing losses and negative operating cash flows for at least the next several years and expects to require additional financing. Future equity financing could dilute shareholders; debt or collaborations could impose restrictive terms or require the company to relinquish rights.
- In August 2021, Annexon established a $100.0 million at-the-market equity offering program. No shares had been sold under the program as of September 30, 2021.
- COVID-19 caused interruptions in clinical activities, shortages of clinical-site staff, longer site-initiation timelines and temporary shortages of laboratory kits and supplies. Further effects on enrollment, trial timelines, vendors, manufacturers and regulators remain uncertain.
- Clinical and regulatory execution remains the principal business risk. Product candidates are early-stage, none is approved, and C1q inhibition is a novel therapeutic approach. Trial results may be inconclusive or unsafe, regulators may require additional studies, and foreign trial data may not be accepted.
- Annexon relies on third-party contract research organizations, clinical sites and manufacturers and has no internal commercial manufacturing or sales organization.
- The company reported no material legal proceedings and no material indemnification claims. It had no off-balance-sheet arrangements.
- Disclosure controls and procedures were deemed effective. The company implemented a NetSuite enterprise resource planning system and modified related internal controls; no other material changes were identified during the quarter.
Important facts for investors to verify
- Clinical enrollment, safety, efficacy and timing of upcoming data readouts for ANX005, ANX007, ANX009 and other pipeline programs.
- Whether the projected cash runway into 2024 remains valid as research, manufacturing, lease and personnel spending increases.
- Future use of the $100.0 million ATM facility and the resulting potential shareholder dilution.
- Impact of COVID-19, site staffing, patient enrollment, supply availability and third-party execution on development timelines.
- Regulatory feedback regarding pivotal-trial design and the approval pathway, particularly for ANX005 in Guillain-Barré syndrome.
- Third-party manufacturing capacity, quality compliance and availability of clinical-trial materials.
- Material lease commitments, including approximately $51.8 million of undiscounted future lease payments before imputed interest and tenant-improvement adjustments.
- The transition to large accelerated filer status expected at year-end 2021 and the related requirement for auditor attestation of internal control over financial reporting.