ANNEXON, INC. You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our condensed consolidated
financial statements and the related notes and other financial information
included elsewhere in this Quarterly Report on Form 10-Q and our consolidated
financial statements and related notes thereto for the year ended
In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "should," "will" or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ from those anticipated. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical-stage biopharmaceutical company pioneering a new class of complement medicines for patients with classical complement-mediated autoimmune, neurodegenerative and ophthalmic disorders. The classical complement pathway is a core component to the body's immune system that activates a powerful inflammatory cascade. We believe that by stopping the classical complement pathway at its start, our approach may have the potential to provide more complete protection against complement-mediated disorders of the body, brain and eye.
Our proprietary platform targets C1q, the initiating molecule of the classical complement pathway. Our product candidates are designed to block the early classical cascade and all downstream pathway components and their tissue-damaging functions. Our goal is to suppress excessive or aberrant classical complement activity that contribute to chronic inflammation and tissue damage to slow or even halt disease progression, while preserving the beneficial immune functions of the lectin and alternative complement pathways involved in the clearance of pathogens and damaged cells.
Using our proprietary platform, we are identifying and characterizing the role of the classical complement pathway in three therapeutic areas - autoimmune, neurodegeneration and ophthalmology. Our precision medicine approach is aimed at identifying the patient populations most likely to benefit from our therapeutic candidates and guides the design of well-tailored patient studies to increase the overall likelihood of clinical success.
We are advancing a broad pipeline of five complement-targeted product candidates, each with distinct routes of administration and dosing schedules, designed to selectively inhibit the classical complement pathway in specific compartments of the body, brain or eye:
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ANX005. Our lead candidate, ANX005, an investigational, full-length monoclonal antibody formulated for intravenous administration, is designed to fully inhibit C1q and the classical complement pathway in the body and across the blood brain barrier for autoimmune and neurodegenerative diseases. ANX005 is currently being evaluated in a Phase 2/3 clinical trial for the potential treatment of patients with Guillain-Barré Syndrome (GBS) with data anticipated in 2023 and a Phase 2 trial in patients with warm autoimmune hemolytic anemia (wAIHA) with data anticipated in the second half of 2022. ANX005 is also being evaluated in Phase 2 trials in Huntington's disease (HD) and amyotrophic lateral sclerosis (ALS). Interim data from the HD trial showed improvements in clinical measures and that ANX005 had been generally well tolerated. We plan to present the full data from our HD trial in the second quarter of 2022. Data from Phase 2 trial of ANX005 in patients with ALS is expected to be reported in 2023.
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ANX009. ANX009 is an investigational subcutaneous formulation of an antigen-binding fragment, or Fab, that is designed to selectively inhibit C1q in the vascular space. ANX009 has been evaluated in a Phase 1 trial and based on the data from this trial, we plan to advance ANX009 into a Phase 1b trial in patients with lupus nephritis (LN) with initial data expected in the second half of 2022.
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ANX007. ANX007 is an investigational antibody Fab formulated for intravitreal administration that is designed to inhibit C1q locally in the eye for patients with complement-mediated neurodegenerative diseases of the eye. ANX007 is being evaluated in a global Phase 2 trial in patients with geographic atrophy (GA). The trial is fully enrolled, with data expected in the first half of 2023.
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Preclinical Portfolio. Our next generation product candidates include ANX105, an investigational monoclonal antibody targeting neurodegenerative and autoimmune indications, and ANX1502, an investigational oral small molecule in development for the treatment of certain autoimmune indications. We are preparing to initiate Phase 1 trials for both programs in 2022, with initial clinical data from both expected in 2023.
We hold worldwide development and commercialization rights, including through exclusive licenses, to all of our product candidates, which allows us to strategically maximize value from our product portfolio over time. Our patent portfolio includes patent protection for our upstream complement platform and each of our product candidates.
We were incorporated in
Impact of COVID-19 Pandemic
The COVID-19 pandemic has had an adverse effect on the global economy, and its ongoing impact is uncertain and subject to change. For instance, we have experienced interruption in clinical trial activities, shortages in clinical site staff, longer timelines for clinical site initiation and temporary shortages in lab kits and supplies. We will continue to monitor the COVID-19 situation closely. The extent of the ongoing impact of the COVID-19 pandemic on our clinical trials, business, financial condition, results of operations and clinical development timelines and plans remains uncertain, and will depend on, among other factors, the duration and severity of the pandemic, the emergence of variants, rates of infection in the locations in which we do business, restrictions that may be requested or mandated by governmental authorities, and the impact of the pandemic on our clinical trial enrollment, trial sites, contract research organizations, or CROs, third-party manufacturers, regulatory authorities and other third parties with whom we do business.
Components of Operating Results
Revenue
Our product candidates are not approved for commercial sale. We have not generated any revenue from sales of our product candidates and do not expect to do so in the foreseeable future and until we complete clinical development, submit regulatory filings and receive approvals from applicable regulatory bodies for such product candidates, if ever.
Operating Expenses
Research and Development
Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the development of our product candidates.
Direct expenses include:
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preclinical and clinical outside service costs associated with discovery, preclinical and clinical testing of our product candidates;
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professional services agreements with third party contract organizations, investigative clinical trial sites and consultants that conduct research and development activities on our behalf;
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contract manufacturing costs to produce clinical trial materials; and
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laboratory supplies and materials.
Indirect expenses include:
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compensation and personnel-related expenses (including stock-based compensation);
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allocated expenses for facilities and depreciation; and
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other indirect costs.
We record research and development expenses as incurred. Payments made to other entities are under agreements that are generally cancelable by us. Advance payments for goods or services to be received in future periods for use in research and development activities are deferred as prepaid expenses. The prepaid amounts are then expensed as the related services are performed. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, particularly as they advance into later stages of development and as we conduct larger clinical trials, engage in other research and development activities and seek regulatory approvals for any product candidates that successfully complete clinical trials and as we incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.
General and Administrative
General and administrative expenses consist primarily of compensation and personnel-related expenses (including stock-based compensation) for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, legal and tax services, allocated expenses for facilities and depreciation and other general and administrative costs.
We expect our general and administrative expenses to increase substantially for
the foreseeable future as we continue to support our research and development
activities, grow our business and, if any of our product candidates receive
marketing approval, commercialization activities. We will also incur additional
expenses as a result of operating as a public company, including expenses
related to compliance with the rules and regulations of the
Interest and Other Income, Net
Interest and other income, net, primarily consists of non-recurring income from research grants and interest income earned on our cash equivalents and short-term investments.
Results of Operations
Comparison of the Three Months Ended
The following tables summarize our results of operations for the periods
presented:
Three Months Ended
March 31,
Dollar %
2022 2021 Change Change
(as restated)
(in thousands)
Operating expenses:
Research and development $ 26,998 $ 20,696 $ 6,302 30%
General and administrative 8,428 5,506 2,922 53%
Total operating expenses 35,426 26,202 9,224 35%
Loss from operations (35,426 ) (26,202 ) (9,224 ) 35%
Interest and other income, net 53 142 (89 ) (63%)
Net loss $ (35,373 ) $ (26,060 ) $ (9,313 ) 36%
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Research and Development Expenses
Three Months Ended
March 31,
Dollar %
2022 2021 Change Change
(in thousands)
Direct costs:
Clinical and nonclinical outside services
2,019 1,732 287 17%
Contract manufacturing 4,654 5,192 (538 ) (10%)
Laboratory supplies and materials 192 283 (91 ) (32%)
Indirect costs:
Compensation and personnel-related
(including stock-based compensation) 6,685 4,919 1,766 36%
Facilities and depreciation 1,269 574 695 121%
Other 42 87 (45 ) (52%)
Total research and development expenses
Research and development expenses increased by
General and Administrative Expenses
Three Months Ended
March 31,
Dollar %
2022 2021 Change Change
(as restated)
(in thousands)
Compensation and personnel-related
(including stock-based compensation)
3,430 2,348 1,082 46%
Facilities and depreciation 639 386 253 66%
Other 343 194 149 77%
Total general and administrative expenses
General and administrative expenses increased by
Liquidity and Capital Resources
Sources of Liquidity
Due to our significant research and development expenditures, we have generated operating losses since our inception.
We have funded our operations primarily through the sale of equity securities.
From our inception through
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million from the initial public offering of our common stock, or our IPO. As of
Historical Cash Flows
Three Months Ended
March 31,
2022 2021
(as restated)
(in thousands)
Net cash used in operating activities $ (30,288 ) $ (23,440 )
Net cash provided by (used in) investing activities 68,251 (37,581 )
Net cash provided by financing activities 19 268
Increase (decrease) in cash, cash equivalents and
restricted cash $ 37,982 $ (60,753 ) Cash Flows from Operating Activities
Cash used in operating activities for the three months ended
Cash used in operating activities for the three months ended
Cash Flows from Investing Activities
Cash provided by investing activities for the three months ended
Cash used in investing activities for the three months ended
Cash Flows from Financing Activities
Cash provided by financing activities for the three months ended
Cash provided by financing activities for the three months ended
Funding Requirements
We use our cash to fund operations, primarily to fund our clinical trials, research and development expenditures and related personnel costs. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to our product candidates, particularly as they advance into later stages of development and as we conduct larger clinical trials, engage in other research and development activities, seek regulatory approvals for any product candidates that successfully complete clinical trials and as we incur expenses associated with hiring additional personnel to support our research and development efforts. In addition, we expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to support our research and development activities and to grow our business and as we expect to engage in commercialization activities, if any of our product candidates receive marketing approval. We will also incur additional expenses as a result of operating as a public company and also expect to increase the size of our administrative function to support the growth of our business. The timing and amount of our operating expenditures will depend on many factors, including:
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the scope, progress, results and costs of researching and developing our current product candidates or any other future product candidates we choose to pursue, and conducting preclinical studies and clinical trials;
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the timing of, and the costs involved in, obtaining regulatory approvals for our lead product candidates or any future product candidates;
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the number and characteristics of any additional product candidates we develop or acquire;
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the timing and amount of any milestone, royalty and/or other payments we are required to make pursuant to our current or any future license or collaboration agreements;
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the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize;
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the cost of building a sales force in anticipation of product commercialization;
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the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;
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our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
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any product liability or other lawsuits related to our products;
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the expenses needed to attract, hire and retain skilled personnel;
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the costs associated with operating as a public company;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and
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the timing, receipt and amount of sales of any future approved products.
Based upon our current operating plan, we believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect to continue to expend significant resources for the foreseeable future. Until such time, if ever, as we can generate substantial product revenue, we will be required to seek additional funding in the future and currently intend to do so through public or private equity offerings or debt financings, credit or loan facilities, collaborations or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.
At-the-Market Offering
In
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with
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circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
During the three months ended
Recent Accounting Pronouncements Not Yet Adopted
See Note 2-Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.
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