Annexon, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 December 31, 2024, included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission, or the SEC, on March 3, 2025. 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 about us and our industry that involve substantial 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 “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “position,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms. 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 biopharmaceutical company advancing a late-stage clinical platform of novel therapies for people living with devastating classical complement-mediated neuroinflammatory diseases. 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 by targeting C1q, the initiating molecule of the classical complement pathway, our approach may have the potential to provide more complete protection against complement-mediated disorders of the body, brain and eye. Using our proprietary platform, we are identifying and characterizing the role of the classical complement pathway in three therapeutic areas—autoimmune, neurodegeneration and ophthalmology. In so doing, we are advancing a pipeline of product candidates 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 contributes 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. We have demonstrated robust target engagement in the body, brain and eye, and clinical proof of concept in multiple diseases, and have focused our resources on development of three priority programs: • Guillain-Barré Syndrome, or GBS: We are advancing our lead candidate, tanruprubart (formerly ANX005), an investigational, full-length monoclonal antibody, or mAb, formulated for intravenous administration as the potential first-targeted treatment for patients with GBS. Tanruprubart has consistently demonstrated rapid and sustained functional improvements in multiple placebo-controlled trials. GBS is a rare antibody-mediated autoimmune disease that is the most common cause of acute neuromuscular paralysis, with no therapies in the United States approved by the U.S. Food and Drug Administration, or FDA. The rare and acute nature of GBS has shaped our clinical development program conducted primarily in Southeast Asia to generate a comprehensive data package that includes successful placebo-controlled proof-of-concept and Phase 3 data, Real-World Evidence indirect comparison data of tanruprubart’s treatment effect versus current standard of care, and drug-drug interaction safety data with tanruprubart with current standard of care. We are also preparing to initiate in the second quarter of 2025 the open-label tanruprubart FORWARD study, measuring pharmacokinetics, pharmacodynamics, early efficacy in week 1, and safety in up to 30 subjects in the United States, Canada, and Europe, which is designed to broaden Western patient, physician and healthcare community experience. We anticipate this comprehensive data package to support our Biologics License Application, or BLA, and are targeting a meeting with the Center for Drug Evaluation and Research of the FDA in the second quarter of 2025, ahead of our planned BLA submission. Tanruprubart has been granted Fast Track and orphan drug designation for the treatment of GBS from the FDA. Tanruprubart has also been granted orphan designation from the European Medicines Agency, or EMA. • Geographic Atrophy, or GA: We are advancing ANX007, an antigen-binding fragment, or Fab, formulated for intravitreal administration, as the first potential program with a global registration path to approval in Europe and the United States for the treatment of dry AMD with GA. Dry AMD with GA is a leading cause of vision loss in the elderly, that affects more than an estimated eight million people globally, and there are no approved therapies targeting the preservation of vision in 17 this disease. ANX007 is designed to block C1q locally in the eye, to provide more complete protection against excess classical complement activity and the loss of photoreceptor neurons. It is the only investigational therapy in GA to show significant vision preservation on assessments of best corrected visual acuity, or BCVA, and low luminance visual acuity, or LLVA, demonstrating significant protection from vision loss in both normal and low light conditions, as well as significant preservation of central retinal photoreceptors necessary for visual acuity as demonstrated in the Phase 2 ARCHER trial. In 2024, we initiated our Phase 3 ARCHER II trial, a global, sham-controlled, double-masked trial expected to enroll ~630 patients who have dry AMD with GA. The primary endpoint of ARCHER II is prevention of ≥15-letter loss of BCVA, and a secondary objective structural measure is prevention of ellipsoid zone (EZ) loss. The single-study program will be analyzed as two sub-studies for the U.S. in accordance with the FDA’s two-trial recommendation. Accordingly, we no longer plan to conduct a second injection-controlled head-to-head Phase 3 trial. We expect to complete enrollment of ARCHER II in the third quarter of 2025 and report topline data in the second half of 2026. ANX007 is the first and only therapeutic candidate for the treatment of GA to receive Priority Medicine, or PRIME, designation by the EMA, which provides early and proactive support to developers of promising medicines that may offer a major therapeutic advantage over existing treatments or benefit to patients without treatment options. • ANX1502 for Autoimmune Indications: We are advancing ANX1502, a novel oral small molecule inhibitor of classical complement which we believe is first-in-kind. In a Phase 1 single-ascending dose, or SAD, and multiple-ascending dose, or MAD, clinical trial in healthy volunteers designed to evaluate the safety, tolerability, pharmacokinetics, or PK, and pharmacodynamics, or PD, ANX1502 was generally well tolerated across cohorts with no serious adverse events, achieved target levels of active drug and showed supportive impact on a PD biomarker of complement activity. We are evaluating a tablet formulation of ANX1502 in an ongoing proof-of-concept study in patients with cold agglutinin disease, or CAD, to assess PK, PD and clinical efficacy endpoints (e.g., hemolysis as measured by reduction of elevated bilirubin) and data are expected in mid-2025. Following the successful completion of the proof-of-concept study, we intend to evaluate ANX1502 in a host of diseases, including serious complement-mediated autoimmune diseases, with the aim of providing enhanced efficacy and offering convenient dosing administration for long-term treatment of chronic conditions. We were incorporated in March 2011 and commenced operations later that year. To date, we have focused primarily on performing research and development activities, hiring personnel and raising capital to support and expand these activities. We do not have any products approved for sale, and we have not generated any revenue from product sales. We have incurred net losses each year since our inception. Our net losses were $54.4 million and $25.2 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had an accumulated deficit of $765.1 million and cash and cash equivalents and short-term investments of $263.7 million. 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: • preclinical and clinical outside service costs associated with discovery, preclinical and clinical testing of our product candidates; • professional services agreements with third party contract organizations, investigative clinical trial sites and consultants that conduct research and development activities on our behalf; • contract manufacturing costs to produce clinical trial materials and commercial materials to support BLA package submission to the FDA; and • laboratory supplies and materials. 18 Indirect expenses include: • compensation and personnel-related expenses (including stock-based compensation); • allocated expenses for facilities and depreciation; and • 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 future research and development expenses to increase as we pursue regulatory approval of our product candidates, continue to advance our product candidates through late-stage clinical trials, invest in capabilities to prepare for commercialization including manufacturing, and hire additional personnel to support our organization. The process of conducting the necessary clinical research, development and manufacturing to obtain regulatory approval is costly and time-consuming, and the successful development and approval 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 as we continue to support our research and development activities, grow our business, advance our product candidates in late-stage clinical trials and toward regulatory approval and commercialization activities, and operate as a public company. Interest and Other Income, Net Interest and other income, net, primarily consists of interest income earned on our cash equivalents and short-term investments. Results of Operations Comparison of the Three Months Ended March 31, 2025 and 2024 The following tables summarize our results of operations for the periods presented: Three Months Ended March 31, 2025 2024 Dollar Change % Change (in thousands) Operating expenses: Research and development $ 48,179 $ 20,963 $ 27,216 130 % General and administrative 9,226 7,609 1,617 21 % Total operating expenses 57,405 28,572 28,833 101 % Loss from operations (57,405 ) (28,572 ) (28,833 ) 101 % Interest and other income, net 3,049 3,396 (347 ) (10 %) Net loss $ (54,356 ) $ (25,176 ) $ (29,180 ) 116 % 19 Research and Development Expenses Three Months Ended March 31, 2025 2024 Dollar Change % Change (in thousands) Direct costs: Clinical and nonclinical outside services $ 10,562 $ 6,706 $ 3,856 58 % Contract manufacturing 15,865 1,758 14,107 * Consulting and professional services 6,464 2,226 4,238 190 % Laboratory supplies and materials 322 157 165 105 % Indirect costs: Compensation and personnel-related (including stock-based compensation) 12,747 8,173 4,574 56 % Facilities and depreciation 1,984 1,687 297 18 % Other 235 256 (21 ) (8 %) Total research and development expenses $ 48,179 $ 20,963 $ 27,216 130 % __________________ *Greater than 200% change for the periods presented. Research and development expenses increased by $27.2 million, or 130%, for the three months ended March 31, 2025 compared to the same period in 2024. The change was primarily attributable to a $14.1 million increase in contract manufacturing expenses related to the timing of activities for tanruprubart (ANX005) supporting the preparation of the BLA submission, as well as the initiation of the manufacturing technology transfer of ANX007 to a commercial-ready facility. In addition, compensation and personnel-related expenses increased by $4.6 million, driven by higher headcount. Consulting and professional services expenses increased by $4.2 million, primarily to support the preparation of our BLA submission for tanruprubart in GBS and to provide ongoing support for the ARCHER II clinical trial. We also incurred $3.9 million in additional direct clinical and nonclinical outside services costs associated with continued advancement of the ARCHER II clinical trial. General and Administrative Expenses Three Months Ended March 31, 2025 2024 Dollar Change % Change (in thousands) Compensation and personnel-related (including stock-based compensation) $ 4,745 $ 3,961 $ 784 20 % Consulting and professional services 3,200 2,552 648 25 % Facilities and depreciation 712 676 36 5 % Other 569 420 149 35 % Total general and administrative expenses $ 9,226 $ 7,609 $ 1,617 21 % General and administrative expenses increased by $1.6 million, or 21%, for the three months ended March 31, 2025 compared to the same period in 2024. The increase was primarily due to an increase in compensation and personnel-related expenses of $0.8 million due to an increase in headcount, and an increase of $0.6 million in consulting and professional services and recruitment costs. Interest and other income, net Interest and other income, net, decreased by $0.3 million, or 10%, for the three months ended March 31, 2025 compared to the same period in 2024. The decrease was primarily due to lower average cash and investment balances. Liquidity and Capital Resources Sources of Liquidity Due to our significant research and development expenditures, we have generated operating losses since our inception. 20 We have funded our operations primarily through the sale of equity securities. As of March 31, 2025, we had available cash and cash equivalents and short-term investments of $263.7 million and an accumulated deficit of $765.1 million. Historical Cash Flows Three Months Ended March 31, 2025 2024 (in thousands) Net cash used in operating activities $ (50,055 ) $ (28,267 ) Net cash provided by (used in) investing activities 97,620 (77,302 ) Net cash provided by financing activities 59 32,412 Increase (decrease) in cash, cash equivalents and restricted cash $ 47,624 $ (73,157 ) Cash Flows from Operating Activities Cash used in operating activities for the three months ended March 31 , 2025 was $50.1 million, which consisted of a net loss of $54.4 million, partially offset by $4.1 million in non-cash charges and a net change of $0.2 million in our operating assets and liabilities. The non-cash charges consisted of stock-based compensation of $5.1 million, depreciation and amortization of $0.5 million and a reduction in the carrying amount of right-of-use assets of $0.4 million, partially offset by accretion of discount on available-for-sale securities of $1.9 million. Cash used in operating activities for the three months ended March 31, 2024 was $28.3 million, which consisted of a net loss of $25.2 million and a net change of $7.5 million in our operating assets and liabilities, partially offset by $4.4 million in non-cash charges. The non-cash charges consisted of stock-based compensation of $4.7 million, depreciation and amortization of $0.5 million and a reduction in the carrying amount of right-of-use assets of $0.3 million, partially offset by accretion of discount on available-for-sale securities of $1.1 million. Cash Flows from Investing Activities Cash provided by investing activities for the three months ended March 31, 2025 was $97.6 million, which consisted of $159.5 million of proceeds from maturities of available-for-sale securities, partially offset by $61.8 million of purchases of available-for-sale securities and $0.1 million of purchases of property and equipment. Cash used in investing activities for the three months ended March 31, 2024 was $77.3 million, which consisted of $100.3 million of purchases of available-for-sale securities, partially offset by $23.0 million of proceeds from maturities of available-for-sale securities. Cash Flows from Financing Activities Cash provided by financing activities for the three months ended March 31, 2025 was $0.1 million, which consisted of $0.1 million of proceeds from the exercise of common stock options. Cash provided by financing activities for the three months ended March 31, 2024 was $32.4 million, which consisted of $32.2 million of net proceeds from the issuance of common stock under our 2021 ATM program and $0.2 million of proceeds from the exercise of common stock options. 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 future research and development expenses to increase as we pursue regulatory approval of our product candidates, continue to advance our product candidates through late-stage clinical trials, invest in capabilities to prepare for commercialization including manufacturing, and hire additional personnel to support our organization. In addition, we expect our general and administrative expenses to increase as we continue to support our research and development activities, grow our business, advance our product candidates in late-stage clinical trials and toward regulatory approval and commercialization activities, and operate as a public company. The timing and amount of our operating expenditures will depend on many factors, including: • 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; 21 • the timing of, and the costs involved in, obtaining feedback from regulators on our clinical trials and regulatory approvals for our lead product candidates or any future product candidates; • the number and characteristics of any additional product candidates we develop or acquire; • 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; • the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize; • the cost of building a sales force in anticipation of product commercialization; • the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs; • 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; • any product liability or other lawsuits related to our products; • the expenses needed to attract, hire and retain skilled personnel; • the costs associated with operating as a public company; • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and • 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 and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. 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. 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. 2024 Financing In June 2024, we raised net proceeds of approximately $116.8 million after deducting underwriting discounts and offering expenses through the sale of 13,001,120 shares of our common stock, par value $0.001 per share at a price of $6.25 per share and pre-funded warrants to purchase an aggregate of 7,000,000 shares of common stock at a price of $6.249 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each pre-funded warrant. 2023 Financing In December 2023, we raised net proceeds of approximately $117.0 million after deducting underwriting discounts and offering expenses through the sale of 25,035,000 shares of our common stock, par value $0.001 per share at a price of $2.880 per share and pre-funded warrants to purchase an aggregate of 18,379,861 shares of common stock at a price of $2.879 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each pre-funded warrant. We issued an aggregate of 5,243,400 and 965,427 shares of common stock upon cashless and cash exercise of these pre-funded warrants in February 2024 and April 2024, respectively. 22 2022 Financing In July 2022, we raised net proceeds of approximately $122.5 million after deducting fees and expenses through the sale of an aggregate of 9,013,834 shares of common stock, pre-funded warrants to purchase up to 24,696,206 shares of our common stock and accompanying common warrants to purchase up to 8,427,508 shares of our common stock. The offering price per share and accompanying common warrant was $3.87125 per share and the offering price per pre-funded warrant and accompanying common warrant was $3.87025 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each such pre-funded warrant. The pre-funded warrants remain exercisable until exercised in full. The common warrants have an exercise price of $5.806875 per share and expire on June 30, 2025. Both the pre-funded and common warrants are immediately exercisable, subject to beneficial ownership limitations. We issued an aggregate of 2,582,557 shares of common stock upon the cashless exercise of the pre-funded warrants in March 2023. We issued an aggregate of 19,901 and 2,739,096 shares of common stock upon the cashless exercise of the common warrants and pre-funded warrants in June 2024 and November 2024, respectively. Pre-Funded and Common Warrants The following summarizes warrant activity during the three months ended March 31, 2025 and 2024: Number of Common Warrants Number of Pre-funded Warrants Weighted-Average Exercise Price Balances as of December 31, 2024 8,104,615 38,543,577 Issued — — $ - Balances as of March 31, 2025 8,104,615 38,543,577 Number of Common Warrants Number of Pre-funded Warrants Weighted-Average Exercise Price Balances as of December 31, 2023 8,427,508 40,492,923 Exercised — (5,244,444 ) $ 0.001 Balances as of March 31, 2024 8,427,508 35,248,479 2024 At-the-Market (ATM) Program In March 2024, we entered into a sales agreement with Cowen and Company LLC, or TD Cowen, as sales agent, or 2024 ATM program, pursuant to which we may issue and sell shares of our common stock for an aggregate maximum offering of $100.0 million. TD Cowen is entitled to compensation up to 3% of the aggregate gross proceeds for the common stock sold through the 2024 ATM program. As of March 31, 2025, approximately $95.4 million remained available for the offer and sale of shares of common stock under the 2024 ATM program. 2021 ATM Program In August 2021, we entered into a sales agreement with TD Cowen, as sales agent, pursuant to which we may issue and sell shares of our common stock for an aggregate maximum offering of $100.0 million under an at-the-market offering program, or 2021 ATM program. TD Cowen is entitled to compensation up to 3% of the aggregate gross proceeds for the common stock sold through the 2021 ATM program. During the three months ended March 31, 2024, we sold 6,639,348 shares of common stock under the 2021 ATM program for net proceeds of approximately $32.2 million, after deducting commissions paid to TD Cowen and other financing costs. The Form S-3 registration statement, which registered the 2021 ATM Program, expired on August 15, 2024. As a result, no shares of common stock may be sold under the 2021 ATM Program. 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 U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the 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. 23 During the quarter ended March 31, 2025, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2024. 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. Item 3. Quantitative and Qualitat ive Disclosures About Market Risk Not applicable.