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Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-17 · 109 added, 39 removed, 144 unchanged (51% of the section changed)

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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, 2020, included in our Annual Report on Form 10-K, or Annual Report, filed with the Securities and Exchange Commission, or SEC, on March 25, 2021.

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, and Section 21E of the Securities Exchange Act of 1934, as amended, based upon current expectations that involve risks and uncertainties.

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.

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These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements .

We are a clinical-stage biopharmaceutical company developing a pipeline of novel therapies for patients with classical complement-mediated disorders of the body, brain and eye.

We are a clinical-stage biopharmaceutical company developing a class of new complement medicines for patients with classical complement-mediated disorders of the body, brain and eye.

Our pipeline is based on our platform technology addressing well-researched classical complement-mediated autoimmune and neurodegenerative disease processes, both of which are triggered by aberrant activation of C1q, the initiating molecule of the classical complement pathway.

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Our upstream complement approach targeting C1q acts as an “on/off switch” designed to block all downstream components of the classical complement pathway that lead to excess inflammation, tissue damage and patient disability in a host of complement-mediated disorders, while preserving the normal immune function of the lectin and alternative complement pathways involved in the clearance of pathogens and damaged cells.

Our pipeline of product candidates is designed to block the activity of C1q and the entire classical complement pathway in a broad set of complement-mediated diseases.

Our first product candidate, ANX005, is a full-length monoclonal antibody formulated for intravenous administration in autoimmune and neurodegenerative disorders.

Our second product candidate, ANX007, is an antigen-binding fragment, or Fab, formulated for intravitreal administration for the treatment of neurodegenerative ophthalmic disorders.

We are also developing ANX009, an investigational, subcutaneous formulation of a Fab designed for the treatment of systemic autoimmune diseases.

We are advancing a portfolio of innovative product candidates designed to block the activity of C1q and the entire classical complement pathway in a broad set of complement-mediated diseases.

Our first clinical candidate, ANX005, is a full-length monoclonal antibody formulated for intravenous administration in autoimmune and neurodegenerative disorders.

Our second clinical candidate, ANX007, is an antigen-binding fragment, or Fab, formulated for intravitreal administration for the treatment of neurodegenerative ophthalmic disorders.

Our third clinical candidate, ANX009, is a subcutaneous formulation of a Fab designed for the treatment of antibody-mediated autoimmune diseases of blood and vascular tissues.

We have completed Phase 1b safety and dose-ranging clinical trials for ANX005 and ANX007 in patients with Guillain-Barré Syndrome, or GBS, and glaucoma, respectively.

Both ANX005 and ANX007 were well-tolerated and showed full inhibition of C1q and the classical complement pathway in the Phase 1b trials.

We have advanced ANX005 into a Phase 2/3 trial in patients with GBS and a Phase 2 trial in patients with Huntington’s disease.

We plan to advance ANX005 into Phase 2 trials in patients with warm autoimmune hemolytic anemia and amyotrophic lateral sclerosis in 2021.

A Phase 2 trial of ANX007 is ongoing in patients with Geographic Atrophy (GA), and ANX009 is being evaluated in a first-in-human trial.

Both ANX005 and ANX007 were well-tolerated and showed full inhibition of C1q and the classical complement pathway in the Phase 1b clinical trials.

We recently completed a Phase 1 dose-escalation study of ANX009 in healthy volunteers, in which ANX009 was well-tolerated and demonstrated complete and sustained C1q inhibition supporting the potential for twice weekly subcutaneous administration.

Our preclinical candidates include ANX105, an investigational monoclonal antibody designed for chronic neurodegenerative diseases, and ANX1502, an oral small molecule program designed for chronic autoimmune diseases.

We are conducting ongoing clinical trials in multiple serious autoimmune, neurodegenerative and ophthalmic diseases, including GBS, warm autoimmune hemolytic anemia, Huntington’s Disease, amyotrophic lateral sclerosis and geographic atrophy, and planning to advance into lupus nephritis and Multifocal Motor Neuropathy (MMN).

Data from these clinical trials are anticipated over the next two years through 2023.

Based on learnings from our initial trials, we are evaluating additional orphan and large market indications that are driven by aberrant or excess classical complement activation.

Additionally, we are developing novel product candidates designed to inhibit C1q and other components of the early classical complement cascade with the goal of further broadening our portfolio.

Finally, we are deploying a rigorous, biomarker-driven development strategy designed to improve the probability of technical success over shorter development timelines.

Additionally, we are deploying a rigorous, biomarker-driven development strategy designed to improve the probability of technical success of our portfolio.

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.

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We have incurred net losses each year since our inception.

Our net losses were $26.0 million and $12.3 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, we had an accumulated deficit of $192.0 million and cash and cash equivalents and short-term investments of $326.7 million.

Our net losses were $31.3 million and $12.2 million for the three months ended June 30 , 2021 and 2020 , respectively .

Our net losses were $ 57.4 million and $ 24.6 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30 , 2021 , we had an accumulated deficit of $223.3 million and cash and cash equivalents and short-term investment s of $302.4 million .

Initial Public Offering

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The COVID-19 pandemic continues to rapidly evolve, and its ongoing impact is uncertain and subject to change.

For instance, we have experienced interruption in clinical trial activities in Bangladesh due to quarantines, shortages in clinical site staff, longer timelines for clinical site initiation and temporary shortages in lab kits and supplies.

For instance, we have experienced shortages in clinical site staff and longer timelines for clinical site initiation.

We will continue to monitor the COVID-19 situation closely.

The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on the duration of the outbreak and its impact 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.

The extent of the 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 of the outbreak, 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

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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

Comparison of the Three Months Ended June 30, 2021 and 2020

The following tables summarize our results of operations for the periods presented.

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Other income, net

Net loss before taxes

Provision for income taxes

Not meaningful

Research and Development Expenses

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Research and development expenses increased by $10.5 million, or 103%, for the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $3.9 million in direct clinical outside services related to our ongoing and planned clinical trials for ANX005, ANX007 and ANX009 as well as preclinical outside services to support pre-IND activities for our ANX105 and small molecule program.

Contract manufacturing expense increased by $2.2 million related to the production of ANX005 as well as pre-IND manufacturing activities to support ANX105.

Compensation and personnel-related expenses increased by $2.7 million due to an increase in headcount and related employee costs.

Direct consulting and professional services costs increased by $1.1 million related to external research and development during the three months ended March 31, 2021.

Research and development expenses increased by $15.3 million, or 165%, for the three months ended June 30, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $6.1 million in direct clinical outside services related to our multiple ongoing and planned clinical trials for ANX005, ANX007 and ANX009 as well as preclinical outside services to support pre-IND activities for our ANX105 and our small molecule program.

Contract manufacturing expense increased by $2.7 million related to the production of ANX005 and ANX009 as well as pre-IND manufacturing activities for ANX105 and our small molecule program.

Compensation and personnel-related expenses increased by $4.2 million, including an increase of $2.1 million in stock-based compensation, due to an increase in headcount.

Direct consulting and professional services costs increased by $1.3 million related to external research and development during the three months ended June 30, 2021.

Facilities and depreciation costs increased by $0.9 million due to the commencement of our new office lease in Brisbane, California.

General and Administrative Expenses

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Not meaningful

General and administrative expenses increased by $3.2 million, or 144%, for the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $1.6 million in compensation and personnel-related expenses due to an increase in headcount and an increase of $1.3 million in consulting and professional services for accounting, legal and audit fees, and directors and officers liability insurance.

General and administrative expenses increased by $3.9 million, or 131%, for the three months ended June 30, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $2.5 million in compensation and personnel-related expenses, including an increase of $1.7 million in stock-based compensation, due to an increase in headcount.

Consulting and professional services for accounting, legal and audit fees, and directors and officers liability insurance increased by $0.8 million during the three months ended June 30, 2021.

Facilities and depreciation costs increased by $0.4 million due to the commencement of our new office lease in Brisbane, California.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following tables summarize our results of operations for the periods presented.

Six Months Ended

(in thousands)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income, net

Net loss before taxes

Provision for income taxes

Not meaningful

Research and Development Expenses

Six Months Ended

(in thousands)

Direct costs:

Clinical and nonclinical outside services

Consulting and professional services

Contract manufacturing

Laboratory supplies and materials

Indirect costs:

Compensation and personnel-related

(including stock-based compensation)

Facilities and depreciation

Total research and development expenses

Not meaningful

Research and development expenses increased by $25.8 million, or 132%, for the six months ended June 30, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $9.9 million in direct clinical outside services related to our multiple ongoing and planned clinical trials for ANX005, ANX007 and ANX009 as well as preclinical outside services to support pre-IND activities for our ANX105 and our small molecule program.

Contract manufacturing expense increased by $4.9 million related to the production of ANX005 and ANX009 as well as pre-IND manufacturing activities for ANX105 and our small molecule program.

Compensation and personnel-related expenses increased by $6.8 million, including an increase of $3.3 million in stock-based compensation, due to an increase in headcount.

Direct consulting and professional services costs increased by $2.5 million related to external research and development during the six months ended June 30, 2021.

Facilities and depreciation costs increased by $1.2 million due to the commencement of our new office lease in Brisbane, California.

General and Administrative Expenses

Six Months Ended

(in thousands)

Compensation and personnel-related

(including stock-based compensation)

Consulting and professional services

Facilities and depreciation

Total general and administrative expenses

Not meaningful

General and administrative expenses increased by $7.1 million, or 137%, for the six months ended June 30, 2021 compared to the same period in 2020.

The increase was primarily due to an increase of $4.2 million in compensation and personnel-related expenses, including an increase of $2.8 million in stock-based compensation, due to an increase in headcount.

Consulting and professional services for accounting, legal and audit fees, and directors and officers liability insurance increased by $2.1 million during the six months ended June 30, 2021.

Facilities and depreciation costs increased by $0.7 million due to the commencement of our new office lease in Brisbane, California.

Liquidity and Capital Resources

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We have funded our operations primarily through the sale of equity securities.

From our inception through March 31, 2021, we have raised net cash proceeds of $233.9 million from private placements of our redeemable convertible preferred stock and $262.4 million from the IPO of our common stock.

As of March 31, 2021, we had available cash and cash equivalents and short-term investments of $326.7 million and an accumulated deficit of $192.0 million.

From our inception through June 30, 2021, we have raised net cash proceeds of $233.9 million from private placements of our redeemable convertible preferred stock and $262.4 million from the IPO of our common stock.

As of June 30, 2021, we had available cash and cash equivalents and short-term investments of $302.4 million and an accumulated deficit of $223.3 million.

Historical Cash Flows

Three Months Ended

Six Months Ended

(in thousands)

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Cash used in investing activities

Cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash

Cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash Flows from Operating Activities

Cash used in operating activities for the three months ended March 31, 2021 was $23.4 million, which consisted of a net loss of $26.0 million, partially offset by $3.7 million in non-cash charges and a net change of $1.1 million in our net operating assets and liabilities.

The non-cash charges consisted of stock-based compensation of $3.0 million, depreciation and amortization of $0.5 million, and accretion of discount on available-for sale securities of $0.2 million.

Cash used in operating activities for the three months ended March 3 1, 202 0 was $ 10.0 million, which consisted of a net loss of $ 12.3 million, partially offset by $ 0.8 million in non-cash charges and a net change of $ 1.5 million in our net operating assets and liabilities.

Cash used in operating activities for the six months ended June 30, 2021 was $48.1 million, which consisted of a net loss of $57.4 million, partially offset by $9.5 million in non-cash charges and a net change of $0.3 million in our net operating assets and liabilities.

The non-cash charges consisted of stock-based compensation of $7.5 million, depreciation and amortization of $1.0 million, and accretion of discount on available-for sale securities of $0.5 million, and reduction in the carrying amount of right-of-use assets of $0.5 million.

Cash used in operating activities for the six months ended June 30, 2020 was $20.2 million, which consisted of a net loss of $24.6 million, partially offset by $1.7 million in non-cash charges and a net change of $2.7 million in our net operating assets and liabilities.

The non-cash charges consisted of stock-based compensation of $1.4 million and depreciation and amortization of $0.3 million.

Cash Flows from Investing Activities

Cash used in investing activities for the three months ended March 31, 2021 was $37.6 million, which consisted of $42.5 million of purchases of available-for-sale securities and $5.0 million of maturities of available-for-sale securities.

There were no investing activities as of March 31, 2020.

Cash used in investing activities for the six months ended June 30, 2021 was $120.7 million, which consisted of $159.6 million of purchases of available-for-sale securities, $33.0 million of maturities of available-for-sale securities, and $6.0 million of proceeds from sale of available-for-sale securities.

Cash used in investing activities for the six months ended June 30, 2020 was related to immaterial purchase of property and equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended March 31, 2021 was $0.3 million, related to proceeds from issuance of common stock.

Cash used in financing activities for the three months ended March 31, 2020 was $0.6 million, related to payments for deferred offering costs.

Cash provided by financing activities for the six months ended June 30, 2021 was $0.9 million, related to proceeds from exercise of common stock options and employee stock purchase plan purchases.

Cash provided by financing activities for the six months ended June 30, 2020 was $101.1 million, which consisted of gross proceeds received from sale and issuance of our Series D redeemable convertible preferred stock of approximately $102.0 million and proceeds of $0.5 million from a Paycheck Protection Program loan, partially offset by payments for deferred offering costs of $0.9 million and repayments of $0.5 million of the Paycheck Protection Program loan.

Funding Requirements

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Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Emerging Growth Company Status

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company,” as defined in the JOBS Act.

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As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

As of June 30, 2021, we retained our eligibility as a smaller reporting company as well as an emerging growth company.

Because (i) the aggregate worldwide market value of our voting common stock held by non-affiliates (or “public float”) exceeded $700 million on June 30, 2021, (ii) we will have been subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for at least twelve calendar months, (iii) we have previously filed an annual report under Section 13(a) or 15(d) of the Exchange Act and (iv) we will not be eligible for smaller reporting company status because we exceed the public float and revenue threshold for such status, we will qualify as a “large accelerated filer” under Rule 12b-2 of the Exchange Act as of the end of the current fiscal year.

As a large accelerated filer, we will no longer qualify as an emerging growth company.

As a result of these changes, we are in the process of assessing the impacts of this to our internal control over financial reporting and the accounting standards applicable for the Company.

We will remain eligible to take advantage of smaller reporting company reporting requirements through our Annual Report on Form 10-K for the current fiscal year.

Critical Accounting Policies and Estimates

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Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

During the three months ended March 31, 2021, 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.

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 except for the adoption of ASU No.

2016-02, Leases (Topic 842) on January 1, 2021 as discussed below.

In the second quarter of 2021, we adopted ASU No.

2016-02 using the modified retrospective approach as of January 1, 2021.

Upon adoption of Accounting Standards Codification 842, Leases , as of January 1, 2021, we include operating leases in operating lease right-of-use, or ROU assets, current and noncurrent operating lease liabilities in our condensed consolidated balance sheets.

The ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As most of the leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

As a practical expedient, we elected, for all facility leases, not to separate non-lease components from lease components and instead to account for each separate lease component and its associated non-lease components as a single lease component.

We elected to exclude from our balance sheets recognition of leases having a term of 12 months or less (short-term leases).

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.

Quantitative and Qualitat ive Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

Not required for the Company as a smaller reporting company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis