[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Annexon, Inc.'s unaudited condensed consolidated financial statements, highlighting **$269.5 million** in cash and investments, a **$403.9 million** accumulated deficit, and **$122.6 million** from a July 2022 private placement Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 ($) | December 31, 2021 ($) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $210,658 | $74,843 | | Short-term investments | $58,861 | $167,872 | | Total current assets | $274,777 | $247,693 | | Total assets | $312,722 | $287,040 | | **Liabilities & Equity** | | | | Total liabilities | $52,120 | $55,131 | | Total stockholders' equity | $260,602 | $231,909 | | Accumulated deficit | $(403,879) | $(296,315) | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Research and development | $27,862 | $83,966 | | General and administrative | $8,207 | $24,938 | | **Net loss** | **$(35,054)** | **$(107,564)** | | Net loss per share | $(0.51) | $(2.21) | - The company has experienced losses since inception, with an accumulated deficit of **$403.9 million** as of September 30, 2022. Operations have been funded primarily through stock issuances[28](index=28&type=chunk) - In July 2022, the company closed a private placement of common stock and warrants, resulting in net proceeds of approximately **$122.6 million**. Management projects that current cash is sufficient to support operations for at least the next 12 months[29](index=29&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's clinical-stage biopharmaceutical business, pipeline progress, and financial performance, noting a net loss increase to **$107.6 million** and a liquidity boost from a **$122.6 million** private placement extending cash runway into H2 2025 - Annexon is a clinical-stage biopharmaceutical company focused on a new class of complement medicines targeting C1q for autoimmune, neurodegenerative, and ophthalmic disorders[105](index=105&type=chunk) - The company is advancing a pipeline of five product candidates: ANX005 (IV for GBS, wAIHA, HD, ALS), ANX007 (intravitreal for GA), ANX009 (subcutaneous for LN), ANX105 (monoclonal antibody), and ANX1502 (oral small molecule)[108](index=108&type=chunk)[110](index=110&type=chunk) Financial Results Comparison (in thousands) | Metric | Nine Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2021 ($) | | :--- | :--- | :--- | | Research and development | $83,966 | $72,849 | | General and administrative | $24,938 | $20,406 | | **Net loss** | **$(107,564)** | **$(92,952)** | - As of September 30, 2022, the company had **$269.5 million** in cash, cash equivalents, and short-term investments, which is expected to fund operations into the second half of 2025[136](index=136&type=chunk)[146](index=146&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) R&D expenses increased by **$11.1 million** (15%) to **$84.0 million**, driven by clinical trial and personnel costs, while G&A expenses rose by **$4.5 million** (22%) to **$24.9 million** due to personnel and professional services R&D Expense Breakdown - Nine Months Ended Sep 30 (in thousands) | Expense Category | 2022 ($) | 2021 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Clinical and nonclinical outside services | $39,640 | $30,608 | $9,032 | 30% | | Compensation and personnel-related | $21,740 | $18,031 | $3,709 | 21% | | Contract manufacturing | $12,553 | $14,464 | $(1,911) | (13%) | | **Total R&D Expenses** | **$83,966** | **$72,849** | **$11,117** | **15%** | G&A Expense Breakdown - Nine Months Ended Sep 30 (in thousands) | Expense Category | 2022 ($) | 2021 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Compensation and personnel-related | $12,579 | $9,622 | $2,957 | 31% | | Consulting and professional services | $9,653 | $8,673 | $980 | 11% | | **Total G&A Expenses** | **$24,938** | **$20,406** | **$4,532** | **22%** | [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, primarily from equity sales, was boosted by a **$122.6 million** July 2022 private placement, bringing cash and investments to **$269.5 million** and extending funding into H2 2025, with a **$100.0 million** ATM program available - On July 11, 2022, the company completed a private placement of common stock and warrants, resulting in net proceeds of approximately **$122.6 million** after fees and expenses[148](index=148&type=chunk) - Based on the current operating plan, existing cash and investments are expected to fund operations and capital requirements into the second half of 2025[146](index=146&type=chunk) - The company has a **$100.0 million** at-the-market (ATM) offering program established in August 2021, but no shares have been sold under this program as of September 30, 2022[147](index=147&type=chunk) Historical Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2021 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(89,170) | $(77,789) | | Net cash provided by (used in) investing activities | $102,058 | $(121,933) | | Net cash provided by financing activities | $122,800 | $847 | [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency exchange and interest rate fluctuations, with foreign currency exposure deemed immaterial and interest rate risk on short-term investments not expected to materially impact financial results - The company's primary market risks are foreign currency exchange risk and interest rate risk[155](index=155&type=chunk)[156](index=156&type=chunk) - Foreign currency risk from operations in Australia is not considered material[155](index=155&type=chunk) - Interest rate risk is associated with cash and cash equivalents (**$210.7 million**) and short-term investments (**$58.9 million**). However, due to the short-term nature of these holdings, a 10% change in interest rates is not expected to have a material impact[156](index=156&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[157](index=157&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[158](index=158&type=chunk) [PART II—OTHER INFORMATION](index=31&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings, though it may become involved in ordinary course litigation - As of the filing date, the company is not party to any material legal proceedings[162](index=162&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including its clinical-stage status, history of losses, need for substantial financing, dependence on product candidate success, clinical trial delays, supply chain reliance, competition, and public health crises - The company is a clinical-stage biopharmaceutical company with a limited operating history, significant losses since inception, and no products approved for commercial sale[164](index=164&type=chunk)[165](index=165&type=chunk) - Substantial additional financing will be required to achieve goals, and failure to obtain it could force delays or termination of development programs[164](index=164&type=chunk)[167](index=167&type=chunk) - The business is heavily dependent on the successful development, regulatory approval, and commercialization of its product candidates, which are in early stages of clinical development[164](index=164&type=chunk)[181](index=181&type=chunk) - The company relies on third-party suppliers for manufacturing and intends to do so for commercial supplies, creating risk related to compliance, quality, and supply chain stability[164](index=164&type=chunk)[255](index=255&type=chunk) - Public health crises like the COVID-19 pandemic have caused and could continue to cause interruptions in clinical trial activities, staff shortages, and supply chain issues[164](index=164&type=chunk)[188](index=188&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the July 11, 2022 private placement of common stock and warrants, and confirms no material change in the planned use of proceeds from the July 2020 IPO - On July 11, 2022, the company sold an aggregate of **9,013,834 shares** of common stock, pre-funded warrants to purchase **24,696,206 shares**, and common warrants to purchase **8,427,508 shares** in a private placement[422](index=422&type=chunk) - There has been no material change in the planned use of proceeds from the company's IPO, which was declared effective on July 23, 2020[423](index=423&type=chunk) [Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[423](index=423&type=chunk) [Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[423](index=423&type=chunk) [Other Information](index=74&type=section&id=Item%205.%20Other%20Information) The company reports no other information for this period - None[423](index=423&type=chunk) [Exhibits](index=75&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications from executive officers and Inline XBRL documents for financial reporting - The report includes required certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2) as exhibits[425](index=425&type=chunk) - Inline XBRL files (Instance, Schema, Calculation, Definition, Label, Presentation) are included as exhibits 101.INS through 101.PRE[425](index=425&type=chunk)[427](index=427&type=chunk)

PART I—FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company reported a Q1 2022 net loss of $35.4 million, with total assets decreasing to $250.6 million [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $250.6 million as of March 31, 2022, driven by lower short-term investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $112,828 | $74,843 | | Short-term investments | $93,831 | $167,872 | | Total current assets | $211,254 | $247,693 | | **Total assets** | **$250,569** | **$287,040** | | **Liabilities & Equity** | | | | Total current liabilities | $17,053 | $21,744 | | Total liabilities | $49,955 | $55,131 | | Total stockholders' equity | $200,614 | $231,909 | | **Total liabilities and stockholders' equity** | **$250,569** | **$287,040** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company's net loss increased to $35.4 million in Q1 2022, driven by higher R&D and G&A expenses Condensed Consolidated Statements of Operations (in thousands, except per share data) | Operating Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 (As restated) | | :--- | :--- | :--- | | Research and development | $26,998 | $20,696 | | General and administrative | $8,428 | $5,506 | | **Total operating expenses** | **$35,426** | **$26,202** | | Loss from operations | ($35,426) | ($26,202) | | **Net loss** | **($35,373)** | **($26,060)** | | Net loss per share, basic and diluted | ($0.92) | ($0.68) | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss for Q1 2022 was $35.6 million, including the net loss and unrealized investment losses Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 (As restated) | | :--- | :--- | :--- | | Net loss | ($35,373) | ($26,060) | | Unrealized loss on available-for-sale securities | ($196) | ($25) | | **Comprehensive loss** | **($35,566)** | **($26,086)** | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity declined to $200.6 million as of March 31, 2022, primarily due to the quarterly net loss - Stockholders' equity decreased to **$200.6 million** as of March 31, 2022, mainly due to a **net loss of $35.4 million**, which was partially offset by **$4.3 million in stock-based compensation** and $19,000 from stock option exercises[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was $30.3 million, while investing activities provided $68.3 million in Q1 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 (As restated) | | :--- | :--- | :--- | | 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)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The company has a history of losses and an accumulated deficit of $331.7 million but has sufficient cash for 12 months - The company is a clinical-stage biopharmaceutical firm that has experienced losses since inception, with an **accumulated deficit of $331.7 million** as of March 31, 2022[23](index=23&type=chunk)[24](index=24&type=chunk) - Management projects that cash, cash equivalents, and short-term investments of **$206.7 million are sufficient to support operations for at least the next 12 months**[24](index=24&type=chunk) - As of March 31, 2022, **no shares have been sold under the $100.0 million at-the-market (ATM) offering program** established in August 2021[70](index=70&type=chunk) - Total unrecognized stock-based compensation cost was **$50.7 million for unvested stock options** and **$2.3 million for unvested RSUs** as of March 31, 2022[76](index=76&type=chunk)[78](index=78&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Operating expenses rose 35% YoY to $35.4 million in Q1 2022, with sufficient capital to fund operations into 2024 - The company is advancing a pipeline of five product candidates (ANX005, ANX009, ANX007, ANX105, ANX1502) targeting the classical complement pathway for various diseases[99](index=99&type=chunk)[101](index=101&type=chunk) - The company believes its existing cash and cash equivalents of **$206.7 million will be sufficient to fund operating expenses** and capital requirements into 2024[130](index=130&type=chunk)[151](index=151&type=chunk) - The COVID-19 pandemic has caused interruptions in clinical trial activities, including staff shortages and longer site initiation timelines, and its ongoing impact remains uncertain[104](index=104&type=chunk) Q1 2022 vs Q1 2021 Operating Results (in thousands) | Metric | Q1 2022 | Q1 2021 (restated) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | 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%** | | **Net loss** | **($35,373)** | **($26,060)** | **($9,313)** | **36%** | [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q1 2022 operating expenses increased 35% to $35.4 million, driven by higher R&D and G&A costs - **R&D expenses increased by $6.3 million (30%) YoY**, mainly due to a **$4.2 million rise in direct clinical outside services** for trials in GBS, wAIHA, HD, ALS, and GA, and planning for ANX105 and ANX1502 trials[117](index=117&type=chunk) - **G&A expenses increased by $2.9 million (53%) YoY**, primarily from a **$1.4 million increase in compensation** (including $0.9 million in stock-based compensation) due to higher headcount, and a $1.1 million increase in consulting, professional services, and D&O insurance[118](index=118&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $206.7 million in cash and investments, sufficient to fund operations into 2024 - As of March 31, 2022, the company had **$206.7 million in cash, cash equivalents, and short-term investments** and an **accumulated deficit of $331.7 million**[121](index=121&type=chunk) - The company expects its existing capital resources will **fund planned operating expenses into 2024**, but acknowledges this is based on assumptions that may prove wrong[130](index=130&type=chunk)[151](index=151&type=chunk) - **Net cash used in operating activities was $30.3 million** for Q1 2022, compared to $23.4 million in Q1 2021, reflecting a higher net loss and changes in operating assets and liabilities[122](index=122&type=chunk)[123](index=123&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency and interest rate fluctuations on its investment portfolio - The company's primary market risks are **foreign currency exchange risk** (due to operations in the U.S. and Australia) and **interest rate risk** on its investment portfolio[138](index=138&type=chunk)[139](index=139&type=chunk) - Management has determined that a hypothetical **10% change in foreign currency exchange rates or interest rates would not have a material impact** on the company's historical financial statements[138](index=138&type=chunk)[139](index=139&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022 - The CEO and CFO concluded that as of the end of the period, the company's **disclosure controls and procedures are effective**[140](index=140&type=chunk) - **No changes in internal control over financial reporting** occurred during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[141](index=141&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is **not currently party to any material legal proceedings**[144](index=144&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) Key risks include a history of losses, need for financing, reliance on clinical trials, and third-party suppliers - The company is a clinical-stage entity with a **limited operating history, significant losses since inception**, and anticipates continued losses, making future viability difficult to assess[146](index=146&type=chunk) - **Substantial additional financing is required** to achieve goals, and failure to obtain it could force delays or termination of development programs[146](index=146&type=chunk) - The business is **heavily dependent on the successful development, regulatory approval, and commercialization** of its product candidates, which are in early clinical stages[146](index=146&type=chunk) - **Public health crises like pandemics could materially and adversely affect** preclinical and clinical trials, business, and financial condition[146](index=146&type=chunk) - The company **relies on third-party suppliers for manufacturing**, and the loss of these suppliers or their failure to comply with regulations would materially harm the business[146](index=146&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered securities were sold, and the planned use of IPO proceeds remains unchanged - There were **no sales of unregistered securities** in the reported period[401](index=401&type=chunk) - There has been **no material change in the planned use of proceeds** from the company's IPO[401](index=401&type=chunk) [Defaults Upon Senior Securities](index=71&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[401](index=401&type=chunk) [Mine Safety Disclosures](index=71&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[401](index=401&type=chunk) [Other Information](index=71&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[401](index=401&type=chunk) [Exhibits](index=72&type=section&id=Item%206.%20Exhibits) This section indexes exhibits filed with the Form 10-Q, including officer certifications - The exhibit index lists documents filed with the report, including officer certifications and Inline XBRL data files[405](index=405&type=chunk)[406](index=406&type=chunk)

Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Annexon develops C1q-inhibiting medicines for autoimmune, neurodegenerative, and ophthalmic disorders, leveraging a pipeline of clinical-stage assets - Annexon is a clinical-stage biopharmaceutical company pioneering therapies that target **C1q** to inhibit the classical complement pathway for autoimmune, neurodegenerative, and ophthalmic diseases[17](index=17&type=chunk) - The company's strategy leverages its **C1q inhibition approach** to address a broad range of diseases, advancing lead candidates ANX005 and ANX007, and expanding its portfolio with next-generation candidates[34](index=34&type=chunk)[36](index=36&type=chunk) - Annexon holds **worldwide development and commercialization rights** to its product candidates, planning to build its own commercial infrastructure for select markets while exploring partnerships[23](index=23&type=chunk)[36](index=36&type=chunk)[149](index=149&type=chunk) [Overview and Strategy](index=7&type=section&id=Item%201.%20Business-Overview) Annexon's strategy focuses on pioneering C1q inhibition for various diseases, advancing lead candidates, and expanding its portfolio - The company's core strategy leverages unique upstream C1q inhibition for broad applicability in classical complement-mediated diseases, aiming for complete pathway blockage while preserving healthy complement function[18](index=18&type=chunk)[34](index=34&type=chunk) - A key strategic element is a disciplined, **biomarker-driven development approach** to establish target engagement and de-risk clinical programs, as seen with NfL in GBS, HD, and ALS trials[34](index=34&type=chunk)[53](index=53&type=chunk) - Annexon plans to maximize the value of its wholly-owned product candidates through independent development in select markets and collaborations for larger indications[36](index=36&type=chunk) [Our Pipeline](index=8&type=section&id=Item%201.%20Business-Our%20Pipeline) Annexon's pipeline includes clinical-stage C1q inhibitors ANX005, ANX007, and ANX009 for autoimmune, neurodegenerative, and ophthalmic diseases, alongside next-generation candidates Annexon Clinical Pipeline Summary | Product Candidate | Formulation | Therapeutic Area | Indication(s) | Development Stage | Expected Data Readout | | :--- | :--- | :--- | :--- | :--- | :--- | | **ANX005** | IV mAb | Autoimmune / Neurodegeneration | Guillain-Barré Syndrome (GBS) | Phase 2/3 | 2023 | | | | | Warm Autoimmune Hemolytic Anemia (wAIHA) | Phase 2 | H2 2022 | | | | | Huntington's Disease (HD) | Phase 2 | Q2 2022 (Full Data) | | | | | Amyotrophic Lateral Sclerosis (ALS) | Phase 2 | 2023 | | **ANX007** | Intravitreal Fab | Ophthalmology | Geographic Atrophy (GA) | Phase 2 | 2023 | | **ANX009** | Subcutaneous Fab | Autoimmune | Lupus Nephritis (LN) | Phase 1b | H2 2022 (Initial Data) | | **ANX105** | mAb | Neurodegeneration | Chronic Neurodegenerative Diseases | Preclinical (FIH planned H1 2022) | 2023 | | **ANX1502** | Oral Small Molecule | Autoimmune | Autoimmune Indications | Preclinical (FIH planned H2 2022) | 2023 | - For ANX005 in GBS, a Phase 1b trial showed **full C1q target engagement**, a significant reduction in the nerve damage biomarker **NfL**, and positive trends on clinical outcome measures, with a pivotal Phase 2/3 trial ongoing[24](index=24&type=chunk)[27](index=27&type=chunk)[72](index=72&type=chunk) - Interim Phase 2 data for ANX005 in Huntington's Disease showed the drug was **well-tolerated**, achieved **full target engagement** in serum and CSF, and patients maintained clinical function by cUHDRS[29](index=29&type=chunk)[94](index=94&type=chunk) - ANX007 for ophthalmic diseases demonstrated **full target engagement** in the eye for at least four weeks in a Phase 1b glaucoma trial, supporting its ongoing Phase 2 development in Geographic Atrophy[30](index=30&type=chunk)[124](index=124&type=chunk) [Intellectual Property](index=33&type=section&id=Item%201.%20Business-Intellectual%20Property) Annexon's IP strategy relies on patents and trade secrets, with 15 patent families covering its C1q platform and candidates, including licensed and owned patents extending to 2041 - As of January 15, 2022, the company's patent portfolio consisted of **15 different patent families**, including both owned and in-licensed patents and applications[135](index=135&type=chunk) - A foundational patent family exclusively licensed from Stanford University, covering C1q inhibition for neurodegeneration, expires between **2026 and 2030**[136](index=136&type=chunk)[142](index=142&type=chunk) - Company-owned patent families for anti-C1q antibodies (ANX005, ANX007, ANX009, ANX105) provide protection expiring between **2034 and 2037**[137](index=137&type=chunk) - A pending patent family covers the oral small molecule candidate ANX1502, with any resulting patents expected to expire in **2041**[140](index=140&type=chunk) [Competition](index=36&type=section&id=Item%201.%20Business-Competition) Annexon faces intense competition from well-resourced pharmaceutical and biotech companies across its target indications, including GBS, wAIHA, HD, and GA - **Guillain-Barré Syndrome (GBS):** No FDA-approved therapies exist. Competitors include Hansa Biopharma (imlifidase, Phase 2) and AstraZeneca/Alexion (SOLIRIS, Phase 3 in Japan)[157](index=157&type=chunk) - **Autoimmune Hemolytic Anemias (wAIHA/CAD):** No approved therapies for wAIHA. Competitors include Rigel (Tavalisse, Phase 3), Incyte (parsaclisib, Phase 3), and Janssen (nipocalimab, Phase 2/3). Sanofi's sutimlimab is approved for CAD[158](index=158&type=chunk) - **Huntington's Disease (HD):** No approved disease-modifying therapies. Competitors include Prilenia (Pridopidine, Phase 3), PTC Therapeutics (PTC518, Phase 2), and uniQure (AMT-130, Phase 1)[160](index=160&type=chunk) - **Geographic Atrophy (GA):** No FDA-approved treatments. Competitors targeting the complement cascade include Apellis (APL-2, completed Phase 3), Iveric Bio (zimura, Phase 3), and NGM Pharma (NGM621, Phase 2)[163](index=163&type=chunk) [Government Regulation](index=37&type=section&id=Item%201.%20Business-Government%20Regulation) The company's operations are subject to extensive FDA regulation, requiring rigorous preclinical and clinical development, BLA submission, and post-approval compliance - The FDA drug approval process requires extensive preclinical and clinical testing (Phase 1, 2, 3) to establish safety and efficacy before a Biologics License Application (BLA) can be submitted and approved[165](index=165&type=chunk)[171](index=171&type=chunk)[175](index=175&type=chunk) - The company has received **Fast Track designation** for ANX005 for GBS, potentially expediting development and review[27](index=27&type=chunk)[181](index=181&type=chunk) - The company has received **Orphan Drug designation** for ANX005 for GBS and HD, potentially granting **seven years of market exclusivity** in the U.S. if approved first for these indications[27](index=27&type=chunk)[187](index=187&type=chunk)[284](index=284&type=chunk) - Approved products will be subject to the Biologics Price Competition and Innovation Act (BPCIA), providing a **12-year exclusivity period** before a biosimilar can be marketed[194](index=194&type=chunk)[195](index=195&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including financial needs, clinical trial uncertainties, third-party reliance, competition, and intellectual property challenges - **Financial Risk:** The company has a history of significant losses (**$130.3 million** in 2021) and will require substantial additional financing, with failure to obtain capital potentially leading to program delays or termination[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - **Clinical Development Risk:** The business depends on the success of its early-stage product candidates, with clinical trials being long, expensive, and uncertain, where delays, negative results, or safety issues could prevent regulatory approval[234](index=234&type=chunk)[248](index=248&type=chunk)[255](index=255&type=chunk) - **Third-Party Reliance:** Annexon relies on third-party suppliers for manufacturing and CROs for clinical trials, where the loss or failure of these partners would materially harm the business[311](index=311&type=chunk)[318](index=318&type=chunk) - **Competition and Commercialization Risk:** The company faces significant competition from larger, better-resourced companies, and even if approved, its products may not achieve market acceptance or adequate reimbursement[323](index=323&type=chunk)[327](index=327&type=chunk) - **Intellectual Property Risk:** The company's success depends on its ability to obtain and enforce patents, facing potential infringement claims or challenges to its own patents, which could be costly and limit commercialization[360](index=360&type=chunk)[367](index=367&type=chunk) [Item 2. Properties](index=96&type=section&id=Item%202.%20Properties) The company leases 65,818 square feet of office and laboratory space for its Brisbane, California headquarters under a lease extending to October 2031 - The company leases approximately **65,818 square feet** of office and laboratory space for its corporate headquarters in Brisbane, California[492](index=492&type=chunk) - The lease term runs from **November 2021 to October 2031**, with an option to extend for an additional ten years[492](index=492&type=chunk) [Item 3. Legal Proceedings](index=96&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings as of the report date - The company is not currently a party to any material legal proceedings[493](index=493&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=97&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Annexon's common stock trades on Nasdaq under 'ANNX' since July 2020, with no plans for cash dividends as earnings will be reinvested for growth - The company's common stock began trading on the Nasdaq Global Select Market under the symbol **"ANNX"** on **July 24, 2020**[495](index=495&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[497](index=497&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=98&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company reported a **$130.3 million** net loss in 2021 due to increased R&D and G&A expenses, holding **$242.7 million** in cash to fund operations into Q1 2024 Fiscal Year 2021 vs 2020 Financial Results (in thousands) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $100,066 | $49,271 | $50,795 | 103% | | General and administrative | $30,647 | $14,198 | $16,449 | 116% | | **Total operating expenses** | **$130,713** | **$63,469** | **$67,244** | **106%** | | **Net loss** | **($130,323)** | **($63,412)** | **($66,911)** | **106%** | - The increase in R&D expenses was primarily due to a **$23.7 million** rise in clinical services for ongoing trials, a **$12.5 million** increase in compensation from higher headcount, and a **$6.7 million** increase in contract manufacturing[524](index=524&type=chunk) - The increase in G&A expenses was driven by a **$7.9 million** rise in compensation, a **$6.4 million** increase in professional services and insurance, and a **$1.6 million** increase in facility costs[526](index=526&type=chunk) - As of December 31, 2021, the company had **$242.7 million** in cash, cash equivalents, and short-term investments, expected to fund operations into **Q1 2024**[508](index=508&type=chunk)[536](index=536&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=108&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for 2021 and 2020 are presented, with KPMG LLP issuing an unqualified opinion on financial statements and internal controls - The independent registered public accounting firm, **KPMG LLP**, issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2021[554](index=554&type=chunk)[555](index=555&type=chunk) Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash, cash equivalents, and short-term investments | $242,715 | $351,206 | | Total Assets | $287,040 | $355,946 | | Total Liabilities | $55,131 | $11,668 | | Total Stockholders' Equity | $231,909 | $344,278 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total operating expenses | $130,713 | $63,469 | | Loss from operations | ($130,713) | ($63,469) | | Net loss | ($130,323) | ($63,412) | | Net loss per share | ($3.40) | ($4.15) | - The auditor identified the evaluation of accrued preclinical study and clinical trial expenses as a **critical audit matter**, due to the subjective judgment required to assess the status and level of effort of R&D activities performed by third-party organizations[564](index=564&type=chunk)[565](index=565&type=chunk) [Item 9A. Controls and Procedures](index=133&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and KPMG LLP concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2021[690](index=690&type=chunk) - Management and the independent auditor, **KPMG LLP**, both concluded that the company's internal control over financial reporting was **effective** as of December 31, 2021[691](index=691&type=chunk)[692](index=692&type=chunk) - During the first quarter of 2021, the company implemented a new **NetSuite ERP system**, resulting in modifications to internal control processes and procedures[693](index=693&type=chunk) Part III [Items 10-14](index=135&type=section&id=Item%2010,%2011,%2012,%2013,%2014) Information for Items 10 through 14 is incorporated by reference from the company's forthcoming 2022 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's forthcoming **2022 Proxy Statement**[698](index=698&type=chunk)[701](index=701&type=chunk)[702](index=702&type=chunk)[703](index=703&type=chunk)[704](index=704&type=chunk) - The company has adopted a **Code of Business Conduct and Ethics**, which is available on its website[699](index=699&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=136&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K - This item contains the index of exhibits filed with the 10-K, including the Amended and Restated Certificate of Incorporation, material contracts, and required certifications[707](index=707&type=chunk)

[PART I—FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited financial statements show a significant increase in net loss and operating expenses [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2021 (Unaudited) | December 31, 2020 | |:---|:---|:---| | Total Assets | $310,156 | $355,946 | | Total Liabilities | $45,679 | $11,668 | | Total Stockholders' Equity | $264,477 | $344,278 | | Cash and Cash Equivalents | $68,519 | $268,565 | | Short-term Investments | $202,848 | $82,641 | - Total assets decreased by **$45.79 million (12.86%)** from December 31, 2020, to September 30, 2021, primarily driven by a significant reduction in cash and cash equivalents, partially offset by an increase in short-term investments and property and equipment[5](index=5&type=chunk) - Total liabilities increased substantially by **$34.01 million (291.47%)** due to the recognition of operating lease liabilities, non-current, which were $33.76 million as of September 30, 2021[5](index=5&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Research and development | $27,581 | $11,775 | $72,849 | $31,279 | | General and administrative | $8,099 | $3,810 | $20,406 | $8,999 | | Total operating expenses | $35,680 | $15,585 | $93,255 | $40,278 | | Net loss | $(35,598) | $(15,638) | $(92,952) | $(40,219) | | Net loss per share (basic and diluted) | $(0.93) | $(0.77) | $(2.43) | $(4.79) | - Net loss for the three months ended September 30, 2021, increased by **127.6% to $35.6 million** compared to $15.6 million in the same period of 2020, driven by higher operating expenses[8](index=8&type=chunk) - Net loss for the nine months ended September 30, 2021, increased by **131.1% to $93.0 million** compared to $40.2 million in the same period of 2020[8](index=8&type=chunk) - Research and development expenses increased by **134.2%** for the three months and **133.0%** for the nine months ended September 30, 2021, reflecting increased clinical trial activities and manufacturing costs[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Net loss | $(35,598) | $(15,638) | $(92,952) | $(40,219) | | Other comprehensive gain (loss): | | | | | | Foreign currency translation adjustment | $(3) | $4 | $(5) | $2 | | Unrealized gain (loss) on available for sale securities | $(7) | — | $7 | — | | Comprehensive loss | $(35,608) | $(15,634) | $(92,950) | $(40,217) | - Comprehensive loss for the three months ended September 30, 2021, was **$35.61 million**, an increase from $15.63 million in the prior year, primarily due to the higher net loss[11](index=11&type=chunk) [Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) Stockholders' Equity Changes (in thousands, except share amounts) | Metric | December 31, 2020 | September 30, 2021 | |:---|:---|:---| | Common Stock Shares | 38,157,618 | 38,370,098 | | Common Stock Cost | $38 | $38 | | Additional Paid-In Capital | $510,309 | $523,458 | | Accumulated Other Comprehensive Loss | $(77) | $(75) | | Accumulated Deficit | $(165,992) | $(258,944) | | Total Stockholders' Equity | $344,278 | $264,477 | - Total stockholders' equity decreased by **$79.8 million** from December 31, 2020, to September 30, 2021, primarily due to an increase in accumulated deficit, partially offset by an increase in additional paid-in capital from stock-based compensation and option exercises[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---| | Net cash used in operating activities | $(77,789) | $(33,831) | | Net cash used in investing activities | $(121,933) | $(292) | | Net cash provided by financing activities | $847 | $360,876 | | (Decrease) increase in cash, cash equivalents, and restricted cash | $(198,875) | $326,753 | | Cash, cash equivalents and restricted cash, End of period | $69,685 | $370,686 | - Net cash used in operating activities increased by **129.9% to $77.8 million** for the nine months ended September 30, 2021, compared to $33.8 million in the prior year, driven by higher net loss[21](index=21&type=chunk) - Net cash used in investing activities significantly increased to **$121.9 million** for the nine months ended September 30, 2021, primarily due to purchases of available-for-sale securities[21](index=21&type=chunk) - Net cash provided by financing activities decreased substantially to **$0.8 million** for the nine months ended September 30, 2021, from $360.9 million in the prior year, which included significant proceeds from the IPO and preferred stock issuance[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization](index=10&type=section&id=1.%20Organization) - Annexon, Inc. is a clinical-stage biopharmaceutical company focused on developing complement medicines for classical complement-mediated disorders of the body, brain, and eye[23](index=23&type=chunk) - The company completed its Initial Public Offering (IPO) on July 28, 2020, issuing 14,750,000 shares of common stock at $17.00 per share, generating net proceeds of approximately **$262.4 million**[24](index=24&type=chunk) - As of September 30, 2021, the company had an accumulated deficit of **$258.9 million** and cash, cash equivalents, and short-term investments of **$271.4 million**, projecting sufficient liquidity for at least the next 12 months[26](index=26&type=chunk) [2. Basis of Presentation and Significant Accounting Policies](index=10&type=section&id=2.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim reporting, reflecting normal recurring adjustments[27](index=27&type=chunk)[29](index=29&type=chunk) - The company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2021, using the modified retrospective approach, resulting in the recognition of ROU assets of **$461,000** and corresponding lease liabilities of **$605,000**[49](index=49&type=chunk) - Research and development expenses are expensed as incurred, with advance payments deferred as prepaid expenses and expensed as services are performed[40](index=40&type=chunk) - Stock-based compensation is recognized using a fair value method (Black-Scholes model) over the vesting period, with performance-based awards recognized when probable of being met[42](index=42&type=chunk)[43](index=43&type=chunk) [3. Fair Value Measurements](index=15&type=section&id=3.%20Fair%20Value%20Measurements) - The company measures financial assets and liabilities at fair value using a three-level hierarchy based on observable inputs[53](index=53&type=chunk) Fair Value of Financial Assets (in thousands) | Asset Category | Valuation Hierarchy | September 30, 2021 Aggregate Fair Value | |:---|:---|:---| | Money market funds | Level 1 | $67,937 | | Commercial paper | Level 2 | $115,867 | | Corporate debt | Level 2 | $53,104 | | Government bonds | Level 2 | $33,877 | | Total assets | | $270,785 | [4. Balance Sheet Components](index=16&type=section&id=4.%20Balance%20Sheet%20Components) Prepaid Expenses and Other Current Assets (in thousands) | Category | September 30, 2021 | December 31, 2020 | |:---|:---|:---| | Prepaid research and development costs | $1,805 | $1,039 | | Prepaid insurance | $1,845 | $1,236 | | Total prepaid expenses and other current assets | $4,131 | $2,805 | Property and Equipment, Net (in thousands) | Category | September 30, 2021 | December 31, 2020 | |:---|:---|:---| | Total property and equipment, gross | $15,826 | $3,906 | | Less: accumulated depreciation | $(3,607) | $(1,971) | | Total property and equipment, net | $12,219 | $1,935 | - Construction-in-progress significantly increased to **$11.39 million** as of September 30, 2021, from zero at December 31, 2020, indicating substantial capital expenditures[61](index=61&type=chunk) Accrued Liabilities (in thousands) | Category | September 30, 2021 | December 31, 2020 | |:---|:---|:---| | Accrued research and development expenses | $3,165 | $3,260 | | Accrued compensation | $2,781 | $2,543 | | Total accrued liabilities | $7,059 | $6,497 | [5. Commitments and Contingencies](index=17&type=section&id=5.%20Commitments%20and%20Contingencies) - The company entered into a new Brisbane Lease in December 2020, which commenced in May 2021, leading to the recognition of operating lease ROU assets of **$21.0 million** and lease liabilities of **$22.2 million**[64](index=64&type=chunk)[65](index=65&type=chunk) - Operating lease cost for the three and nine months ended September 30, 2021, was **$1.1 million** and **$2.0 million**, respectively, a significant increase from $0.1 million and $0.3 million in the prior year periods[66](index=66&type=chunk) Future Minimum Lease Payments (in thousands) | Period | Total Undiscounted Lease Payments | |:---|:---| | 2021 (remaining three months) | $63 | | 2022 | $4,203 | | 2023 | $4,742 | | 2024 | $4,907 | | 2025 | $5,079 | | Thereafter | $32,833 | | Total undiscounted lease payments | $51,827 | - The company has an exclusive licensing agreement with Stanford, requiring annual license maintenance fees, potential future milestone payments up to **$500,000**, and low single-digit royalty payments on net sales[69](index=69&type=chunk) - Received **$135,000** in funding during the nine months ended September 30, 2021, under a Sponsored Research Agreement for multiple sclerosis research, recorded as other income[70](index=70&type=chunk) [6. Stockholders' Equity](index=19&type=section&id=6.%20Stockholders'%20Equity) Common Stock Reserved for Issuance | Category | September 30, 2021 | December 31, 2020 | |:---|:---|:---| | Options issued and outstanding | 5,918,981 | 3,909,873 | | Options available for future grant | 2,019,422 | 2,707,947 | | Common stock reserved for 2021 ATM program | 5,265,929 | — | | Reserved for employee stock purchase plan | 734,903 | 360,086 | | Total common stock reserved | 13,939,235 | 6,977,906 | - In August 2021, the company entered into a sales agreement for an at-the-market (ATM) offering program to sell up to **$100.0 million** of common stock, with no shares sold as of September 30, 2021[75](index=75&type=chunk) [7. Equity Incentive Plan](index=19&type=section&id=7.%20Equity%20Incentive%20Plan) - The 2020 Incentive Award Plan and Employee Stock Purchase Plan (ESPP) became effective with the IPO in July 2020[76](index=76&type=chunk) Stock Option Activity (as of September 30, 2021) | Metric | Number of Shares | Weighted-Average Exercise Price Per Share | |:---|:---|:---| | Balances as of December 31, 2020 | 3,909,873 | $10.78 | | Stock options granted | 2,688,600 | $26.32 | | Stock options exercised | (205,721) | $5.46 | | Stock options forfeited | (473,771) | $24.00 | | Balances as of September 30, 2021 | 5,918,981 | $16.97 | | Exercisable as of September 30, 2021 | 1,963,823 | $9.57 | - Total stock-based compensation expense recognized was **$4.4 million** for the three months and **$11.9 million** for the nine months ended September 30, 2021, significantly higher than the prior year[83](index=83&type=chunk) - As of September 30, 2021, unrecognized stock-based compensation cost was **$58.0 million**, to be recognized over an estimated weighted-average period of 3.23 years[84](index=84&type=chunk) [8. Income Taxes](index=21&type=section&id=8.%20Income%20Taxes) - The company incurred insignificant income tax provisions for the periods presented, with U.S. federal and California deferred tax assets from net operating losses fully reserved[91](index=91&type=chunk) [9. Net Loss Per Share Attributable to Common Stockholders](index=22&type=section&id=9.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) Potentially Dilutive Shares Excluded from Diluted EPS Calculation | Category | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | |:---|:---|:---| | Stock options to purchase common stock | 5,918,981 | 5,918,981 | | Shares subject to employee stock purchase plan | 9,538 | 9,538 | | Total | 5,928,519 | 5,928,519 | - Potentially dilutive shares, including stock options and ESPP shares, were excluded from diluted net loss per share calculations due to their anti-dilutive effect, as the company was in a net loss position[93](index=93&type=chunk)[44](index=44&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses increased net losses from expanded R&D, COVID-19 impacts, and the company's liquidity position [Overview](index=23&type=section&id=Overview) - Annexon is a clinical-stage biopharmaceutical company developing new complement medicines for classical complement-mediated disorders, targeting C1q to block the classical complement pathway[98](index=98&type=chunk) - The company's pipeline includes ANX005 (IV), ANX007 (intravitreal), ANX009 (subcutaneous), and preclinical candidates ANX105 and ANX1502, with ongoing clinical trials in GBS, warm autoimmune hemolytic anemia, Huntington's Disease, ALS, and geographic atrophy[99](index=99&type=chunk)[100](index=100&type=chunk) - Net losses were **$35.6 million** and **$93.0 million** for the three and nine months ended September 30, 2021, respectively, with an accumulated deficit of **$258.9 million** as of September 30, 2021[103](index=103&type=chunk) [Initial Public Offering](index=25&type=section&id=Initial%20Public%20Offering) - The company completed its IPO on July 28, 2020, selling 14,750,000 shares and an additional 2,139,403 shares to underwriters, generating net proceeds of approximately **$262.4 million**[104](index=104&type=chunk) [Impact of COVID-19 Pandemic](index=25&type=section&id=Impact%20of%20COVID-19%20Pandemic) - The COVID-19 pandemic has caused interruptions in clinical trial activities, shortages in clinical site staff, longer timelines for site initiation, and temporary shortages in lab supplies[105](index=105&type=chunk) - The extent of the pandemic's impact on clinical trials, business, financial condition, and development timelines remains uncertain and depends on various factors including outbreak duration, variants, and governmental restrictions[105](index=105&type=chunk) [Components of Operating Results](index=25&type=section&id=Components%20of%20Operating%20Results) - The company has not generated revenue from product sales and does not expect to in the foreseeable future[106](index=106&type=chunk) - Research and development expenses, a significant portion of operating expenses, include direct costs (preclinical/clinical services, manufacturing, supplies) and indirect costs (personnel, facilities, depreciation)[107](index=107&type=chunk) - General and administrative expenses primarily consist of compensation, professional fees, and allocated facilities costs, expected to increase with business growth and public company operations[110](index=110&type=chunk)[111](index=111&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended September 30, 2021 and 2020](index=26&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030%2C%202021%20and%202020) Operating Results (Three Months Ended September 30, in thousands) | Metric | 2021 | 2020 | Dollar Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $27,581 | $11,775 | $15,806 | 134% | | General and administrative | $8,099 | $3,810 | $4,289 | 113% | | Total operating expenses | $35,680 | $15,585 | $20,095 | 129% | | Net loss | $(35,598) | $(15,638) | $(19,961) | 128% | - Research and development expenses increased by **$15.8 million (134%)** due to increased clinical outside services, contract manufacturing, compensation, and facilities costs related to ongoing and planned clinical trials[116](index=116&type=chunk) - General and administrative expenses increased by **$4.3 million (113%)** due to higher compensation, professional services (accounting, legal, insurance), and facilities costs[119](index=119&type=chunk) [Comparison of the Nine Months Ended September 30, 2021 and 2020](index=28&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) Operating Results (Nine Months Ended September 30, in thousands) | Metric | 2021 | 2020 | Dollar Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $72,849 | $31,279 | $41,570 | 133% | | General and administrative | $20,406 | $8,999 | $11,407 | 127% | | Total operating expenses | $93,255 | $40,278 | $52,977 | 132% | | Net loss | $(92,952) | $(40,219) | $(52,738) | 131% | - Research and development expenses increased by **$41.6 million (133%)** due to expanded clinical and nonclinical outside services, contract manufacturing for product candidates, increased compensation, and facilities costs[124](index=124&type=chunk) - General and administrative expenses increased by **$11.4 million (127%)** due to higher compensation (including stock-based compensation), professional services, and facilities costs[125](index=125&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) - The company has funded operations primarily through equity sales, raising **$233.9 million** from preferred stock and **$262.4 million** from its IPO[126](index=126&type=chunk) - As of September 30, 2021, cash, cash equivalents, and short-term investments totaled **$271.4 million**, with an accumulated deficit of **$258.9 million**[126](index=126&type=chunk) Historical Cash Flows (Nine Months Ended September 30, in thousands) | Activity | 2021 | 2020 | |:---|:---|:---| | Net cash used in operating activities | $(77,789) | $(33,831) | | Net cash used in investing activities | $(121,933) | $(292) | | Net cash provided by financing activities | $847 | $360,876 | - Cash used in operating activities increased to **$77.8 million** in 2021 from $33.8 million in 2020, primarily due to increased net loss[129](index=129&type=chunk) - Cash used in investing activities significantly increased to **$121.9 million** in 2021, mainly due to purchases of available-for-sale securities[130](index=130&type=chunk) - Cash provided by financing activities decreased to **$0.8 million** in 2021 from $360.9 million in 2020, as the prior year included IPO proceeds[131](index=131&type=chunk) - The company expects existing capital to fund operations into 2024 but anticipates needing additional funding through equity offerings, debt financings, or collaborations to support increasing R&D and potential commercialization efforts[132](index=132&type=chunk)[134](index=134&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has not engaged in any off-balance sheet arrangements since its inception[135](index=135&type=chunk) [Emerging Growth Company and Smaller Reporting Company Status](index=31&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company%20Status) - The company is an 'emerging growth company' and 'smaller reporting company,' allowing it to delay adopting new accounting standards and utilize reduced disclosure requirements[136](index=136&type=chunk)[137](index=137&type=chunk) - As of June 30, 2021, the company's public float exceeded **$700 million**, meaning it will qualify as a 'large accelerated filer' by the end of the current fiscal year and will no longer be an emerging growth company[138](index=138&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes to critical accounting policies were identified, except for the adoption of ASU No. 2016-02, Leases (Topic 842), on January 1, 2021[141](index=141&type=chunk) - The adoption of Topic 842 requires recognition of operating lease right-of-use (ROU) assets and lease liabilities on the balance sheet for leases with terms greater than 12 months[142](index=142&type=chunk) [Recent Accounting Pronouncements Not Yet Adopted](index=32&type=section&id=Recent%20Accounting%20Pronouncements%20Not%20Yet%20Adopted) - The company is assessing the impact of ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which will be effective when it no longer qualifies as an emerging growth or smaller reporting company[52](index=52&type=chunk)[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Annexon, Inc. is not required to provide these disclosures - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, noting changes from a new ERP system implementation [Evaluation of Disclosure Controls and Procedures](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of September 30, 2021, providing reasonable assurance for timely and accurate reporting[147](index=147&type=chunk) [Changes in Internal Control over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - During the quarter ended March 31, 2021, the company launched the NetSuite ERP system, leading to modifications in internal control processes and procedures[148](index=148&type=chunk) - No other changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control during the quarter ended September 30, 2021[149](index=149&type=chunk) [PART II—OTHER INFORMATION](index=34&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is not a party to any material legal proceedings at this time[151](index=151&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to its limited operating history, financing needs, and product development [Risk Factor Summary](index=34&type=section&id=Risk%20Factor%20Summary) - The company is a clinical-stage biopharmaceutical company with a limited operating history and no approved products, incurring significant losses and anticipating continued losses[153](index=153&type=chunk) - Substantial additional financing is required, and failure to obtain it could delay or terminate product development and commercialization efforts[153](index=153&type=chunk) - Business heavily depends on successful development, regulatory approval, and commercialization of early-stage product candidates[153](index=153&type=chunk) - Public health crises, such as the COVID-19 pandemic, could materially and adversely affect preclinical and clinical trials, business, financial condition, and results of operations[153](index=153&type=chunk) [Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements](index=35&type=section&id=Risks%20Related%20to%20Our%20Limited%20Operating%20History%2C%20Financial%20Condition%20and%20Capital%20Requirements) - The company has incurred significant operating losses since inception, with a net loss of **$93.0 million** for the nine months ended September 30, 2021, and an accumulated deficit of **$258.9 million**[156](index=156&type=chunk) - Substantial additional financing is required to fund ongoing R&D, clinical trials, and potential commercialization, with existing capital expected to fund operations into 2024[157](index=157&type=chunk)[158](index=158&type=chunk) - Decisions on prioritizing product candidates and therapeutic areas may divert resources from more profitable opportunities or those with a higher likelihood of success[164](index=164&type=chunk)[166](index=166&type=chunk) - Quarterly and annual operating results may fluctuate significantly due to factors like R&D investment, clinical trial timing, manufacturing costs, and regulatory approvals, making future results difficult to predict[168](index=168&type=chunk) [Risks Related to Our Business](index=37&type=section&id=Risks%20Related%20to%20Our%20Business) - The business is heavily dependent on the successful development, regulatory approval, and commercialization of product candidates, which are in early clinical stages and may take many years to achieve[170](index=170&type=chunk)[171](index=171&type=chunk) - Clinical trials may face substantial delays or termination due to factors such as the COVID-19 pandemic, regulatory disagreements, patient enrollment difficulties, or unforeseen safety issues[188](index=188&type=chunk)[192](index=192&type=chunk) - Adverse events or undesirable side effects from product candidates could halt clinical development, delay regulatory approval, limit commercial potential, or result in significant negative consequences, including product liability claims[200](index=200&type=chunk)[202](index=202&type=chunk) - Interim 'top-line' and preliminary data from studies are subject to change as more data become available and may differ from final results, potentially harming business prospects[204](index=204&type=chunk)[205](index=205&type=chunk) - The company relies on third-party suppliers for manufacturing product candidates and commercial supplies, and their failure to comply with regulations or provide sufficient quantities could materially affect the business[234](index=234&type=chunk)[237](index=237&type=chunk) - Significant competition exists in the biopharmaceutical industry from companies with greater resources, potentially hindering market penetration and success[245](index=245&type=chunk) - Failure to obtain or maintain adequate coverage and reimbursement for product candidates, if approved, could limit marketability and revenue generation[246](index=246&type=chunk)[248](index=248&type=chunk) - The company previously identified and remediated a material weakness in internal control over financial reporting, but future weaknesses could lead to financial misstatements or reporting failures[254](index=254&type=chunk)[255](index=255&type=chunk) [Risks Related to Intellectual Property](index=58&type=section&id=Risks%20Related%20to%20Intellectual%20Property) - Product candidates could infringe third-party patent rights, leading to costly litigation, substantial damages, or limitations on commercialization[274](index=274&type=chunk) - Inability to obtain, maintain, and enforce intellectual property protection could allow competitors to market similar products, harming the company's competitive position[278](index=278&type=chunk) - Failure to prevent disclosure of trade secrets or confidential information to third parties could impair the company's competitive position[292](index=292&type=chunk) - Licenses for third-party intellectual property may be subject to early termination if the company fails to comply with obligations, resulting in loss of material rights[293](index=293&type=chunk)[294](index=294&type=chunk) - Joint ownership of patent rights with third parties may limit the company's ability to out-license or prevent others from out-licensing these rights in certain countries[300](index=300&type=chunk) - Challenges to inventorship or ownership of patents and other intellectual property could result in loss of valuable rights and litigation costs[301](index=301&type=chunk)[303](index=303&type=chunk) - Inadequate protection of trademarks and trade names could hinder name recognition and adversely affect the business[305](index=305&type=chunk) - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may not offer the same extent of protection as in the United States[306](index=306&type=chunk) [Risks Related to Government Regulation](index=64&type=section&id=Risks%20Related%20to%20Government%20Regulation) - Approved products will remain subject to ongoing regulatory scrutiny, including manufacturing, labeling, promotion, and post-marketing study requirements, with non-compliance leading to significant penalties[308](index=308&type=chunk)[311](index=311&type=chunk) - Disruptions at the FDA and other government agencies, such as funding shortages or global health concerns, could delay product development, approval, or commercialization[226](index=226&type=chunk)[227](index=227&type=chunk) - Data from clinical trials conducted outside the United States may not be accepted by the FDA or comparable foreign regulatory authorities, requiring additional costly and time-consuming trials[229](index=229&type=chunk) - Failure to obtain regulatory approval in multiple jurisdictions would limit market opportunities and adversely affect the business[231](index=231&type=chunk) - If a small molecule product candidate obtains regulatory approval, it may face competition from generic versions sooner than anticipated, leading to a material decline in sales[323](index=323&type=chunk)[326](index=326&type=chunk) - Business operations and relationships are subject to healthcare regulatory laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), with non-compliance potentially leading to significant penalties[327](index=327&type=chunk)[328](index=328&type=chunk) [Risks Related to Our Common Stock](index=68&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) - The company's stock price may be highly volatile due to clinical trial results, regulatory announcements, competition, and general market conditions, potentially leading to a decline in stock price[329](index=329&type=chunk)[331](index=331&type=chunk) - An active, liquid, and orderly market for common stock may not develop or be sustained, impairing the ability to sell shares or raise capital[333](index=333&type=chunk) - As an 'emerging growth company' and 'smaller reporting company,' reduced disclosure requirements may make the common stock less attractive to investors, potentially increasing stock price volatility[334](index=334&type=chunk)[338](index=338&type=chunk) - Operating as a public company incurs significant costs and requires substantial management time for compliance, with potential sanctions for failure to comply with rules like Section 404 of Sarbanes-Oxley Act[338](index=338&type=chunk)[341](index=341&type=chunk) - Future sales of common stock, including through at-the-market offerings, could result in immediate dilution for stockholders and a decline in stock price[343](index=343&type=chunk) - Principal stockholders and management own a significant percentage of stock, allowing them to exert substantial control over matters subject to stockholder approval[345](index=345&type=chunk) - The ability to use net operating loss carryforwards and other tax attributes may be limited due to 'ownership changes' under Sections 382 and 383 of the Internal Revenue Code[347](index=347&type=chunk) - Provisions in charter documents and Delaware law could discourage takeovers and entrench management[348](index=348&type=chunk)[350](index=350&type=chunk) - The company does not intend to pay dividends on common stock, meaning returns will depend on stock price appreciation[357](index=357&type=chunk) [General Risk Factors](index=73&type=section&id=General%20Risk%20Factors) - Changes in tax laws and regulations, or their interpretation, may have a material adverse effect on the business, financial condition, and results of operations[361](index=361&type=chunk) - Compliance with U.S. and foreign export/import controls, sanctions, anti-corruption, and anti-money laundering laws is critical, with violations leading to criminal liability and other serious consequences[362](index=362&type=chunk) - Significant disruptions of information technology systems, data security breaches, or other incidents could materially adversely affect the business, results of operations, and financial condition[363](index=363&type=chunk)[366](index=366&type=chunk) - Failure to comply with health and data protection laws and regulations (e.g., HIPAA, GDPR, CCPA) could lead to government enforcement actions, penalties, private litigation, or adverse publicity[367](index=367&type=chunk)[372](index=372&type=chunk) - If securities or industry analysts do not publish research or issue adverse opinions, the stock price and trading volume could decline[374](index=374&type=chunk) - The company may be subject to securities litigation, which is expensive and could divert management's attention[375](index=375&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Net proceeds from the July 2020 IPO were invested in cash equivalents and marketable securities - No unregistered sales of equity securities were reported[377](index=377&type=chunk) - Net proceeds from the July 2020 IPO, approximately **$262.4 million**, were invested in cash equivalents and marketable securities as planned[377](index=377&type=chunk) [Item 3. Defaults Upon Senior Securities](index=79&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[377](index=377&type=chunk) [Item 4. Mine Safety Disclosures](index=79&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[377](index=377&type=chunk) [Item 5. Other Information](index=79&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this period - No other information was reported[377](index=377&type=chunk) [Item 6. Exhibits](index=80&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed, including corporate governance documents, agreements, and required certifications - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, Sales Agreement with Cowen and Company, LLC, and Employment Agreement with Larry Mattheakis, Ph.D[379](index=379&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Rules 13a-14(a) and 15d-14(a)) and a certification pursuant to 18 U.S.C. Section 1350 are included[379](index=379&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the Cover Page Interactive Data File are also filed[379](index=379&type=chunk) [SIGNATURES](index=81&type=section&id=SIGNATURES) The report was duly signed by the CEO and CFO on November 9, 2021 - The report was signed by Douglas Love, Esq., President and Chief Executive Officer, and Jennifer Lew, Executive Vice President and Chief Financial Officer, on November 9, 2021[380](index=380&type=chunk)[381](index=381&type=chunk)