AnaptysBio(ANAB) - 2019 Q4 - Annual Report

Part I Business AnaptysBio is a clinical-stage biotechnology company developing immunology therapeutics through its SHM platform, advancing its pipeline and collaborating with major pharmaceutical companies Overview and Strategy The company's strategy focuses on advancing its wholly-owned product candidates to key clinical milestones and expanding its pipeline through strategic partnerships - The company's core strategy includes advancing its four wholly-owned programs to key 2020 milestones, such as Phase 2 data for etokimab and ANB019, Phase 1 initiation for ANB030, and an IND filing for ANB032[18] - AnaptysBio aims to expand its proprietary pipeline by using its SHM platform to generate new antibodies against novel immune-related targets[19] - The company plans to retain ownership of its pipeline programs through key data inflection points and seek strategic collaborations for later-stage development and commercialization[19] Wholly-Owned Product Pipeline The company's wholly-owned pipeline includes four candidates: etokimab, ANB019, ANB030, and ANB032, targeting various inflammatory and respiratory diseases Wholly-Owned Pipeline Status | Product Candidate | Target | Indication(s) | Development Stage | | :--- | :--- | :--- | :--- | | Etokimab | IL-33 | Chronic Rhinosinusitis with Nasal Polyps (CRSwNP) | Phase 2 (ECLIPSE Trial) | | ANB019 | IL-36R | Generalized Pustular Psoriasis (GPP), Palmoplantar Pustulosis (PPP) | Phase 2 (GALLOP & POPLAR Trials) | | ANB030 | PD-1 (Agonist) | Inflammatory Diseases | Phase 1 initiation anticipated H1 2020 | | ANB032 | BTLA (Modulator) | Inflammatory Diseases | IND filing anticipated H2 2020 | - For ANB019 in GPP, interim Phase 2 data from the first two patients showed they achieved the primary endpoint of disease improvement at Day 29 and Day 113, with complete clearance of skin pustules from Day 8 through Day 113[13][51] - The company has discontinued further clinical development of etokimab in atopic dermatitis following results from the Phase 2b ATLAS trial and has postponed a Phase 2b trial in eosinophilic asthma pending data from the CRSwNP trial[12] SHM Antibody Discovery Platform The proprietary SHM antibody discovery platform replicates natural antibody generation in vitro, offering advantages in potency, functional selection, and manufacturability - The platform uses the activation-induced cytidine deaminase (AID) enzyme to replicate the natural SHM process in vitro, enabling the generation of a diverse library of antibodies[67][68] - A key advantage is the mammalian cell system that simultaneously displays antibodies for selection and secretes them for functional assays, mitigating manufacturing risks early in the process[70][73] - The platform is designed to overcome limitations of competing technologies, such as insufficient diversity, lack of functional selection, low potency, and unpredictable manufacturing properties[61] Collaborations The company maintains strategic collaborations with GSK and Bristol-Myers Squibb, providing non-dilutive funding through milestone payments and potential royalties - The collaboration with TESARO (GSK) covers antibodies targeting PD-1 (dostarlimab/TSR-042), TIM-3 (TSR-022), and LAG-3 (TSR-033); a Biologics License Application (BLA) for dostarlimab has been submitted by GSK[16][74] - The collaboration with Celgene (BMS) is focused on inflammation, with two programs advancing, including an anti-PD-1 agonist antibody (CC-90006) in a Phase 1 trial[77] Collaboration Financials | Partner | Focus | Upfront Payments (in millions) | Potential Milestones (per target, in millions) | Royalties | | :--- | :--- | :--- | :--- | :--- | | TESARO (GSK) | Immuno-Oncology | $19.0 | Up to $273.0 | 4% to 8% tiered | | Celgene (BMS) | Inflammation | $6.0 | Up to $53.0 | Single-digit | Intellectual Property The company's intellectual property strategy focuses on patent protection for its platform and product candidates, supplemented by trade secrets - As of December 31, 2019, the company's patent portfolio included approximately 42 issued patents and 158 pending patent applications[89] Patent Protection Expiration Outlook | Product Candidate | Expected Patent Protection Until | | :--- | :--- | | Etokimab | September 2039 | | ANB019 | April 2036 | | ANB030 | June 2040 | | Platform Technology | May 2033 | - The company relies on trade secrets and confidentiality agreements with employees, consultants, and collaborators to protect proprietary information not covered by patents[100][101] Manufacturing, Competition, and Regulation The company relies on third-party manufacturing, faces intense competition, and operates under extensive government regulation for drug development and approval - AnaptysBio does not have internal cGMP manufacturing capabilities and relies on third-party contract manufacturers for all clinical and potential commercial drug production[104][105] - Key competitors for etokimab in asthma and CRSwNP include approved biologics like Dupixent (Regeneron/Sanofi), Xolair (Roche), Nucala (GSK), and Fasenra (AstraZeneca)[110][111] - Competitors for ANB019 in GPP and PPP include marketed therapies like Cosentyx (Novartis) and Stelara (Janssen), as well as an anti-IL-36 receptor antibody in development by Boehringer Ingelheim[112] - The company's products are regulated as biologics in the U.S., requiring a Biologics License Application (BLA) for marketing approval from the FDA, a process that is lengthy, expensive, and uncertain[115][121] Risk Factors The company faces substantial risks including clinical development failures, financial losses, reliance on third parties, intense competition, regulatory hurdles, and intellectual property challenges - All wholly-owned and partnered product candidates are in early stages of development and may fail or suffer delays; initial positive clinical results may not be replicated in later, larger trials[181][183] - The company has a history of operational losses ($97.3 million net loss in 2019) and expects to incur significant expenses and increasing losses for the foreseeable future, with profitability dependent on successful commercialization[235][236] - AnaptysBio relies completely on third parties for the complex and highly regulated manufacturing of its biologic product candidates, making it vulnerable to production difficulties, contamination, or supply disruptions[231][272] - The company faces significant competition from major pharmaceutical companies with greater resources and established products in its target indications, which could negatively impact commercial opportunities[215] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[367] Properties The company leases approximately 43,000 square feet of office and laboratory space in San Diego, California, under leases expiring in 2021 - The company leases approximately 43,000 square feet of office and lab space in San Diego, California, across two lease agreements set to expire in 2021[368] Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business - As of the report date, AnaptysBio is not involved in any material legal proceedings[369] Mine Safety Disclosures This item is not applicable to the company - Not applicable[370] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'ANAB', has never paid dividends, and retains earnings for operations - The company's common stock trades on the Nasdaq Global Select Market under the symbol "ANAB"[372] - AnaptysBio has never declared or paid cash dividends and does not intend to in the foreseeable future[373] Selected Consolidated Financial Data This section summarizes the company's consolidated financial data from 2015 to 2019, showing fluctuating revenue, increasing losses, and growing assets Selected Consolidated Financial Data (2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Collaboration revenue | $8,000 | $5,000 | $10,000 | | Loss from operations | $(107,432) | $(66,722) | $(28,781) | | Net loss | $(97,336) | $(61,656) | $(30,070) | | As of Year End | | | | | Total assets | $435,197 | $508,997 | $329,364 | | Total stockholders' equity | $405,008 | $486,365 | $307,581 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting increased collaboration revenue and R&D expenses, a $97.3 million net loss in 2019, and $428.5 million in cash expected to fund operations into 2023 Results of Operations Collaboration revenue increased to $8.0 million in 2019, while R&D expenses surged by $43.1 million to $99.3 million, leading to a $97.3 million net loss Comparison of Operations (2019 vs. 2018) | (in thousands) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Collaboration Revenue | $8,000 | $5,000 | $3,000 | | Research & Development Expenses | $99,338 | $56,196 | $43,142 | | General & Administrative Expenses | $16,094 | $15,526 | $568 | | Loss from Operations | $(107,432) | $(66,722) | $(40,710) | | Net Loss | $(97,336) | $(61,656) | $(35,680) | - The $43.1 million increase in R&D expenses was primarily driven by a $20.9 million increase in clinical expenses, a $16.0 million increase in preclinical and manufacturing services, and a $5.4 million increase in salaries and related expenses[427] Liquidity and Capital Resources As of December 31, 2019, the company held $428.5 million in cash and investments, expected to fund operations into 2023, with primary uses for R&D and clinical trials - The company ended 2019 with $428.5 million in cash, cash equivalents, and investments, which is expected to fund operations at least into 2023[435][441] Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(69,517) | $(48,506) | | Net cash provided by (used in) investing activities | $131,431 | $(142,451) | | Net cash (used in) provided by financing activities | $(4,493) | $223,364 | - As of December 31, 2019, total contractual obligations for notes payable and operating leases due within one year were approximately $2.3 million[447] Quantitative and Qualitative Disclosures About Market Risk The company's market risk primarily stems from interest rate fluctuations on investments and debt, and foreign currency exchange rates, with no material impact expected from a 10% change - The primary market risks are interest rate fluctuations on its investment portfolio and variable-rate debt, and foreign currency exchange risk related to its Australian subsidiary and contracts denominated in foreign currencies[450][454] - The company does not believe that a hypothetical 10% change in interest rates or foreign currency exchange rates would materially impact its financial statements[452][454] Consolidated Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and KPMG LLP's unqualified opinion, highlighting research and development costs as a critical audit matter - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[460][461] - The critical audit matter identified by the auditor was the evaluation of research and development costs, highlighting the complexity and judgment required to estimate costs incurred with third-party vendors[464][465] Consolidated Balance Sheet Highlights (as of Dec 31, 2019) | (in thousands) | Amount | | :--- | :--- | | Cash, cash equivalents, and investments | $428,532 | | Total Assets | $435,197 | | Total Liabilities | $30,189 | | Total Stockholders' Equity | $405,008 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting or financial disclosure matters - None[589] Controls and Procedures Management and KPMG LLP concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[589] - Management's report and the independent auditor's report both concluded that the company maintained effective internal control over financial reporting as of December 31, 2019[590][594] Other Information The company reports no other information for this item - None[600] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2020 Proxy Statement - Information is incorporated by reference from the forthcoming 2020 Proxy Statement[601] Executive Compensation Information concerning executive compensation is incorporated by reference from the forthcoming 2020 Proxy Statement - Information is incorporated by reference from the forthcoming 2020 Proxy Statement[602] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the forthcoming 2020 Proxy Statement - Information is incorporated by reference from the forthcoming 2020 Proxy Statement[603] Certain Relationships and Related Transactions, and Director Independence Information covering related party transactions and director independence is incorporated by reference from the forthcoming 2020 Proxy Statement - Information is incorporated by reference from the forthcoming 2020 Proxy Statement[604] Principal Accounting Fees and Services Information detailing fees paid to the principal accountant is incorporated by reference from the forthcoming 2020 Proxy Statement - Information is incorporated by reference from the forthcoming 2020 Proxy Statement[605] Part IV Exhibits, Consolidated Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including consolidated financial statements and an index of exhibits - This item provides an index of all exhibits filed with the Annual Report, including corporate governance documents, material contracts, and SEC certifications[607][608] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[617]