Annexon(ANNX) - 2021 Q4 - Annual Report

Part I Item 1. Business 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] - 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][36] - 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][36][149] Overview and Strategy 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][34] - 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][53] - Annexon plans to maximize the value of its wholly-owned product candidates through independent development in select markets and collaborations for larger indications[36] Our Pipeline 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][27][72] - 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][94] - 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][124] Intellectual Property 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] - A foundational patent family exclusively licensed from Stanford University, covering C1q inhibition for neurodegeneration, expires between 2026 and 2030[136][142] - Company-owned patent families for anti-C1q antibodies (ANX005, ANX007, ANX009, ANX105) provide protection expiring between 2034 and 2037[137] - A pending patent family covers the oral small molecule candidate ANX1502, with any resulting patents expected to expire in 2041[140] 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] - 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] - 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] - 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] Government Regulation 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][171][175] - The company has received Fast Track designation for ANX005 for GBS, potentially expediting development and review[27][181] - 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][187][284] - 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][195] Item 1A. Risk Factors 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][219][220] - 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][248][255] - 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][318] - 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][327] - 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][367] Item 2. Properties 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] - The lease term runs from November 2021 to October 2031, with an option to extend for an additional ten years[492] Item 3. Legal Proceedings 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] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[497] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - 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][536] Item 8. Financial Statements and Supplementary Data 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][555] 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][565] Item 9A. Controls and Procedures 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] - 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][692] - During the first quarter of 2021, the company implemented a new NetSuite ERP system, resulting in modifications to internal control processes and procedures[693] Part III Items 10-14 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][701][702][703][704] - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[699] Part IV Item 15. Exhibits, Financial Statement Schedules 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]