10-Q 1 annx-10q_20210331.htm 10-Q annx-10q_20210331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-39402

 

ANNEXON, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

27-5414423

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

180 Kimball Way, Suite 200

South San Francisco, California 94080

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650) 822-5500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ANNX

The Nasdaq Stock Market

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES      NO  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    YES      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

Accelerated filer

 

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  

The number of shares of Registrant’s Common Stock outstanding as of April 30, 2021 was 38,258,687.

 


 

Table of Contents

 

 

 

 

Page

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

3

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)

5

 

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020 (unaudited)

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)

7

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited)

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

 

Controls and Procedures

24

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

25

Item 1A.

 

Risk Factors

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

 

Defaults Upon Senior Securities

68

Item 4.

 

Mine Safety Disclosures

68

Item 5.

 

Other Information

68

Item 6.

 

Exhibits

69

EXHIBIT INDEX

69

SIGNATURES

70

 

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Annexon” and the “Company” refer to Annexon, Inc. and its consolidated subsidiary. Annexon, Annexon, Inc., the Annexon logo and other trade names, trademarks or service marks of Annexon are the property of Annexon, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

2


 

ANNEXON, INC.

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

206,669

 

 

$

268,565

 

Short-term investments

 

 

119,985

 

 

 

82,641

 

Prepaid expenses and other current assets

 

 

3,868

 

 

 

2,805

 

Total current assets

 

 

330,522

 

 

 

354,011

 

Restricted cash

 

 

1,166

 

 

 

 

Property and equipment, less accumulated depreciation of $2,509 and $1,971

   as of March 31, 2021 and December 31, 2020, respectively

 

 

1,429

 

 

 

1,935

 

Total assets

 

$

333,117

 

 

$

355,946

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,518

 

 

$

3,734

 

Accrued liabilities

 

 

5,779

 

 

 

6,497

 

Deferred rent, current

 

 

398

 

 

 

391

 

Total current liabilities

 

 

10,695

 

 

 

10,622

 

Deferred rent

 

 

946

 

 

 

1,046

 

Total liabilities

 

 

11,641

 

 

 

11,668

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock

 

 

38

 

 

 

38

 

Additional paid-in capital

 

 

513,539

 

 

 

510,309

 

Accumulated other comprehensive loss

 

 

(103

)

 

 

(77

)

Accumulated deficit

 

 

(191,998

)

 

 

(165,992

)

Total stockholders’ equity

 

 

321,476

 

 

 

344,278

 

Total liabilities and stockholders’ equity

 

$

333,117

 

 

$

355,946

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3


 

ANNEXON, INC.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

20,696

 

 

$

10,217

 

General and administrative

 

 

5,452

 

 

 

2,239

 

Total operating expenses

 

 

26,148

 

 

 

12,456

 

Loss from operations

 

 

(26,148

)

 

 

(12,456

)

Other income, net

 

 

142

 

 

 

115

 

Net loss

 

 

(26,006

)

 

 

(12,341

)

Accretion on redeemable convertible preferred stock

 

 

 

 

 

(279

)

Net loss attributable to common stockholders

 

$

(26,006

)

 

$

(12,620

)

Net loss per share attributable to common stockholders, basic

   and diluted

 

$

(0.68

)

 

$

(29.10

)

Weighted-average shares used in computing net loss per share

   attributable to common stockholders, basic and diluted

 

 

38,163,062

 

 

 

433,749

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


ANNEXON, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(26,006

)

 

$

(12,341

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(1

)

 

 

(11

)

Unrealized loss on available for sale securities

 

 

(25

)

 

 

 

Comprehensive loss

 

$

(26,032

)

 

$

(12,352

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

 

ANNEXON, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Cost

 

 

 

Shares

 

 

Cost

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances as of December 31, 2020

 

 

 

 

$

 

 

 

 

38,157,618

 

 

$

38

 

 

$

510,309

 

 

$

(77

)

 

$

(165,992

)

 

$

344,278

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,962

 

 

 

 

 

 

 

 

 

2,962

 

Stock option exercises

 

 

 

 

 

 

 

 

 

74,930

 

 

 

 

 

 

268

 

 

 

 

 

 

 

 

 

268

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

 

(25

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,006

)

 

 

(26,006

)

Balances as of March 31, 2021

 

 

 

 

$

 

 

 

 

38,232,548

 

 

$

38

 

 

$

513,539

 

 

$

(103

)

 

$

(191,998

)

 

$

321,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Cost

 

 

 

Shares

 

 

Cost

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balances as of December 31, 2019

 

 

111,748,065

 

 

$

143,984

 

 

 

 

433,749

 

 

$

4

 

 

$

2,202

 

 

$

(80

)

 

$

(102,580

)

 

$

(100,454

)

Accretion on redeemable convertible preferred stock

 

 

 

 

 

279

 

 

 

 

 

 

 

 

 

 

(279

)

 

 

 

 

 

 

 

 

(279

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

663

 

 

 

 

 

 

 

 

 

663

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,341

)

 

 

(12,341

)

Balances as of March 31, 2020

 

 

111,748,065

 

 

$

144,263

 

 

 

 

433,749

 

 

$

4

 

 

$

2,586

 

 

$

(91

)

 

$

(114,921

)

 

$

(112,422

)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

6


 

 

ANNEXON, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,006

)

 

$

(12,341

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

538

 

 

 

131

 

Accretion of discount on available-for-sale securities

 

 

180

 

 

 

 

Stock-based compensation

 

 

2,962

 

 

 

663

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,063

)

 

 

314

 

Accounts payable

 

 

784

 

 

 

797

 

Accrued liabilities

 

 

(718

)

 

 

523

 

Deferred rent

 

 

(93

)

 

 

(88

)

Net cash used in operating activities

 

 

(23,416

)

 

 

(10,001

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(32

)

 

 

 

Purchases of available-for-sale securities

 

 

(42,549

)

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

5,000

 

 

 

 

Net cash used in investing activities

 

 

(37,581

)

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Deferred offering cost payments

 

 

 

 

 

(571

)

Proceeds from the exercise common stock options

 

 

268

 

 

 

 

Net cash provided by (used in) financing activities

 

 

268

 

 

 

(571

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(60,729

)

 

 

(10,572

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(1

)

 

 

(11

)

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

268,565

 

 

 

43,931

 

End of period

 

$

207,835

 

 

$

33,348

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accretion on redeemable convertible preferred stock

 

$

 

 

$

279

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

 

 

$

723

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

7


 

ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization

Annexon, Inc., or the Company, is a clinical-stage biopharmaceutical company targeting C1q and initiating molecules of the classical complement pathway to develop transformative therapies for autoimmune and neurodegenerative disorders of the body, brain, and eye. The Company is located in South San Francisco, California and was incorporated in Delaware in March 2011.

The Company’s wholly-owned subsidiary, Annexon Biosciences Australia Pty Ltd, or the Subsidiary, is a proprietary limited company incorporated in 2016 and domiciled in Australia. The Subsidiary is also engaged in research and development activities in support of its parent company.

Initial Public Offering

On July 23, 2020, the Company’s registration statement on Form S-1 relating to its initial public offering, or the IPO, was declared effective by the Securities and Exchange Commission, or the SEC, and the shares of its common stock began trading on the Nasdaq Global Select Market on July 24, 2020. The IPO closed on July 28, 2020, pursuant to which the Company issued and sold 14,750,000 shares of its common stock at a public offering price of $17.00 per share. On August 4, 2020, the Company issued 2,139,403 shares of its common stock to the underwriters of the IPO pursuant to the partial exercise of their option to purchase additional shares. The Company received net proceeds of approximately $262.4 million from the IPO, after deducting underwriting discounts and commissions of $20.1 million and offering costs of $4.6 million. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 20,824,938 shares of common stock.  

Reverse Stock Split

On July 17, 2020, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a reverse split of shares of the Company’s common stock on a one-for-8.81 basis, or the Reverse Stock Split. The number of authorized shares and the par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the Company’s outstanding redeemable convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. All references to common stock and options to purchase common stock share data, per share data and related information contained in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Liquidity

Since inception, the Company has been involved primarily in performing research and development activities, conducting clinical trials, hiring personnel, and raising capital to support and expand these activities. The Company has experienced losses and negative cash flows from operations since its inception and, as of March 31, 2021, had an accumulated deficit of $192.0 million and cash and cash equivalents and short-term investments of $326.7 million.

The Company has historically funded its operations through the issuance of shares of its redeemable convertible preferred stock and common stock. Based on projected activities, management projects that cash on hand is sufficient to support operations for at least the next 12 months following issuance of these condensed consolidated financial statements. Management expects to continue to incur losses and negative cash flows from operations for at least the next several years.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and applicable rules and regulations of the SEC regarding interim financial reporting.

8


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The condensed consolidated balance sheet as of March 31, 2021, and the condensed consolidated statements of operations, comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for the three months ended March 31, 2021 and 2020 are unaudited. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of March 31, 2021 and its results of operations and cash flows for the three months ended March 31, 2021 and 2020. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including but not limited to stock options, income taxes and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the operations of Annexon, Inc. and its wholly-owned subsidiary and include the results of operations and cash flows of these entities. All intercompany balances and transactions have been eliminated in consolidation.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid instruments with an original maturity of three months or less at time of purchase to be cash equivalents. Cash equivalents, which includes amounts invested in money market funds, are stated at fair value.

Restricted cash as of March 31, 2021 relates to a letter of credit established for the Company’s office leases.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 

 

March 31,

2021

 

 

December 31,

2020

 

Cash

 

$

610

 

 

$

597

 

Cash equivalents

 

 

206,059

 

 

 

267,968

 

Cash and cash equivalents

 

 

206,669

 

 

 

268,565

 

Restricted cash

 

 

1,166

 

 

 

Cash, cash equivalents and restricted cash

 

$

207,835

 

 

$

268,565

 

 

9


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

Short-Term Investments

 

Short-term investments have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. The Company determines the appropriate classification of its investments in debt securities at the time of purchase. Available-for-sale securities with original maturities beyond three months at the date of purchase are classified as current based on their availability for use in current operations. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive loss. The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Impairment assessments are made at the individual security level each reporting period. When the fair value of an available-for-sale security is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary and, if it is other-than-temporary, an impairment loss is recognized in other income, net, equal to the difference between the investment’s amortized cost and fair value at such date. The cost of investments sold is based on the specific-identification method. Interest on marketable securities is included in other income, net.

Foreign Currencies

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s subsidiary located in Australia is the Australian Dollar. Balance sheets prepared in the functional currencies are translated to the reporting currency at exchange rates in effect at the end of the accounting period, except for stockholders’ equity accounts, which are translated at rates in effect when these balances were originally recorded. Revenue and expense accounts are translated using a weighted-average rate during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. Foreign currency translation losses for the three months ended March 31, 2021 and 2020 were $1,000 and $11,000, respectively.

Gains and losses resulting from exchange rate changes on transactions denominated in a currency other than the local currency are included in earnings as incurred.

Research and Development Expense

Research and development expenses consist primarily of direct and indirect costs incurred for the development of the Company’s product candidates.

Direct expenses include (i) preclinical and clinical outside service costs associated with discovery, preclinical and clinical testing of the Company’s product candidates; (ii) professional services agreements with third-party contract organizations, investigative clinical trial sites and consultants that conduct research and development activities on the Company’s behalf; (iii) contract manufacturing costs to produce clinical trial materials; and (iv) laboratory supplies and materials. Indirect expenses include (A) compensation and personnel-related expenses (including stock-based compensation); (B) allocated expenses for facilities and depreciation; and (C) other indirect costs.

Research and development costs are expensed as incurred. Payments made to third parties are under agreements that are generally cancelable by the Company. Advance payments for research and development activities are deferred as prepaid expenses. The prepaid amounts are expensed as the related services are performed.

The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. In accruing service fees, the Company estimates the period over which services will be performed and the level of effort to be expended in each period. These estimates are based on the Company’s communications with the third-party service providers and on information available at each balance sheet date. If the actual timing of the performance of services or the level of effort varies significantly from the estimate, the Company will adjust the accrual accordingly to reflect the best information available at the time of the financial statement issuance. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

10


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees on the date of grant using the Black-Scholes option pricing model.

The Company grants certain employees performance-based stock options. For awards that include performance conditions, no compensation cost is recognized until the performance goals are probable of being met, at which time the cumulative compensation expense from the service inception date would be recognized.

Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option pricing model and recognized as expense on a straight-line basis (for all but performance based awards for which the accelerated method is used) over the requisite service period, which is the vesting period.

Determining the appropriate fair value model and related assumptions requires judgment, including estimating the fair value of the underlying common stock, expected term, expected stock price volatility, risk-free interest rate and dividend yield. The Company accounts for forfeitures as they occur.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive shares of common stock. As the Company was in a loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders because the effects of potentially dilutive securities are antidilutive.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company’s cash and cash equivalents and short-term investments are held by high credit quality financial institutions in the United States. At times, such deposits may be in excess of the Federal Depository Insurance Corporation insured limits. Management believes that the financial institutions are financially sound, and accordingly, minimal credit risk exists with respect to the financial institutions.

 

Recently Adopted Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (Topic 350). The standard requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2020 and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company adopted ASU No. 2018-15 on January 1, 2021 and the adoption did not have a material impact on its condensed consolidated financial statements.

 

11


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in former ASC 840, Leases. This standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. This standard is effective for the Company on January 1, 2022, early adoption is permitted. Originally, a modified retrospective transition approach was required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued guidance to permit an alternative transition method for Topic 842, which allows transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities may elect to apply either approach. There are also a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model that requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The new guidance requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new guidance. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instrument —Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. In March 2020, the FASB issued ASU No. 2020-3, Codification Improvements to Financial Instruments which makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard and clarifies the following areas (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses; (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. As a smaller reporting company, the guidance will be effective for the Company during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its condensed consolidated financial statements.

3. Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

 

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

 

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

12


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On a recurring basis, the Company measures certain financial assets and liabilities at fair value. The following tables summarize the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

 

 

March 31, 2021

 

 

 

Valuation

Hierarchy

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Aggregate

Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

206,059

 

 

$

 

 

$

 

 

$

206,059

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

Level 2

 

 

69,944

 

 

 

 

 

 

 

 

 

69,944

 

Corporate debt

 

Level 2

 

 

46,002

 

 

 

 

 

 

(30

)

 

 

45,972

 

Government bond

 

Level 2

 

 

4,069

 

 

 

 

 

 

 

 

 

4,069

 

Total assets

 

 

 

$

326,074

 

 

$

 

 

$

(30

)

 

$

326,044

 

 

 

 

 

 

December 31, 2020

 

 

 

Valuation

Hierarchy

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Aggregate

Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

267,968

 

 

$

 

 

$

 

 

$

267,968

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

Level 2

 

 

59,930

 

 

 

 

 

 

 

 

 

59,930

 

Corporate bonds

 

Level 2

 

 

22,717

 

 

 

1

 

 

 

(7

)

 

 

22,711

 

Total assets

 

 

 

$

350,615

 

 

$

1

 

 

$

(7

)

 

$

350,609

 

 

For the three months ended March 31, 2021 and 2020, the Company recognized no material realized gains or losses on financial instruments.  

4. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Prepaid research and development costs

 

$

2,319

 

 

$

1,039

 

Prepaid insurance

 

 

720

 

 

 

1,236

 

Prepaid rent

 

 

451

 

 

 

 

Other prepaid expenses

 

 

340

 

 

 

527

 

Other receivables

 

 

38

 

 

 

3

 

Total prepaid expenses and other current assets

 

$

3,868

 

 

$

2,805

 

 

13


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Accrued research and development expenses

 

$

3,789

 

 

$

3,260

 

Accrued compensation

 

 

1,184

 

 

 

2,543

 

Accrued professional services

 

 

298

 

 

 

524

 

Other accrued expenses

 

 

508

 

 

 

170

 

Total accrued liabilities

 

$

5,779

 

 

$

6,497

 

 

5. Commitments and Contingencies

Leases

The Company leases its offices and laboratory in South San Francisco, California, or the South San Francisco Lease, under a 7-year noncancelable lease agreement that ends in June 2024 with a 5-year renewal option.

In December 2020, the Company entered into an agreement to lease office and laboratory space in Brisbane, California, or the Brisbane Lease, with an affiliate of its current landlord. The term of the Brisbane Lease is expected to begin in November 2021 and end in October 2031, with an option by the Company to extend for an additional ten years. Concurrent with the execution of the Brisbane Lease, the Company entered into an agreement to terminate its existing lease in South San Francisco, California effective upon the commencement of the Brisbane Lease. The base rent will be abated for three months and the landlord will provide the Company with a tenant improvement allowance of up to $10.8 million. In connection with the Brisbane Lease, the Company is required to maintain a letter of credit for the benefit of the landlord in the amount of $1.0 million, which was delivered in January 2021 and is included in restricted cash on the condensed consolidated balance sheet.

The total rent expense was $90,000 and $88,000 for each of the three months ended March 31, 2021 and 2020, respectively.

License and Other Agreements

In November 2011, the Company entered into an exclusive licensing agreement, or the Stanford Agreement, with The Board of Trustees of the Leland Stanford Junior University, or Stanford, whereby the Company was granted an exclusive, worldwide, royalty-bearing, sublicensable license, under certain patent rights, or the Licensed Patents, to make, use, offer for sale, sell, import and otherwise commercialize products covered by the Licensed Patents for human or animal diseases, disorders or conditions. Under the Stanford Agreement, the Company made an upfront payment and is obligated to pay Stanford annual license maintenance fees, potential future milestone payments totaling up to $500,000, and royalty payments at a rate equal to a low single-digit percentage of worldwide net sales of licensed products. The Company did not achieve any milestones or make any milestone payments for the three months ended March 31, 2021 and 2020, respectively.

In December 2016, the Company entered into a Sponsored Research Agreement with a not-for-profit entity to perform research on multiple sclerosis. The Sponsored Research Agreement was amended in March 2019. Under the terms of the Sponsored Research Agreement, as amended, the Company may receive up to $651,000 in funding. If, within 15 years of the end of the Sponsored Research Agreement, the Company files a marketing authorization application for a product treating multiple sclerosis, the Company will be obligated to pay milestone payments up to four times the amounts received under the Sponsored Research Agreement. The Company has received $590,000 in funding to date, including $135,000 received during the three months ended March 31, 2021, which was recorded as other income. No income was recognized for the three months ended March 31, 2020.

14


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Guarantees and Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of March 31, 2021, the Company did not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

6. Stockholders’ Equity

Common Stock

The Company has reserved the following shares of common stock for issuance as follows:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Options issued and outstanding

 

 

5,373,215

 

 

 

3,909,873

 

Options available for future grant

 

 

2,695,979

 

 

 

2,707,947

 

Reserved for employee stock purchase plan

 

 

741,662

 

 

 

360,086

 

Total common stock reserved

 

 

8,810,856

 

 

 

6,977,906

 

 

7. Equity Incentive Plan

In July 2020, the Company’s board of directors and stockholders adopted and approved the 2020 Incentive Award Plan, or the 2020 Plan, and the Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the IPO. 

The Company may not grant any additional awards under the 2011 Equity Incentive Plan, or the 2011 Plan. The 2011 Plan will continue to govern outstanding equity awards granted thereunder.

2020 Equity Incentive Plan

The number of shares of common stock reserved for issuance under the 2020 Plan automatically increases on the first day of January, commencing on January 1, 2021 and ending in 2030, in an amount equal to 4% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors.

Awards granted under the 2020 Plan expire no later than ten years from the date of grant. For the Incentive Stock Options, or ISOs, and Nonstatutory Stock Options, or NSOs, the option price shall not be less than 100% of the estimated fair value on the date of grant. Options granted typically vest over a four-year period but may be granted with different vesting terms. As of March 31, 2021, there were 2,695,979 shares available for issuance under the 2020 Plan.

15


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Stock option activity under the 2011 Plan and the 2020 Plan was as follows:

 

 

 

Shares

Available

for

Grant

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price Per

Share

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Balances as of December 31, 2020

 

 

2,707,947

 

 

 

3,909,873

 

 

$

10.78

 

 

 

8.40

 

 

$

56,128

 

Additional shares authorized

 

 

1,526,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted

 

 

(1,612,600

)

 

 

1,612,600

 

 

$

29.81

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

 

 

 

(74,930

)

 

$

3.57

 

 

 

 

 

 

 

 

 

Stock options forfeited

 

 

74,328

 

 

 

(74,328

)

 

$

18.80

 

 

 

 

 

 

 

 

 

Balances as of March 31, 2021

 

 

2,695,979

 

 

 

5,373,215

 

 

$

16.48

 

 

 

8.69

 

 

$

64,399

 

Exercisable as of March 31, 2021

 

 

 

 

 

 

1,486,521

 

 

$

6.14

 

 

 

7.01

 

 

$

32,325

 

 

The total intrinsic value of options exercised during the three months ended March 31, 2021 was $1.1 million. There were no options exercised during the three months ended March 31, 2020. The intrinsic value is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price of the stock option.

Employee Stock Purchase Plan

The ESPP enables eligible employees to purchase shares of the Company's common stock at the end of each offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Eligible employees generally include all employees. Share purchases are funded through payroll deductions of at least 1%, and up to 15% of an employee’s eligible compensation for each payroll period. The number of shares reserved for issuance under the ESPP increase automatically on the first day of each fiscal year, beginning on January 1, 2021, by a number equal to the least of 360,086 shares, 1% of the shares of common stock outstanding on the last day of the immediately preceding fiscal year, or such number of shares determined by the Company’s board of directors. As of March 31, 2021, 741,662 shares were available for future purchase. The ESPP generally provides for six-month consecutive offering periods beginning on December 15, 2020. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. As such, stock-based compensation expense has been recorded for the three months ended March 31, 2021.

Stock-Based Compensation Expense

The total stock-based compensation expense recognized for options granted was as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

1,546

 

 

$

325

 

General and administrative

 

 

1,416

 

 

 

338

 

Total stock-based compensation expense

 

$

2,962

 

 

$

663

 

 

As of March 31, 2021, the total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $57.3 million, which the Company expects to recognize over an estimated weighted-average period of 3.29 years.

To determine the value of stock option awards for stock-based compensation purposes, the Company uses the Black-Scholes option pricing model and the assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

16


ANNEXON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Fair Value of Common Stock—Historically, for all periods prior to the IPO in July 2020, fair values of the shares of common stock underlying the Company’s share-based awards were estimated on each grant date by the Company’s board of directors. The board of directors considered, among other things, valuations of the Company’s common stock which were prepared by an independent third- party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. After the completion of the IPO in July 2020, the fair value of each share of underlying common stock is based on the closing price of the Company’s common stock as reported on the date of grant on the Nasdaq Global Select Market.

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company’s historical share option exercise information is limited due to a lack of sufficient data points, and did not provide a reasonable basis upon which to estimate an expected term. The expected term for option grants is therefore determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

Expected Volatility—Because the Company does not have sufficient trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded life science companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in the life cycle, or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available and to align with the Company’s expected term.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Dividend Yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

The fair value of each award issued was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Expected term (in years)

 

4.33 - 6.02

 

 

5.00 - 6.08

 

Expected volatility

 

90%

 

 

85%

 

Risk-free interest rate

 

0.35%-1.02%

 

 

0.64% - 1.45%

 

Dividend yield

 

 

 

 

 

 

 

8. Income Taxes

For the three months ended March 31, 2021 and 2020, the Company incurred insignificant amounts for an income tax provision. The U.S. federal and California deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.

 

9. Net Loss Per Share Attributable to Common Stockholders

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Stock options to purchase common stock

 

 

5,373,215

 

 

 

2,136,390

 

Shares subject to employee stock purchase plan

 

 

4,393

 

 

 

 

Redeemable convertible preferred stock on an as-converted basis

 

 

 

 

 

12,684,214

 

Total

 

 

5,377,608

 

 

 

14,820,604

 

 

 

17


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K, or Annual Report, filed with the Securities and Exchange Commission, or SEC, on March 25, 2021.

In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ from those anticipated. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are a clinical-stage biopharmaceutical company developing a pipeline of novel therapies for patients with classical complement-mediated disorders of the body, brain and eye. Our pipeline is based on our platform technology addressing well-researched classical complement-mediated autoimmune and neurodegenerative disease processes, both of which are triggered by aberrant activation of C1q, the initiating molecule of the classical complement pathway. Evidence suggests that potent and selective inhibition of C1q can prevent tissue damage triggered in antibody-mediated autoimmune disease and preserve loss of functioning synapses associated with cognitive and functional decline in complement-mediated neurodegeneration. Our upstream complement approach targeting C1q acts as an “on/off switch” designed to block all downstream components of the classical complement pathway that lead to excess inflammation, tissue damage and patient disability in a host of complement-mediated disorders, while preserving the normal immune function of the lectin and alternative complement pathways involved in the clearance of pathogens and damaged cells.

Our pipeline of product candidates is designed to block the activity of C1q and the entire classical complement pathway in a broad set of complement-mediated diseases. Our first product candidate, ANX005, is a full-length monoclonal antibody formulated for intravenous administration in autoimmune and neurodegenerative disorders. Our second product candidate, ANX007, is an antigen-binding fragment, or Fab, formulated for intravitreal administration for the treatment of neurodegenerative ophthalmic disorders. We are also developing ANX009, an investigational, subcutaneous formulation of a Fab designed for the treatment of systemic autoimmune diseases. We have completed Phase 1b safety and dose-ranging clinical trials for ANX005 and ANX007 in patients with Guillain-Barré Syndrome, or GBS, and glaucoma, respectively. Both ANX005 and ANX007 were well-tolerated and showed full inhibition of C1q and the classical complement pathway in the Phase 1b trials.

We have advanced ANX005 into a Phase 2/3 trial in patients with GBS and a Phase 2 trial in patients with Huntington’s disease. We plan to advance ANX005 into Phase 2 trials in patients with warm autoimmune hemolytic anemia and amyotrophic lateral sclerosis in 2021. A Phase 2 trial of ANX007 is ongoing in patients with Geographic Atrophy (GA), and ANX009 is being evaluated in a first-in-human trial. Based on learnings from our initial trials, we are evaluating additional orphan and large market indications that are driven by aberrant or excess classical complement activation. Additionally, we are developing novel product candidates designed to inhibit C1q and other components of the early classical complement cascade with the goal of further broadening our portfolio. Finally, we are deploying a rigorous, biomarker-driven development strategy designed to improve the probability of technical success over shorter development timelines.

We hold worldwide development and commercialization rights, including through exclusive licenses, to all of our product candidates, which allows us to strategically maximize value from our product portfolio over time. Our patent portfolio includes patent protection for our upstream complement platform and each of our product candidates.

We were incorporated in March 2011 and commenced operations later that year. To date, we have focused primarily on performing research and development activities, hiring personnel and raising capital to support and expand these activities. We do not have any products approved for sale, and we have not generated any revenue from product sales. We have incurred net losses each year since our inception. Our net losses were $26.0 million and $12.3 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $192.0 million and cash and cash equivalents and short-term investments of $326.7 million.

18


 

Initial Public Offering

On July 28, 2020, we completed an IPO of our common stock. As part of the IPO, we issued and sold 14,750,000 shares of our common stock at a public offering price of $17.00 per share and 2,139,403 shares of our common stock to the underwriters of the IPO pursuant to the partial exercise of their option to purchase additional shares at a price of $17.00 per share less underwriting discounts and commissions. We received net proceeds of approximately $262.4 million from the IPO, after deducting underwriting discounts and commissions of $20.1 million and offering costs of $4.6 million.

Impact of COVID-19 Pandemic

The COVID-19 pandemic continues to rapidly evolve, and its ongoing impact is uncertain and subject to change. For instance, we have experienced interruption in clinical trial activities in Bangladesh due to quarantines, shortages in clinical site staff, longer timelines for clinical site initiation and temporary shortages in lab kits and supplies. We will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on the duration of the outbreak and its impact on our clinical trial enrollment, trial sites, contract research organizations, or CROs, third-party manufacturers, regulatory authorities and other third parties with whom we do business.

Components of Operating Results

Revenue

Our product candidates are not approved for commercial sale. We have not generated any revenue from sales of our product candidates and do not expect to do so in the foreseeable future and until we complete clinical development, submit regulatory filings and receive approvals from applicable regulatory bodies for such product candidates, if ever.

Operating Expenses

Research and Development

Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the development of our product candidates.

Direct expenses include:

 

preclinical and clinical outside service costs associated with discovery, preclinical and clinical testing of our product candidates;

 

professional services agreements with third party contract organizations, investigative clinical trial sites and consultants that conduct research and development activities on our behalf;

 

contract manufacturing costs to produce clinical trial materials; and

 

laboratory supplies and materials.

Indirect expenses include:

 

compensation and personnel-related expenses (including stock-based compensation);

 

allocated expenses for facilities and depreciation; and

 

other indirect costs.

We record research and development expenses as incurred. Payments made to other entities are under agreements that are generally cancelable by us. Advance payments for goods or services to be received in future periods for use in research and development activities are deferred as prepaid expenses. The prepaid amounts are then expensed as the related services are performed. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, particularly as they advance into later stages of development and as we conduct larger clinical trials, engage in other research and development activities and seek regulatory approvals for any product candidates that successfully complete clinical trials and as we incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

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General and Administrative

General and administrative expenses consist primarily of compensation and personnel-related expenses (including stock-based compensation) for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, legal and tax services, allocated expenses for facilities and depreciation and other general and administrative costs.

We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to support our research and development activities, grow our business and, if any of our product candidates receive marketing approval, commercialization activities. We will also incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, Sarbanes-Oxley Act and the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect to increase the size of our administrative function to support the growth of our business.

Other Income, Net

Other income, net, primarily consists of non-recurring income from research grants and interest income earned on our cash equivalents and short-term investments.

Results of Operations

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

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

 

 

 

Three Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Dollar

Change

 

 

%

Change