Annexon, Inc. (ANNX) FY 2024 MD&A

Item 7. 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 consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations, and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

We are a clinical-stage biopharmaceutical company pioneering a new class of complement medicines for people living with devastating inflammatory-related diseases. The classical complement pathway is a core component to the body’s immune system that activates a powerful inflammatory cascade. We believe that by stopping the classical complement pathway at its start by targeting C1q, the initiating molecule of the classical complement pathway, our approach may have the potential to provide more complete protection against complement-mediated disorders of the body, brain and eye.

Using our proprietary platform, we are identifying and characterizing the role of the classical complement pathway in three therapeutic areas—autoimmune, neurodegeneration and ophthalmology. In so doing, we are advancing a pipeline of product candidates designed to block the early classical cascade and all downstream pathway components and their tissue-damaging functions. Our goal is to suppress excessive or aberrant classical complement activity that contributes to chronic inflammation and tissue damage to slow or even halt disease progression, while preserving the beneficial immune functions of the lectin and alternative complement pathways involved in the clearance of pathogens and damaged cells. We have demonstrated robust target engagement in the body, brain and eye, and clinical proof of concept in multiple diseases, and have focused our resources on development of three priority programs:

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Guillain-Barré Syndrome, or GBS: We are advancing our lead candidate, ANX005, an investigational, full-length monoclonal antibody, or mAb, formulated for intravenous administration as the potential first targeted treatment for patients with GBS. GBS is a rare antibody-mediated autoimmune disease that is the most common cause of acute neuromuscular paralysis, with no therapies in the United States approved by the FDA. We believe maximum suppression of C1q and the classical complement cascade early in the disease process may act to rapidly prevent complement-mediated nerve damage and irreversible neurological disability. In a prior Phase 1b placebo-controlled proof-of-concept trial, a single dose of ANX005 showed rapid and consistent improvement in muscle strength that translated into observable gains in health status, including a reduction in the need of mechanical ventilation, as well as a reduction in nerve damage and clinical function. In 2024, we completed a Phase 3 trial in 241 patients, which showed ANX005 helped patients improve sooner with rapid increase in muscle strength and more complete functional recovery than placebo through six months, and provided an important benefit in the burden of care by enabling patients to walk or be off ventilation earlier. In addition, we completed a Real World Evidence, or RWE, study that matched ANX005-treated patients from the Phase 3 study with a western world patient population from the International Guillain-Barré Syndrome Outcomes Study, or IGOS, predominantly from Europe and North America treated with current standards of care (intravenous immunoglobulin, or IVIg, or plasma exchange, or PE). Consistent with the Phase 3 trial, ANX005 showed a rapid increase in muscle strength with more complete recovery over IVIg or PE. We anticipate the Phase 3 and RWE results to support a comprehensive dataset for our Biologics License Application, or BLA, and are targeting the first half of 2025 for our pre-BLA meeting with the FDA ahead of our planned BLA submission. ANX005 has been granted Fast Track and orphan drug designation for the treatment of GBS from the FDA. ANX005 has also been granted orphan designation from the European Medicines Agency, or EMA.

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Geographic Atrophy, or GA: We are advancing ANX007, an antigen-binding fragment, or Fab, formulated for intravitreal administration, as the first potential program with a global registration path to approval in Europe and the United States for the treatment of dry AMD with GA. Dry AMD with GA is

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a leading cause of vision loss in the elderly, that affects more than an estimated eight million people globally, and there are no approved therapies targeting the preservation of vision in this disease. ANX007 is designed to block C1q locally in the eye, to provide more complete protection against excess classical complement activity and the loss of photoreceptor neurons. It is the only investigational therapy in GA to show significant vision preservation on assessments of best corrected visual acuity, or BCVA, and low luminance visual acuity, or LLVA, demonstrating significant protection from vision loss in both normal and low light conditions, as well as significant preservation of central retinal photoreceptors necessary for visual acuity as demonstrated in the Phase 2 ARCHER trial. In 2024, we initiated our Phase 3 ARCHER II trial, a global, sham-controlled, double-masked trial expected to enroll ~630 patients who have dry AMD with GA. The primary endpoint of ARCHER II is prevention of ≥15-letter loss of BCVA, and a secondary objective structural measure is prevention of ellipsoid zone (EZ) loss. The single-study program will be analyzed as two sub-studies for the U.S. in accordance with the FDA’s two-trial recommendation. Accordingly, Annexon no longer plans to conduct a second injection-controlled head-to-head Phase 3 trial. We expect to complete enrollment of ARCHER II in the second half of 2025 and report topline data in the second half of 2026. ANX007 is the first and only therapeutic candidate for the treatment of GA to receive Priority Medicine, or PRIME, designation by the EMA, which provides early and proactive support to developers of promising medicines that may offer a major therapeutic advantage over existing treatments or benefit to patients without treatment options.

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ANX1502 for Autoimmune Indications: We are advancing ANX1502, a novel oral small molecule inhibitor of classical complement which we believe is first-in-kind. In a Phase 1 single-ascending dose, or SAD, and multiple-ascending dose, or MAD, clinical trial in healthy volunteers designed to evaluate the safety, tolerability, pharmacokinetics, or PK, and pharmacodynamics, or PD, ANX1502 was generally well tolerated across cohorts with no serious adverse events, achieved target levels of active drug and showed supportive impact on a PD biomarker of complement activity that support its advancement. We are evaluating a tablet formulation of ANX1502 in an ongoing proof-of-concept study in patients with cold agglutinin disease, or CAD, to assess PK, PD and clinical efficacy endpoints (e.g., hemolysis as measured by reduction of elevated bilirubin) and data are expected in mid-2025. Following the successful completion of the proof-of-concept study, we intend to evaluate ANX1502 in a host of diseases, including serious complement-mediated autoimmune diseases, with the aim of providing enhanced efficacy and offering convenient dosing administration for long-term treatment of chronic conditions.

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 $138.2 million and $134.2 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $710.7 million and cash and cash equivalents and short-term investments of $312.0 million.

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.

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Direct expenses include:

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

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

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contract manufacturing costs to produce clinical trial materials and commercial materials to support any BLA to the FDA; and

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laboratory supplies and materials.

Indirect expenses include:

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

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allocated expenses for facilities and depreciation; and

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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 future research and development expenses to increase as we pursue regulatory approval of our product candidates, continue to advance our product candidates through late-stage clinical trials, invest in capabilities to prepare for commercialization including manufacturing, and hire additional personnel to support our organization. The process of conducting the necessary clinical research, development and manufacturing to obtain regulatory approval is costly and time-consuming, and the successful development and approval of our product candidates is highly uncertain.

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 as we continue to support our research and development activities, grow our business, advance our product candidates in late-stage clinical trials and toward regulatory approval and commercialization activities, and operate as a public company.

Interest and Other Income, Net

Interest and other income, net, primarily consists of interest income earned on our cash equivalents and short-term investments.

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Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

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

Research and Development Expenses

Research and development expenses increased by $5.7 million, or 5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to an increase of $8.7 million in consulting and professional services in support of our development organization driving the advancement of our flagship programs, an increase of $1.9 million in facilities related costs due to the expiration of a sublease agreement, and an increase of $1.6 million in compensation and personnel-related expenses due to an increase in headcount, partially offset by a decrease of $3.6 million in direct clinical and nonclinical outside services costs due to completion of the Phase 2 ARCHER trial in GA in 2023, a decrease of $2.3 million due to timing of contract manufacturing expenses for ANX005, and a decrease of $0.6 million in laboratory supplies and materials.

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General and Administrative Expenses

General and administrative expenses increased by $4.7 million, or 16%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to an increase of $3.4 million in consulting and professional services costs for business development, market research, and recruitment costs, an increase of $0.7 million in facilities related costs due to the expiration of a sublease agreement, and an increase in compensation and personnel-related expenses of $0.5 million due to an increase in headcount.

Interest and other income, net

Interest and other income increased by $6.4 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to higher average cash and investment balances and favorable interest rates.

Liquidity and Capital Resources

Sources of Liquidity

Due to our significant research and development expenditures, we have generated operating losses since our inception.

We have funded our operations primarily through the sale of equity securities. As of December 31, 2024, we had available cash and cash equivalents and short-term investments of $312.0 million and an accumulated deficit of $710.7 million.

Historical Cash Flows

Cash Flow from Operating Activities

Cash used in operating activities for the year ended December 31, 2024 was $118.0 million, which consisted of a net loss of $138.2 million, partially offset by $13.8 million in non-cash charges and a net change of $6.4 million in our operating assets and liabilities. The non-cash charges consisted of stock-based compensation of $19.4 million,

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depreciation and amortization of $2.2 million, and reduction in the carrying amount of right-of-use assets of $1.3 million, partially offset by accretion of discount on available-for-sale securities of $9.1 million.

Cash used in operating activities for the year ended December 31, 2023 was $121.1 million, which consisted of a net loss of $134.2 million and a net change of $5.8 million in our operating assets and liabilities, partially offset by $18.9 million in non-cash charges. The non-cash charges consisted of stock-based compensation of $18.2 million, depreciation and amortization of $2.1 million, and reduction in the carrying amount of right-of-use assets of $1.1 million, partially offset by accretion of discount on available-for-sale securities of $2.6 million.

Cash Flow from Investing Activities

Cash used in investing activities for the year ended December 31, 2024 was $218.8 million, which consisted of $583.9 million of purchases of available-for-sale securities, partially offset by $365.1 million of proceeds from maturities of available-for-sale securities.

Cash provided by investing activities for the year ended December 31, 2023 was $70.7 million, which consisted of $179.0 million of proceeds from maturities of available-for-sale securities, partially offset by $108.1 million of purchases of available-for-sale securities and $0.2 million of equipment purchases.

Cash Flow from Financing Activities

Cash provided by financing activities for the year ended December 31, 2024 was $161.2 million, which consisted of $116.8 million of net proceeds from the issuance of common stock and pre-funded warrants under our 2024 financing, $42.8 million of net proceeds from the issuance of common stock under our 2021 and 2024 ATM programs and $1.6 million of proceeds from the exercise of common stock options and employee stock purchase plan purchases.

Cash provided by financing activities for the year ended December 31, 2023 was $135.5 million, which consisted of $117.5 million of net proceeds from the issuance of common stock and pre-funded warrants, $17.5 million of net proceeds from the issuance of common stock to a related party under our at-the-market offering program and $0.6 million of proceeds from the exercise of common stock options and employee stock purchase plan purchases.

Funding Requirements

We use our cash to fund operations, primarily to fund our clinical trials, research and development expenditures and related personnel costs. We expect our future research and development expenses to increase as we pursue regulatory approval of our product candidates, continue to advance our product candidates through late-stage clinical trials, invest in capabilities to prepare for commercialization including manufacturing, and hire additional personnel to support our organization. In addition, we expect our general and administrative expenses to increase as we continue to support our research and development activities, grow our business, advance our product candidates in late-stage clinical trials and toward regulatory approval and commercialization activities, and operate as a public company. The timing and amount of our operating expenditures will depend on many factors, including:

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the scope, progress, results and costs of researching and developing our current product candidates or any other future product candidates we choose to pursue, and conducting preclinical studies and clinical trials;

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the timing of, and the costs involved in, obtaining feedback from regulators on our clinical trials and regulatory approvals for our lead product candidates or any future product candidates;

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the number and characteristics of any additional product candidates we develop or acquire;

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the timing and amount of any milestone, royalty and/or other payments we are required to make pursuant to our current or any future license or collaboration agreements;

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the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize;

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the cost of building a sales force in anticipation of product commercialization;

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the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;

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our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;

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any product liability or other lawsuits related to our products;

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the expenses needed to attract, hire and retain skilled personnel;

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the costs associated with operating as a public company;

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and

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the timing, receipt and amount of sales of any future approved products.

Based upon our current operating plan, we believe that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Until such time, if ever, as we can generate substantial product revenue, we will be required to seek additional funding in the future and currently intend to do so through public or private equity offerings or debt financings, credit or loan facilities, collaborations or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.

2024 Financing

In June 2024, we raised net proceeds of approximately $116.8 million after deducting underwriting discounts and offering expenses through the sale of 13,001,120 shares of our common stock, par value $0.001 per share at a price of $6.25 per share and pre-funded warrants to purchase an aggregate of 7,000,000 shares of common stock at a price of $6.249 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each pre-funded warrant.

2023 Financing

In December 2023, we raised net proceeds of approximately $117.0 million after deducting underwriting discounts and offering expenses through the sale of 25,035,000 shares of our common stock, par value $0.001 per share at a price of $2.880 per share and pre-funded warrants to purchase an aggregate of 18,379,861 shares of common stock at a price of $2.879 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each pre-funded warrant. We issued an aggregate of 5,243,400 and 965,427 shares of common stock upon cashless and cash exercise of these pre-funded warrants in February 2024 and April 2024, respectively.

2022 Financing

In July 2022, we raised net proceeds of approximately $122.5 million after deducting fees and expenses through the sale of an aggregate of 9,013,834 shares of common stock, pre-funded warrants to purchase up to 24,696,206 shares of our common stock and accompanying common warrants to purchase up to 8,427,508 shares of our common

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stock. The offering price per share and accompanying common warrant was $3.87125 per share and the offering price per pre-funded warrant and accompanying common warrant was $3.87025 per share, which equals the per share offering price for the shares of common stock less the $0.001 exercise price for each such pre-funded warrant. The pre-funded warrants remain exercisable until exercised in full. The common warrants have an exercise price of $5.806875 per share and expire on June 30, 2025. Both the pre-funded and common warrants are immediately exercisable, subject to beneficial ownership limitations. We issued an aggregate of 2,582,557 shares of common stock upon the cashless exercise of the pre-funded warrants in March 2023. We issued an aggregate of 19,901 and 2,739,096 shares of common stock upon the cashless exercise of the common warrants and pre-funded warrants in June 2024 and November 2024, respectively.

Pre-Funded and Common Warrants

The following summarizes warrant activity during the years ended December 31, 2024 and 2023:

2024 At-the-Market (ATM) Program

In March 2024, we entered into a sales agreement with Cowen and Company LLC, or TD Cowen, as sales agent, or 2024 ATM program, pursuant to which we may issue and sell shares of our common stock for an aggregate maximum offering of $100.0 million. TD Cowen is entitled to compensation up to 3% of the aggregate gross proceeds for the common stock sold through the 2024 ATM program. During the year ended December 31, 2024, we sold 750,000 shares of common stock for net proceeds of approximately $4.5 million, after deducting commissions paid to TD Cowen. As of December 31, 2024, approximately $95.4 million remained available for the offer and sale of shares of common stock under the 2024 ATM program.

2021 ATM Program

In August 2021, we entered into a sales agreement with TD Cowen, as sales agent, pursuant to which we may issue and sell shares of our common stock for an aggregate maximum offering of $100.0 million under an at-the-market offering program, or 2021 ATM program. TD Cowen is entitled to compensation up to 3% of the aggregate gross proceeds for the common stock sold through the 2021 ATM program. During the years ended December 31, 2024 and 2023, we sold 7,576,067 shares and 2,646,458 shares of common stock, respectively, under the 2021 ATM program for net proceeds of approximately $38.4 million and $17.5 million, respectively, after deducting commissions paid to TD Cowen and other financing costs. The Form S-3 registration statement, which registered the 2021 ATM Program, expired on August 15, 2024. As a result, no shares of common stock may be sold under the 2021 ATM Program.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets,

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liabilities, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Accrued and Prepaid Research and Development Costs

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of clinical trials and nonclinical studies. We estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical research organizations, and clinical manufacturing organizations that conduct and manage preclinical studies and clinical trials on our behalf. In recording service fees as either prepaid or accrued costs, we estimate the period over which services will be performed and the level of effort to be expended in each period. The level of judgment required to estimate research and development expenses varies based on the nature of the services being performed and the underlying support obtained. Accordingly, research and development expenses supported by invoices or reports of costs from third-party providers for the services performed do not require us to make significant estimates.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services provided and efforts expended pursuant to contracts with contract research organizations that may be used to conduct and manage our clinical trials. We recognize costs for contract manufacturing based on evaluation of the progress to completion of specific tasks. These estimates of the expense are based on communications with and information provided by the third-party service providers at each balance sheet date. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the amounts recorded accordingly. The estimates are trued up to reflect the best information available at the time of the financial statement issuance. We have not experienced any material differences between accrued or prepaid costs and actual costs incurred since inception.

We defer and capitalize non-refundable advance payments for goods or services that will be used or rendered for future research and development activities as prepaid expenses until the related goods are delivered or services are performed. We evaluate such payments for current or long-term classification based on when such services are expected to be received.

Warrants

To assess the initial classification of our warrants as either liability or equity, we apply judgment when evaluating the potential settlement options. We first assess whether the warrants are within the scope of ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, or ASC 480. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate us to settle the warrants or the underlying shares by paying cash or other assets, or require settlement by issuing variable number of shares.

If the warrants are not within the scope of ASC 480, they are subsequently assessed under ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock , or ASC 815-40. We review the terms of the warrants to determine whether they require or may require us to settle or net settle the contract for cash which would result in classification of the warrants as liabilities recorded at fair value. If the warrants do not require liability classification under ASC 815-40, and in order to conclude equity classification, we also assess whether the warrants are indexed to our common stock and meet equity classification criteria under ASC 815-40. Liability-classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the consolidated statements of operations. Equity-classified warrants only require fair value accounting at issuance and are not subsequently remeasured.

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Our pre-funded and common warrants are equity-classified instruments that were recorded in additional paid-in capital at issuance and are not subject to remeasurement. We periodically evaluate changes in facts and circumstances that could impact the classification of warrants.

Recent Accounting Pronouncements Not Yet Adopted

See Note 2—Basis of Presentation and Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.