10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 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, 2022

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: 001-38276

 

APELLIS PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-1537290

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

100 Fifth Avenue,

Waltham, MA

02451

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 977-5700

 

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, $0.0001 par value per share

APLS

Nasdaq Global Select 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, a 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

 

Small 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 ☒

 

As of April 29, 2022, the registrant had 106,521,818 shares of common stock, $0.0001 par value per share, outstanding.


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

34

Item 1A.

Risk Factors

34

Item 6.

Exhibits

35

Signatures

 

36

 

 

i


 

Special Note Regarding Forward-Looking Statements and Industry Data

 

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

our plans with respect to our ongoing and planned clinical trials for our product candidates, whether conducted by us or Swedish Orphan Biovitrum AB (Publ), or Sobi, or by any future collaborators, including the timing of dosing of patients, enrollment and completion of these trials and of the anticipated results from these trials;
the ongoing commercialization of EMPAVELI and our preparation for the commercialization of intravitreal pegcetacoplan;
our sales, marketing and distribution capabilities and strategies, including for the commercialization and manufacturing of EMPAVELI, intravitreal pegcetacoplan and any future products;
the rate and degree of market acceptance and clinical utility of EMPAVELI, intravitreal pegcetacoplan and any future products;
our plans to develop our current and future product candidates for any additional indications;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
our plans to initiate clinical trials of our current and future product candidates;
the potential clinical benefits and attributes of our current and future product candidates we may develop and the inhibition of C3;
our plans to research and develop any current and future product candidates we may develop;
our current and any future collaborations for the development and commercialization of our current and future product candidates;
the potential benefits of any collaboration;
the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our ability to identify additional products or product candidates with significant commercial potential;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
developments relating to our competitors and our industry;
the impact of the COVID-19 pandemic on our clinical trials, business and operations; and
the impact of new government laws and regulations (including tax).

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking

1


 

statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

 

You should read this Quarterly Report on Form 10-Q and the documents that we have filed or incorporated by reference as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. All of the market data used in this Quarterly Report on Form 10-Q involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. We believe that the information from these industry publications, surveys and studies is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in this Quarterly Report on Form 10-Q. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. The Apellis, EMPAVELI and Apellis Assist names and logos are our trademarks, trade names and service marks. The other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

Note regarding certain references in this Quarterly Report on Form 10-Q

Unless otherwise stated or the context indicates otherwise, all references herein to “Apellis,” “Apellis Pharmaceuticals, Inc.,” “we,” “us,” “our,” “our company,” “the Company” and similar references refer to Apellis Pharmaceuticals, Inc. and its wholly owned subsidiaries.

In addition, unless otherwise stated or the context indicates otherwise, all references in this Quarterly Report on Form 10-Q to “EMPAVELI (pegcetacoplan)” and “EMPAVELI” refer to pegcetacoplan in the context of the commercially available product for which we received approval from the United States Food and Drug Administration in May 2021 for the treatment of adults with paroxysmal nocturnal hemoglobinuria, or PNH, and references to Aspaveli refer to pegcetacoplan in the context of the commercially available product for which Sobi and us received approval from the European Commission in December 2021 for the treatment of adults with PNH who are anemic after treatment with a C5 inhibitor for at least three months, in each case, as more fully described herein; whereas, unless otherwise stated or the context indicates otherwise, all references herein to “pegcetacoplan” refer to pegcetacoplan in the context of the product candidate for which we are exploring further applications and indications, as more fully described herein. The other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

(Unaudited)

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

633,456

 

 

$

640,192

 

Marketable securities

 

 

331,842

 

 

 

60,358

 

Accounts receivable

 

 

6,330

 

 

 

10,103

 

Inventory

 

 

32,850

 

 

 

16,286

 

Prepaid assets

 

 

24,534

 

 

 

24,868

 

Restricted cash

 

 

1,558

 

 

 

1,563

 

Other current assets

 

 

73,412

 

 

 

70,677

 

Total current assets

 

 

1,103,982

 

 

 

824,047

 

Non-current assets:

 

 

 

 

 

 

Right-of-use assets

 

 

19,972

 

 

 

19,901

 

Property and equipment, net

 

 

5,893

 

 

 

6,177

 

Other assets

 

 

16,007

 

 

 

31,640

 

Total assets

 

$

1,145,854

 

 

$

881,765

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,273

 

 

$

16,909

 

Accrued expenses

 

 

105,272

 

 

 

103,239

 

Current portion of development liability

 

 

2,664

 

 

 

7,584

 

Current portion of right-of-use liabilities

 

 

4,560

 

 

 

4,115

 

Total current liabilities

 

 

124,769

 

 

 

131,847

 

Long-term liabilities:

 

 

 

 

 

 

Long-term development liability

 

 

351,784

 

 

 

345,151

 

Convertible senior notes

 

 

189,168

 

 

 

189,024

 

Right-of-use liabilities

 

 

16,690

 

 

 

17,081

 

Other liabilities

 

 

1,208

 

 

 

 

Total liabilities

 

 

683,619

 

 

 

683,103

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized, and zero 
  shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000 shares authorized
   at March 31, 2022 and December 31, 2021;
106,440 shares
   issued and outstanding at March 31, 2022, and
97,524 shares
   issued and outstanding at December 31, 2021

 

 

11

 

 

 

10

 

Additional paid-in capital

 

 

2,259,906

 

 

 

1,857,430

 

Accumulated other comprehensive loss

 

 

(2,059

)

 

 

(2,090

)

Accumulated deficit

 

 

(1,795,623

)

 

 

(1,656,688

)

Total stockholders’ equity

 

 

462,235

 

 

 

198,662

 

Total liabilities and stockholders’ equity

 

$

1,145,854

 

 

$

881,765

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3


 

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

For the Three Months Ended March 31,

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

Product revenue, net

$

12,109

 

 

$

 

Licensing and other revenue

 

2,272

 

 

 

 

Total revenue:

 

14,381

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of sales

 

1,247

 

 

 

 

Research and development

 

90,945

 

 

 

84,012

 

General and administrative

 

51,187

 

 

 

40,579

 

Total operating expenses:

 

143,379

 

 

 

124,591

 

Net operating loss

 

(128,998

)

 

 

(124,591

)

Loss on conversion of debt

 

 

 

 

(39,487

)

Loss from remeasurement of development derivative liability

 

 

 

 

(17,084

)

Interest income

 

98

 

 

 

134

 

Interest expense

 

(8,538

)

 

 

(4,175

)

Other (expense)/income, net

 

(289

)

 

 

1,544

 

Net loss before taxes

 

(137,727

)

 

 

(183,659

)

Income tax expense

 

1,208

 

 

 

 

Net loss

 

(138,935

)

 

 

(183,659

)

Other comprehensive (loss)/gain:

 

 

 

 

 

    Unrealized (loss)/gain on marketable securities

 

(52

)

 

 

79

 

    Foreign currency gain/(loss)

 

83

 

 

 

(1,582

)

Total other comprehensive income/(loss)

 

31

 

 

 

(1,503

)

Comprehensive loss, net of tax

$

(138,904

)

 

$

(185,162

)

Net loss per common share, basic and diluted

 

(1.42

)

 

$

(2.32

)

Weighted-average number of common shares used in net
   loss per common share, basic and diluted

 

98,069

 

 

 

79,219

 

 

See accompanying notes to unaudited condensed consolidated financial statements

4


 

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Outstanding

 

 

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

Amount

 

 

Capital

 

 

Income/(Loss)

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2022

 

 

97,524

 

 

$

10

 

 

$

1,857,430

 

 

$

(2,090

)

 

$

(1,656,688

)

 

$

198,662

 

Common Stock -follow-on-offering

 

 

8,564

 

 

 

1

 

 

 

380,119

 

 

 

 

 

 

 

 

 

380,120

 

Issuance of common stock upon exercise of stock options

 

 

239

 

 

 

 

 

 

4,000

 

 

 

 

 

 

 

 

 

4,000

 

Vesting of restricted stock units, net of shares withheld for taxes

 

 

113

 

 

 

 

 

 

(2,416

)

 

 

 

 

 

 

 

 

(2,416

)

Share-based compensation expense

 

 

 

 

 

 

 

 

20,773

 

 

 

 

 

 

 

 

 

20,773

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(138,935

)

 

 

(138,935

)

Foreign currency gain

 

 

 

 

 

 

 

 

 

 

 

83

 

 

 

 

 

 

83

 

Balance at March 31, 2022

 

 

106,440

 

 

 

11

 

 

 

2,259,906

 

 

 

(2,059

)

 

 

(1,795,623

)

 

 

462,235

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Outstanding

 

 

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

76,130

 

 

$

8

 

 

$

1,131,013

 

 

$

(117

)

 

$

(926,347

)

 

$

204,557

 

Impact of adoption of ASU 2020-06

 

 

 

 

 

 

 

 

(165,747

)

 

 

 

 

 

16,013

 

 

 

(149,734

)

Issuance of shares in exchange of 2019 Convertible Notes, including issuance costs

 

 

3,976

 

 

 

 

 

 

162,258

 

 

 

 

 

 

 

 

 

162,258

 

Forfeiture of accrued interest in exchange of 2019 Convertible Notes

 

 

 

 

 

 

 

 

1,668

 

 

 

 

 

 

 

 

 

1,668

 

Issuance of common stock upon exercise of stock options

 

 

285

 

 

 

 

 

 

2,588

 

 

 

 

 

 

 

 

 

2,588

 

Vesting of restricted stock units, net of shares withheld for taxes

 

 

47

 

 

 

 

 

 

(956

)

 

 

 

 

 

 

 

 

(956

)

Share-based compensation expense

 

 

 

 

 

 

 

 

16,439

 

 

 

 

 

 

 

 

 

16,439

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

79

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(183,659

)

 

 

(183,659

)

Foreign currency loss

 

 

 

 

 

 

 

 

 

 

 

(1,582

)

 

 

 

 

 

(1,582

)

Balance at March 31, 2021

 

 

80,438

 

 

 

8

 

 

 

1,147,263

 

 

 

(1,620

)

 

 

(1,093,993

)

 

 

51,658

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

5


 

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(138,935

)

 

$

(183,659

)

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

 

 

 

 

 

 

Share-based compensation expense

 

 

20,773

 

 

 

16,439

 

Loss on conversion of debt

 

 

 

 

 

39,487

 

Loss from remeasurement of development derivative liability

 

 

 

 

 

17,084

 

Forfeiture of accrued interest in exchange of convertible notes

 

 

 

 

 

1,668

 

Amortization of right-of-use assets

 

 

(17

)

 

 

112

 

Depreciation expense

 

 

377

 

 

 

282

 

Amortization of discounts for convertible notes, net of financing costs

 

 

144

 

 

 

360

 

Accretion of discount to development liability

 

 

6,713

 

 

 

 

Other liabilities

 

 

1,208

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

3,773

 

 

 

 

Inventory

 

 

(16,533

)

 

 

 

Prepaid assets

 

 

334

 

 

 

(5,819

)

Other current assets

 

 

(2,312

)

 

 

(4,242

)

Other assets

 

 

15,634

 

 

 

11,946

 

Accounts payable

 

 

(6,371

)

 

 

(4,170

)

Accrued expenses

 

 

3,652

 

 

 

(42,802

)

Net cash used in operating activities

 

 

(111,560

)

 

 

(153,314

)

Investing Activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(86

)

 

 

(484

)

Purchase of available-for-sale securities

 

 

(331,863

)

 

 

(171,281

)

Proceeds from maturity of available-for-sale securities

 

 

60,000

 

 

 

25,000

 

Net cash used in investing activities

 

 

(271,949

)

 

 

(146,765

)

Financing Activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

380,120

 

 

 

 

Payments for development liability

 

 

(5,000

)

 

 

 

Proceeds from exercise of stock options

 

 

4,000

 

 

 

2,588

 

Payments of employee tax withholding related to equity-based compensation

 

 

(2,416

)

 

 

(956

)

Net cash provided by financing activities

 

 

376,704

 

 

 

1,632

 

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

 

 

64

 

 

 

(1,611

)

Net increase in cash, cash equivalents and restricted cash

 

 

(6,741

)

 

 

(300,058

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

641,755

 

 

 

567,045

 

Cash, cash equivalents and restricted cash at end of period

 

$

635,014

 

 

$

266,987

 

Reconciliation of cash, cash equivalents and restricted cash to the
     consolidated balance sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

633,456

 

 

$

265,435

 

Restricted cash

 

 

1,558

 

 

 

1,552

 

Total cash, cash equivalents, and restricted cash

 

$

635,014

 

 

$

266,987

 

Supplemental Disclosure of Financing Activities

 

 

 

 

 

 

Cash paid for interest

 

 

3,360

 

 

$

6,893

 

Convertible Notes exchanged for common stock

 

 

 

 

$

126,129

 

 

See accompanying notes to unaudited condensed consolidated financial statements

6


 

APELLIS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022 and 2021

(unaudited)

1. Nature of Organization and Operations

 

Apellis Pharmaceuticals, Inc. (the “Company”) is a commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutic compounds to treat diseases with high unmet needs through the inhibition of the complement system, which is an integral component of the immune system, at the level of C3, the central protein in the complement cascade.

 

The Company was incorporated in September 2009 under the laws of the State of Delaware. The Company’s principal executive offices are located in Waltham, Massachusetts.

 

The Company’s operations since inception have been limited to organizing and staffing the Company, acquiring rights to product candidates, business planning, raising capital, developing its product candidates, and commercializing EMPAVELI (pegcetacoplan) for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”).

 

The Company is subject to risks common in the biotechnology industry including, but not limited to, raising additional capital, development by its competitors of new technological innovations, its ability to successfully complete preclinical and clinical development of product candidates and receive timely regulatory approval of products, market acceptance of the Company’s products, protection of proprietary technology, healthcare cost containment initiatives, and compliance with governmental regulations, including those of the U.S. Food and Drug Administration (“FDA”). Additionally, the Company is subject to risks arising from the Coronavirus Disease 2019 (COVID-19) pandemic, which could have adverse effects upon its business and operations, including on its ability to initiate, conduct and complete clinical trials, and could disrupt regulatory activities.

 

Liquidity and Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of May 4, 2022, the date of issuance of these unaudited condensed consolidated financial statements, the Company believes that its cash and cash equivalents and marketable securities of $965.3 million as of March 31, 2022 will be sufficient to fund its operations and capital expenditures for at least the next twelve months. The Company’s future viability beyond that point is dependent on its ability to raise additional capital to finance its operations.

 

There are uncertainties associated with the Company’s ability to (1) obtain additional debt or equity financing on terms that are favorable to the Company, (2) enter into collaborative agreements with strategic partners, and (3) succeed in its future operations. If the Company is not able to obtain the required funding for its operations or is not able to obtain funding on terms that are favorable to the Company, it could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts and its business could be materially harmed.

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”), for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted and, accordingly, the consolidated balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the Company’s financial information. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.

7


 

 

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2022 (the “2021 Form 10-K”).

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: development derivative liability, accrued expenses, prepaid expenses, convertible debt and taxes.

 

Summary of Significant Accounting Policies

 

Reference is made to Note 2 Summary of Significant Accounting Policies in our 2021 Form 10-K for a detailed description of significant accounting policies. There have been no significant changes to our accounting policies as disclosed in our 2021 Form 10-K.

3. Product Revenues, Accounts Receivable, and Reserves for Product Sales

 

The Company received FDA approval for the sale of EMPAVELI in the United States in May 2021. The Company’s product revenues, net of sales discounts and allowances and reserves, for the three months ended March 31, 2022 consisted of $12.1 million of sales of EMPAVELI to specialty pharmacies (“SPs”) and specialty distributors (“SDs”). The Company did not have product revenue for the three months ended March 31, 2021.

 

The Company’s accounts receivable balance of $6.3 million as of March 31, 2022 and $10.1 million as of December 31, 2021, consisted of EMPAVELI product sales receivable, net of discounts and allowances of $0.2 million and $0.2 million, respectively. The Company does not have a reserve against its receivable balance.

 

The Company’s product sales reserves totaled $1.7 million and $1.0 million as of March 31, 2022 and December 31, 2021, respectively. These amounts are included in accrued expenses on the Company’s unaudited condensed consolidated balance sheet.

4. Inventory

 

The Company’s inventory of EMPAVELI consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Raw materials

 

$

14,301

 

 

$

5,749

 

Semi-finished goods

 

 

17,925

 

 

 

10,058

 

Finished goods

 

 

624

 

 

 

479

 

Total Inventories

 

$

32,850

 

 

$

16,286

 

 

8


 

5. Prepaid Assets and Accrued Expenses

 

Prepaid assets include $10.9 million and $12.0 million of prepaid research and development costs as of March 31, 2022 and December 31, 2021, respectively.

Accrued expenses are as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued research and development

 

$

43,354

 

 

$

35,217

 

Accrued cost of research collaboration

 

 

25,000

 

 

 

25,000

 

Accrued license fee

 

 

5,000

 

 

 

5,000

 

Accrued payroll liabilities

 

 

19,732

 

 

 

25,212

 

Other

 

 

12,186

 

 

 

12,810

 

Total

 

$

105,272

 

 

$

103,239

 

 

6. Development Liability and Development Derivative Liability

 

On February 28, 2019, the Company entered into a development funding agreement (the “SFJ agreement”), with SFJ Pharmaceuticals Group (“SFJ”), under which SFJ agreed to provide funding to the Company to support the development of pegcetacoplan for the treatment of patients with PNH. Pursuant to the SFJ agreement, SFJ paid the Company $