SEC Filing - Apellis Pharmaceuticals, Inc.

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10-Q

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, 2023

☐ 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 May 1, 2023, the registrant had 116,457,008 shares of common stock, $0.0001 par value per share, outstanding.

APELLIS PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2023

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1A.	Risk Factors	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

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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:

•

the ongoing commercialization of EMPAVELI and SYFOVRE;

•

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 initiation, dosing of patients, enrollment and completion of these trials and of the anticipated results from these trials;

•

our sales, marketing and distribution capabilities and strategies, including for the commercialization and manufacturing of EMPAVELI, SYFOVRE and any future products;

•

the rate and degree of market acceptance and clinical utility of EMPAVELI, SYFOVRE 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;

•

the potential clinical benefits and attributes of our current and future product candidates we may develop and the inhibition of C3;

•

our current and any future collaborations for the development and commercialization of our current and future product candidates;

•

the potential benefits of any current or future collaboration, including our collaborations with Sobi and Beam Therapeutics, Inc.;

•

the rate and degree of market acceptance and clinical utility of EMPAVELI, SYFOVRE and any other 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; 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, 2022, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking 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

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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, 2022 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, SYFOVRE 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 in the United States for the treatment of adults with paroxysmal nocturnal hemoglobinuria, or PNH, and references to Aspaveli refer to systemic pegcetacoplan in the context of the commercially available product in the European Union 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. Unless otherwise stated or the context indicates otherwise, all references in this Quarterly Report on Form 10-Q to “SYFOVRE (pegcetacoplan injection)” and “SYFOVRE” refer to intravitreal pegcetacoplan in the context of the commercially available product for which we received approval from the United States Food and Drug Administration in February 2023 for the treatment of geographic atrophy secondary to age-related macular degeneration. 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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except per share amounts)


	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	765,083		$	551,801
Accounts receivable		31,505			7,727
Inventory		85,484			85,714
Prepaid assets		36,559			36,350
Restricted cash		1,275			1,273
Other current assets		34,349			36,658
Total current assets		954,255			719,523
Non-current assets:
Right-of-use assets		17,854			18,747
Property and equipment, net		5,967			6,148
Other assets		793			15,799
Total assets	$	978,869		$	760,217
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	31,494		$	37,342
Accrued expenses		71,251			95,139
Current portion of development liability		30,071			29,504
Current portion of right-of-use liabilities		5,828			5,625
Total current liabilities		138,644			167,610
Long-term liabilities:
Long-term development liability		321,713			315,647
Convertible senior notes		92,809			92,736
Right-of-use liabilities		13,233			14,352
Other liabilities		347			—
Total liabilities		566,746			590,345
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, and zero shares issued and outstanding at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.0001 par value; 200,000 shares authorized at March 31, 2023 and December 31, 2022; 116,179 shares issued and outstanding at March 31, 2023, and 110,772 shares issued and outstanding at December 31, 2022		12			11
Additional paid-in capital		2,899,524			2,479,596
Accumulated other comprehensive loss		(775	)		(875	)
Accumulated deficit		(2,486,638	)		(2,308,860	)
Total stockholders’ equity		412,123			169,872
Total liabilities and stockholders’ equity	$	978,869		$	760,217

See accompanying notes to unaudited condensed consolidated financial statements

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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,
	2023			2022
Revenue:
Product revenue, net	$	38,800		$	12,109
Licensing and other revenue		6,046			2,272
Total revenue:		44,846			14,381
Operating expenses:
Cost of sales		7,809			1,247
Research and development		110,027			90,945
General and administrative		102,093			51,187
Total operating expenses:		219,929			143,379
Net operating loss		(175,083	)		(128,998	)
Interest income		5,393			98
Interest expense		(7,529	)		(8,538	)
Other income/(expense), net		(277	)		(289	)
Net loss before taxes		(177,496	)		(137,727	)
Income tax expense		282			1,208
Net loss	$	(177,778	)	$	(138,935	)
Other comprehensive gain/(loss):
Unrealized gain/(loss) on marketable securities		—			(52	)
Foreign currency gain		100			83
Total other comprehensive income/(loss)		100			31
Comprehensive loss, net of tax	$	(177,678	)	$	(138,904	)
Net loss per common share, basic and diluted	$	(1.56	)	$	(1.42	)
Weighted-average number of common shares used in net loss per common share, basic and diluted		113,872			98,069

See accompanying notes to unaudited condensed consolidated financial statements

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Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(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, 2023		110,772		$	11	$	2,479,596		$	(875	)	$	(2,308,860	)	$	169,872
Issuance of common stock and pre-funded warrants in common stock offering		4,008			1		384,386			—			—			384,387
Issuance of common stock upon exercise of stock options		951			—		17,718			—			—			17,718
Vesting of restricted stock units, net of shares withheld for taxes		448			—		(10,999	)		—			—			(10,999	)
Share-based compensation expense		—			—		28,823			—			—			28,823
Unrealized gain on available-for-sale investments		—			—		—			—			—			—
Net loss		—			—		—			—			(177,778	)		(177,778	)
Foreign currency gain		—			—		—			100			—			100
Balance at March 31, 2023		116,179			12		2,899,524			(775	)		(2,486,638	)		412,123

See accompanying notes to unaudited condensed consolidated financial statements

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			Loss			Deficit			Equity (Deficit)
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

See accompanying notes to unaudited condensed consolidated financial statements

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Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	For the Three Months Ended March 31,
	2023			2022
Operating Activities
Net loss	$	(177,778	)	$	(138,935	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		28,823			20,773
Loss on disposal of fixed assets		19			—
Amortization of right-of-use assets		(22	)		(17	)
Depreciation expense		421			377
Amortization of discounts for convertible notes, net of financing costs		73			144
Accretion of discount to development liability		6,633			6,713
Other liabilities		—			1,208
Changes in operating assets and liabilities:
Accounts receivable		(23,778	)		3,773
Inventory		144			(16,533	)
Prepaid assets		(107	)		334
Other current assets		2,308			(2,312	)
Other assets		14,969			15,634
Accounts payable		(5,854	)		(6,371	)
Accrued expenses		(23,471	)		3,652
Net cash used in operating activities		(177,620	)		(111,560	)
Investing Activities
Purchase of property and equipment		(259	)		(86	)
Purchase of available-for-sale securities		—			(331,863	)
Proceeds from maturity of available-for-sale securities		—			60,000
Net cash (used in) provided by investing activities		(259	)		(271,949	)
Financing Activities
Proceeds from issuance of common stock, net of issuance costs		—			380,120
Proceeds from issuance of common stock and pre-funded warrant offering, net of issuance costs		384,387			—
Payments for development liability		—			(5,000	)
Proceeds from exercise of stock options		17,718			4,000
Payments of employee tax withholding related to equity-based compensation		(10,999	)		(2,416	)
Net cash provided by financing activities		391,106			376,704
Effect of exchange rate changes on cash, cash equivalents and restricted cash		56			64
Net increase (decrease) in cash, cash equivalents and restricted cash		213,283			(6,741	)
Cash, cash equivalents and restricted cash at beginning of period		553,075			641,755
Cash, cash equivalents and restricted cash at end of period	$	766,358		$	635,014
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents	$	765,083		$	633,456
Restricted cash		1,275			1,558
Total cash, cash equivalents, and restricted cash	$	766,358		$	635,014
Supplemental Disclosures
Cash paid for interest	$	1,643		$	3,360
Cash paid for income taxes	$	250			—

See accompanying notes to unaudited condensed consolidated financial statements

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APELLIS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, commercializing EMPAVELI (pegcetacoplan) for the treatment of paroxysmal nocturnal hemoglobinuria (“PNH”) and the commercializing of SYFOVRE (pegcetacoplan injection) for the treatment of geographic atrophy secondary to age-related macular degeneration (“GA).

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”).

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. From inception to March 31, 2023, the Company has incurred cash outflows from operations, losses from operations and had an accumulated deficit of $2.5 billion primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and expenses supporting those activities.

As of May 4, 2023, the date of issuance of these unaudited condensed consolidated financial statements, the Company believes that its cash and cash equivalents of $765.1 million as of March 31, 2023 combined with its cash flows generated from sales 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 achieve commercial success for SYFOVRE and EMPAVELI. 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, 2022 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

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presentation of the Company’s financial information. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other interim period or for any other future year.

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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2023 (the “2022 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 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 2022 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 2022 Form 10-K.

Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company has adopted the new guidance as of January 1, 2023, and it did not have a material impact on its financial statements and related disclosures.

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 and approval for the sale of SYFOVRE in the United States in February 2023. The Company’s product revenues, net of sales discounts and allowances and reserves, for the three months ended March 31, 2023 and 2022 were $38.8 million and $12.1 million, respectively. The Company’s product revenues consist of sales of EMPAVELI and SYFOVRE to specialty pharmacies and specialty distributors.

The table reflects product revenue by major source for the following periods (in thousands):


	Three Months Ended March31,
	2023		2022
Products:
EMPAVELI	$	20,440	$	12,109
SYFOVRE		18,360		—
Total Product revenue, net	$	38,800	$	12,109

The Company’s accounts receivable balance of $31.5 million as of March 31, 2023 and $7.7 million as of December 31, 2022, consisted of EMPAVELI and SYFOVRE product sales receivable, net of discounts and allowances of $0.3 million and $0.3 million, respectively. The Company does not have a reserve against its receivable balance.

The Company’s product sales reserves totaled $5.0 million and $2.4 million as of March 31, 2023 and December 31, 2022, respectively. These amounts are included in accrued expenses on the Company’s unaudited condensed consolidated balance sheet.

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The following table summarizes activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2023 (in thousands):

Chargebacks, Discounts, and Fees

Government and other rebates

Returns