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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, 2023

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 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

 

 

i


Table of Contents

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

1


Table of Contents

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):