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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 June 30, 2020

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 July 27, 2020, the registrant had 75,603,991 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 6.

Exhibits

79

Signatures

 

80

 

i


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

 

`

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

317,348

 

 

$

351,985

 

Marketable securities

 

 

515,476

 

 

 

 

Prepaid assets

 

 

17,925

 

 

 

19,802

 

Restricted cash

 

 

1,248

 

 

 

 

Other current assets

 

 

1,828

 

 

 

1,308

 

Total current assets

 

 

853,825

 

 

 

373,095

 

Non-current Assets:

 

 

 

 

 

 

 

 

Right-of-use assets

 

 

12,959

 

 

 

14,110

 

Property and equipment, net

 

 

2,416

 

 

 

1,655

 

Other assets

 

 

906

 

 

 

385

 

Total assets

 

$

870,106

 

 

$

389,245

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,927

 

 

$

8,361

 

Accrued expenses

 

 

45,399

 

 

 

54,783

 

Current portion of right of use liabilities

 

 

2,664

 

 

 

2,609

 

Total current liabilities

 

 

57,990

 

 

 

65,753

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Convertible senior notes

 

 

348,842

 

 

 

142,567

 

Development derivative liability

 

 

220,475

 

 

 

134,839

 

Operating lease liabilities

 

 

10,735

 

 

 

11,857

 

Total liabilities

 

 

638,042

 

 

 

355,016

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10.0 million shares authorized, and zero

   shares issued and outstanding at June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.0001 par value; 200.0 million shares authorized

   at June 30, 2020 and December 31, 2019; 75.6 million shares

   issued and outstanding at June 30, 2020, and 63.9 million shares

   issued and outstanding at December 31, 2019

 

 

8

 

 

 

6

 

Additional paid-in capital

 

 

1,100,639

 

 

 

615,850

 

Accumulated other comprehensive income/(loss)

 

 

329

 

 

 

(154

)

Accumulated deficit

 

 

(868,912

)

 

 

(581,473

)

Total stockholders' equity

 

 

232,064

 

 

 

34,229

 

Total liabilities and stockholders' equity

 

$

870,106

 

 

$

389,245

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

1


 

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

87,094

 

 

$

50,698

 

 

$

156,377

 

 

$

91,178

 

General and administrative

 

28,414

 

 

 

12,778

 

 

 

57,918

 

 

 

20,949

 

Operating loss

 

(115,508

)

 

 

(63,476

)

 

 

(214,295

)

 

 

(112,127

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

(1,208

)

Gain/(loss) from remeasurement of development

     derivative liability

 

2,770

 

 

 

(9,104

)

 

 

(65,636

)

 

 

(9,840

)

Interest income

 

1,025

 

 

 

1,421

 

 

 

3,300

 

 

 

2,288

 

Interest expense

 

(6,909

)

 

 

(159

)

 

 

(10,828

)

 

 

(753

)

Other income/(expense), net

 

5

 

 

 

228

 

 

 

20

 

 

 

(25

)

Net loss

 

(118,617

)

 

 

(71,090

)

 

 

(287,439

)

 

 

(121,665

)

Other comprehensive gain/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Unrealized gain on marketable securities

 

(842

)

 

 

 

 

 

552

 

 

 

 

    Foreign currency gain/(loss)

 

161

 

 

 

(1

)

 

 

(69

)

 

 

1

 

Total other comprehensive gain/(loss)

 

(681

)

 

 

(1

)

 

 

483

 

 

 

1

 

Comprehensive loss, net of tax

$

(119,298

)

 

$

(71,091

)

 

$

(286,956

)

 

$

(121,664

)

Net loss per common share, basic and diluted

$

(1.57

)

 

$

(1.12

)

 

$

(3.85

)

 

$

(2.01

)

Weighted-average number of common shares used in net

   loss per common share, basic and diluted

 

75,550

 

 

 

63,264

 

 

 

74,635

 

 

 

60,581

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

2


 

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, 2020

 

 

63,938

 

 

$

6

 

 

$

615,850

 

 

$

(154

)

 

$

(581,473

)

 

$

34,229

 

Issuance of common stock in follow-on offering, net of offering costs

 

 

10,925

 

 

 

1

 

 

 

381,457

 

 

 

 

 

 

 

 

 

381,458

 

Issuance of common stock upon exercise of stock options

 

 

559

 

 

 

 

 

 

1,674

 

 

 

 

 

 

 

 

 

1,674

 

Share-based compensation expense

 

 

 

 

 

 

 

 

9,294

 

 

 

 

 

 

 

 

 

9,294

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

1,394

 

 

 

 

 

 

1,394

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(168,822

)

 

 

(168,822

)

Foreign currency loss

 

 

 

 

 

 

 

 

 

 

 

(230

)

 

 

 

 

 

(230

)

Balance at March 31, 2020

 

 

75,422

 

 

 

7

 

 

 

1,008,275

 

 

 

1,010

 

 

 

(750,295

)

 

 

258,997

 

Deferred issuance costs

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

 

 

 

(35

)

Issuance of common stock upon exercise of stock options

 

 

148

 

 

 

1

 

 

 

1,354

 

 

 

 

 

 

 

 

 

1,355

 

Share-based compensation expense

 

 

 

 

 

 

 

 

11,489

 

 

 

 

 

 

 

 

 

11,489

 

Unrealized loss on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

(842

)

 

 

 

 

 

(842

)

Recognition of debt discount on convertible notes

 

 

 

 

 

 

 

 

122,147

 

 

 

 

 

 

 

 

 

122,147

 

Purchase of capped call transactions and associated costs

 

 

 

 

 

 

 

 

(43,112

)

 

 

 

 

 

 

 

 

(43,112

)

Issuance of common stock to employee stock purchase plan

 

 

20

 

 

 

 

 

 

521

 

 

 

 

 

 

 

 

 

521

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(118,617

)

 

 

(118,617

)

Foreign currency gain

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Balance at June 30, 2020

 

 

75,590

 

 

$

8

 

 

$

1,100,639

 

 

$

329

 

 

$

(868,912

)

 

$

232,064

 

 

See accompanying notes to unaudited condensed consolidated financial statements


3


 

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY

CoNTINUED

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Outstanding

 

 

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2019

 

 

56,279

 

 

$

5

 

 

$

437,856

 

 

$

(123

)

 

$

(276,766

)

 

$

160,972

 

Issuance of common stock in follow-on offering, net of offering costs

 

 

6,900

 

 

 

1

 

 

 

109,603

 

 

 

 

 

 

 

 

 

109,604

 

Issuance of common stock upon exercise of stock options

 

 

39

 

 

 

 

 

 

192

 

 

 

 

 

 

 

 

 

192

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,559

 

 

 

 

 

 

 

 

 

4,559

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,574

)

 

 

(50,574

)

Foreign currency gain

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance at March 31, 2019

 

 

63,218

 

 

 

6

 

 

 

552,210

 

 

 

(121

)

 

 

(327,340

)

 

 

224,755

 

Deferred issuance costs

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

 

 

 

(23

)

Issuance of common stock upon exercise of stock options

 

 

454

 

 

 

 

 

 

1,262

 

 

 

 

 

 

 

 

 

1,262

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,183

 

 

 

 

 

 

 

 

 

4,183

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,090

)

 

 

(71,090

)

Foreign currency loss

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance at June 30, 2019

 

 

63,672

 

 

$

6

 

 

$

557,632

 

 

$

(122

)

 

$

(398,430

)

 

$

159,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 


 

4


 

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

 

For the Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(287,439

)

 

$

(121,665

)

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

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

20,783

 

 

 

8,742

 

Loss on early extinguishment of debt

 

 

 

 

 

1,208

 

Loss from remeasurement of development derivative liability

 

 

65,636

 

 

 

9,840

 

Amortization of right-of-use assets

 

 

84

 

 

 

149

 

Depreciation expense

 

 

180

 

 

 

87

 

Amortization of debt discounts

 

 

 

 

 

38

 

Amortization of term loan facility discounts

 

 

 

 

 

104

 

Amortization of discounts for convertible notes, net of financing costs

 

 

5,548

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid assets

 

 

1,877

 

 

 

10,357

 

Other current assets

 

 

(824

)

 

 

(3,527

)

Other assets

 

 

(518

)

 

 

(91

)

Accounts payable

 

 

1,600

 

 

 

3,801

 

Accrued expenses

 

 

(9,570

)

 

 

15,399

 

Other liabilities

 

 

 

 

 

91

 

Net cash used in operating activities

 

 

(202,643

)

 

 

(75,467

)

Investing Activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(973

)

 

 

(1,067

)

Purchase of available-for-sale securities

 

 

(567,188

)

 

 

 

Proceeds from maturity of available-for-sale securities

 

 

52,500

 

 

 

 

Net cash used in investing activities

 

 

(515,661

)

 

 

(1,067

)

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

381,423

 

 

 

109,629

 

Proceeds from development derivative liability

 

 

20,000

 

 

 

100,000

 

Payments for capped call transactions and associated costs

 

 

(43,112

)

 

 

 

Proceeds from issuance of convertible notes, net of issuance costs

 

 

323,074

 

 

 

 

Proceeds from exercise of stock options

 

 

3,029

 

 

 

1,454

 

Proceeds from issuance of common stock under employee share purchase plan

 

 

521

 

 

 

 

Repayment of term loan facility

 

 

 

 

 

(21,701

)

Net cash provided by financing activities

 

 

684,935

 

 

 

189,382

 

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

 

 

(20

)

 

 

12

 

Net increase in cash, cash equivalents and restricted cash

 

 

(33,389

)

 

 

112,860

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

351,985

 

 

 

176,268

 

Cash, cash equivalents and restricted cash at end of period

 

$

318,596

 

 

$

289,128

 

Reconciliation of cash, cash equivalents and restricted cash to the

     consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

317,348

 

 

$

289,128

 

Restricted cash

 

 

1,248

 

 

 

 

Total cash, cash equivalents, and restricted cash

 

$

318,596

 

 

$

289,128

 

Supplemental Disclosure of Financing Activities

 

 

 

 

 

 

 

 

Cash paid for Interest

 

$

3,829

 

 

$

728

 

 

See accompanying notes to unaudited condensed consolidated financial statements  

5


 

APELLIS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020 and 2019

(unaudited)

(Amounts in thousands, except per share amounts)

1. Nature of Organization and Operations

Apellis Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on the development of novel therapeutic compounds to treat disease 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 and has its principal office 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 and developing its product candidates.

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.

Convertible Notes Offering

 

On May 12, 2020, the Company completed a private offering of $300.0 million aggregate principal amount of 3.5% convertible senior notes due 2026 (the “2020 Convertible Notes”). The aggregate purchase price of the 2020 Convertible Notes was $328.9 million, which amount includes accrued interest from March 15, 2020 to, but not including, May 12, 2020.

The net proceeds from the sale of the 2020 Convertible Notes were approximately $322.9 million after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company. The Company used $43.1 million of the net proceeds from the offering to pay the cost of the capped call transactions described below.

The 2020 Convertible Notes form a single series with, and have the same terms as, the Company’s $220.0 million aggregate principal amount of 3.500% convertible senior notes due 2026 issued on September 16, 2019, (the “2019 Convertible Notes”, and together with the 2020 Convertible Notes, the “Convertible Notes”), but have a different issue date, issue price, CUSIP number and different restrictions on transfer. The 2020 Convertible Notes were issued as additional notes under the indenture (the “Indenture”), dated as of September 16, 2019, by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”), under which the 2019 Convertible Notes were issued. The 2020 Convertible Notes rank equal in right of payment to the 2019 Convertible Notes.

The 2020 Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 3.5% per year payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2020. The Convertible Notes will mature on September 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms. See Note 5 – Long-term Debt for additional information.

6


 

Capped Call Transactions

On May 6, 2020, concurrently with the pricing of the 2020 Convertible Notes, the Company entered into capped call transactions with two counterparties. The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the 2020 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2020 Convertible Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which is initially $39.4625 (the conversion price of the 2020 Convertible Notes) and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of such 2020 Convertible Notes.

Follow-on Public Offerings

On January 13, 2020, the Company issued and sold 10,925,000 shares of its common stock at a price per share to the public of $37.00 in a follow-on public offering including an additional 1,425,000 shares of its common stock that were sold at the follow-on public offering price of $37.00 per share pursuant to the underwriters’ in full exercise of their option to purchase additional shares of common stock. The Company received net proceeds of $381.5 million after deducting underwriting discounts and commissions of $22.2 million and offering costs of $0.5 million for these transactions.

Liquidity and Financial Condition

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 July 30, 2020, the date of issuance of these unaudited condensed consolidated financial statements, the Company believes that its cash and cash equivalents of $317.3 million and marketable securities of $515.5 million as of June 30, 2020 will be sufficient to fund its operations and capital expenditure requirements for at least the next twelve months from the date of issuance of the unaudited interim consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

The Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with FDA and other government regulations. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve profitability. Management’s plans in order to meet its short-term and longer-term operating cash flow requirements include obtaining additional funding.

There are uncertain