SEC Form 10-Q filed by Apellis Pharmaceuticals Inc.

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, 2024

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. ☐

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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, 2024, the registrant had 121,365,555 shares of common stock, $0.0001 par value per share, outstanding.

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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, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1A.	Risk Factors	32
Item 5.	Other Information	32
Item 6.	Exhibits	34
Signatures		35

 

 

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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:

 

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, 2023, 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.

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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, 2023. 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 systemic 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 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,
		2024				2023
Assets
Current assets:
Cash and cash equivalents		$	325,923			$	351,185
Accounts receivable, net			267,837				206,442
Inventory			161,283				146,362
Prepaid assets			43,163				38,820
Restricted cash			1,103				1,114
Other current assets			12,119				22,408
Total current assets			811,428				766,331
Non-current assets:
Right-of-use assets			14,994				16,745
Property and equipment, net			4,195				4,345
Other assets			1,313				1,309
Total assets		$	831,930			$	788,730
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	26,788			$	37,516
Accrued expenses			101,399				127,806
Current portion of development liability			77,287				75,830
Current portion of lease liabilities			6,257				6,441
Deferred Revenue			3,560				—
Total current liabilities			215,291				247,593
Long-term liabilities:
Long-term development liability			244,426				239,817
Convertible senior notes			93,109				93,033
Lease liabilities			9,770				11,454
Other liabilities			2,658				2,312
Total liabilities			565,254				594,209
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, and zero    shares issued and outstanding at March 31, 2024 and December 31, 2023			—				—
Common stock, $0.0001 par value; 200,000 shares authorized    at March 31, 2024 and December 31, 2023; 121,267 shares    issued and outstanding at March 31, 2024, and 119,556 shares    issued and outstanding at December 31, 2023			12				12
Additional paid-in capital			3,174,100				3,035,539
Accumulated other comprehensive loss			(3,525	)			(3,542	)
Accumulated deficit			(2,903,911	)			(2,837,488	)
Total stockholders’ equity			266,676				194,521
Total liabilities and stockholders’ equity		$	831,930			$	788,730

 

See accompanying notes to unaudited condensed consolidated financial statements

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APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

	For the Three Months Ended March 31,
	2024				2023
Revenue:
Product revenue, net	$	163,075			$	38,800
Licensing and other revenue		9,250				6,046
Total revenue:		172,325				44,846
Operating expenses:
Cost of sales		20,209				7,809
Research and development		84,701				110,027
Selling, general and administrative		129,505				102,093
Total operating expenses:		234,415				219,929
Net operating loss		(62,090	)			(175,083	)
Interest income		3,303				5,393
Interest expense		(6,967	)			(7,529	)
Other (expense)/ income, net		(499	)			(277	)
Net loss before taxes		(66,253	)			(177,496	)
Income tax expense		170				282
Net loss	$	(66,423	)		$	(177,778	)
Other comprehensive gain/(loss):
Foreign currency translation		17				100
Total other comprehensive income		17				100
Comprehensive loss, net of tax	$	(66,406	)		$	(177,678	)
Net loss per common share, basic and diluted	$	(0.54	)		$	(1.56	)
Weighted-average number of common shares used in net    loss per common share, basic and diluted		122,957				113,872

 

See accompanying notes to unaudited condensed consolidated financial statements

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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, 2024			119,556			$	12			$	3,035,539			$	(3,542	)		$	(2,837,488	)		$	194,521
Proceeds from settlement of capped call			—				—				98,763				—				—				98,763
Issuance of common stock upon exercise of stock options			714				—				9,477				—				—				9,477
Vesting of restricted stock units, net of shares withheld for taxes			997				—				(28	)			—				—				(28	)
Share-based compensation expense			—				—				30,349				—				—				30,349
Unrealized gain on available-for-sale investments			—				—				—				—				—				—
Net loss			—				—				—				—				(66,423	)			(66,423	)
Foreign currency translation			—				—				—				17				—				17
Balance at March 31, 2024			121,267				12				3,174,100				(3,525	)			(2,903,911	)			266,676

 

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, 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 translation			—				—				—				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

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Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

		For the Three Months Ended March 31,
		2024				2023
Operating Activities
Net loss		$	(66,423	)		$	(177,778	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense			30,349				28,823
Loss on disposal of fixed assets			—				19
Depreciation expense			444				421
Amortization of discounts for convertible notes			76				73
Accretion of discount to development liability			6,066				6,633
Changes in operating assets and liabilities:
Accounts receivable			(61,415	)			(23,778	)
Inventory			(14,921	)			144
Prepaid assets			(4,338	)			(107	)
Other current assets			10,697				2,308
Other assets			98				14,969
Right-of-use assets and lease liabilities			(116	)			(22	)
Accounts payable			(10,730	)			(5,854	)
Accrued expenses			(26,330	)			(23,471	)
Deferred revenue			3,560				—
Net cash used in operating activities			(132,983	)			(177,620	)
Investing Activities
Purchase of property and equipment			(293	)			(259	)
Net cash used in investing activities			(293	)			(259	)
Financing Activities
Proceeds from settlement of capped call			98,763				—
Proceeds from issuance of common stock and pre-funded warrant offering,  net of issuance costs			—				384,387
Proceeds from exercise of stock options			9,477				17,718
Payments of employee tax withholding related to equity-based compensation			(28	)			(10,999	)
Net cash provided by financing activities			108,212				391,106
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(209	)			56
Net (decrease) increase in cash, cash equivalents and restricted cash			(25,273	)			213,283
Cash, cash equivalents and restricted cash at beginning of period			352,299				553,075
Cash, cash equivalents and restricted cash at end of period		$	327,026			$	766,358
Reconciliation of cash, cash equivalents and restricted cash to the      consolidated balance sheets:
Cash and cash equivalents		$	325,923			$	765,083
Restricted cash			1,103				1,275
Total cash, cash equivalents, and restricted cash		$	327,026			$	766,358
Supplemental Disclosures
Cash paid for interest		$	1,643			$	1,643
Cash paid for income taxes			—			$	250
Proceeds from income tax refunds net of income taxes paid			257				—

 

See accompanying notes to unaudited condensed consolidated financial statements

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APELLIS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2024, [, as amended by Amendment No. 1 thereto filed with the Securities and Exchange Commission on February 29, 2024,] which we refer to as the 2023 Annual Report on Form 10-K

 

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.

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. Please also refer to those factors described in “Part I, Item 1A. Risk Factors” of our 2023 Annual Report on Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.

Overview

We are 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. We believe that this approach can result in broad inhibition of the principal pathways of the complement system and has the potential to effectively control diseases with high unmet need and that are driven by excessive complement activation.

In February 2023, the U.S. Food and Drug Administration, or the FDA, approved SYFOVRE® (pegcetacoplan injection), the first approved treatment for geographic atrophy secondary to age-related macular degeneration, or GA. We believe SYFOVRE has the potential to be a best-in-class treatment for patients with GA, a disease that affects more than one million people in the United States and five million people worldwide. We launched SYFOVRE in the United States in March 2023. For the three months ended March 31, 2024 and 2023 we generated $137.5 million and $18.4 million, respectively, in U.S. net product revenue from sales of SYFOVRE.

Our marketing authorization application, or MAA, to the European Medicines Agency, or EMA, for intravitreal pegcetacoplan for the treatment of GA is under review. In April 2024, the EMA reset the MAA review to day 180, the last phase of the initial assessment, and we now anticipate an opinion from the Committee for Medicinal Products for Human Use, or CHMP, no later than July 2024. The EMA’s decision was strictly procedural and in response to a judgment by the Court of Justice of the European Union regarding the organization of the EMA’s expert groups, and was not related to the pegcetacoplan data package. We have submitted marketing applications to regulatory authorities in Canada, Australia, the United Kingdom, and Switzerland for SYFOVRE for the treatment of GA, which are each under review by the applicable regulatory authorities. We have exclusive, worldwide commercialization rights for intravitreal pegcetacoplan.

As of March 31, 2024, we estimate that the rate of incidence of retinal vasculitis following SYFOVRE treatment remains rare at approximately 0.01% per injection. We believe that the events of retinal vasculitis predominantly occur in the first injection of SYFOVRE, with an estimated rate at first injection at approximately 1 in 4,000.

 

On October 1, 2023, the U.S. Centers for Medicare & Medicaid Services assigned a permanent and product-specific J-code for SYFOVRE, which became effective on the same day. J-codes are permanent reimbursement codes used by government payers and commercial insurers to facilitate billing of Medicare Part B treatments, which must be administered by a healthcare professional.

 

In May 2021, the FDA approved EMPAVELI (systemic pegcetacoplan), the first targeted C3 therapy, for the treatment of paroxysmal nocturnal hemoglobinuria, or PNH, for use in adults who are either treatment-naïve or who are switching from C5 inhibitors eculizumab or ravulizumab. For the three months ended March 31, 2024 and 2023, we generated $25.6 million and $20.4 million, respectively, in U.S. net product revenue from sales of EMPAVELI.

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Systemic pegcetacoplan has been approved for the treatment of adults with PNH in the European Union, Japan, Saudi Arabia, Australia, the United Kingdom and other jurisdictions. It is currently marketed under the trade name EMPAVELI in Saudi Arabia and Australia and Aspaveli in the European Union, Japan and United Kingdom. Under our collaboration and license agreement, or the Sobi collaboration agreement, with Swedish Orphan Biovitrum AB (Publ), or Sobi, Sobi has global co-development and exclusive ex-U.S. commercialization rights for systemic pegcetacoplan outside of the United States, and we have commercialization rights for systemic pegcetacoplan in the United States.

We are leading the development of systemic pegcetacoplan in C3 glomerulopathy, or C3G, and primary immune complex membranoproliferative glomerulonephritis, or primary IC-MPGN, in nephrology under our collaboration with Sobi. We plan to report top-line data from the ongoing Phase 3 VALIANT trial investigating systemic pegcetacoplan in adolescent and adult patients with native and post-transplant recurrence IC-MPGN and C3G in mid-2024. Under our collaboration with Sobi, Sobi is leading the development of systemic pegcetacoplan for hematopoietic stem cell transplantation-associated thrombotic microangiopathy, or HSCT-TMA, in hematology. We are also evaluating the administration of systemic pegcetacoplan as a novel approach to enabling xenotransplantation procedures and adeno associated virus, or AAV, vector administration for gene therapies.

 

In January 2024, together with Sobi, we discontinued the CASCADE Phase 3 trial evaluating systemic pegcetacoplan in patients with cold agglutinin disease, or CAD, due to the decreased medical need in CAD and the limited number of patients eligible for the CASCADE trial.

We are developing additional product candidates with other routes of administration. These candidates include APL-3007, a small interfering RNA, or siRNA, which is in a Phase 1 clinical trial in healthy volunteers, for which we expect to report topline data later this year, as well as an oral complement inhibitor in preclinical development. Furthermore, we are collaborating with Beam Therapeutics, Inc., or Beam, on up to six research programs focused on C3 and other complement targets in the eye, liver and brain, using Beam’s proprietary base editing technology to discover new treatments for complement-driven diseases.

Since our commencement of operations in May 2010, we have devoted substantially all of our resources to developing our proprietary technology, developing product candidates, undertaking preclinical studies and conducting clinical trials for pegcetacoplan, building our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, preparing for and executing the commercial launch of our products and providing general and administrative support for these operations.

 

To date, we have financed our operations primarily through $1.9 billion in net proceeds from public offerings of our common

stock and pre-funded warrants to purchase common stock, $535.8 million in net proceeds from offerings of Convertible Notes, a $250.0 million up-front payment and $65.0 million development reimbursement payments from Sobi pursuant to the Sobi collaboration agreement, $112.6 million in proceeds from the private placement of shares of our convertible preferred stock prior to our initial public offering, or IPO, $140.0 million under the SFJ agreement, $20.0 million in proceeds from borrowings under a term loan facility with Silicon Valley Bank, and $7.0 million in proceeds from our issuance and sale of a promissory note. We have repaid the term loan facility and the promissory note in full, and we exchanged $425.4 million and converted $0.7 million of aggregate principal amount of our Convertible Notes for shares of our common stock.

 

We have incurred significant annual net operating losses in every year since our inception and we expect to continue to incur net operating losses for at least this year. Our net losses were $66.4 million and $177.8 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $2.9 billion.

 

Our operating results may fluctuate significantly from quarter to quarter and year to year. We anticipate that we will continue to incur significant commercialization expenses related to sales, marketing, medical affairs, manufacturing, distribution and other commercial infrastructure associated with the commercialization of EMPAVELI for the treatment of PNH and the commercialization of SYFOVRE for the treatment of GA. In addition, we expect to continue to incur these expenses if and as we continue to develop and conduct our ongoing and planned clinical trials of pegcetacoplan and our other product candidates; initiate and continue research and preclinical and clinical development efforts for any future product candidates; seek to identify and develop additional product candidates for complement-dependent diseases; seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure to commercialize any additional products for which we may obtain marketing approval; require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional personnel, such as clinical, quality control, regulatory and scientific personnel; add operational, financial and management information systems and personnel, including personnel to support our product development and add equipment and physical infrastructure to support our research and development programs and commercialization.

 

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SFJ Agreement

On February 28, 2019, we entered into a development funding agreement, which we refer to as the SFJ agreement, with SFJ Pharmaceuticals Group, or SFJ, under which SFJ agreed to provide funding to us to support the development of systemic pegcetacoplan for the treatment of patients with PNH. Pursuant to the agreement, SFJ paid us $60.0 million following the signing of the agreement and agreed to pay us up to an additional $60.0 million in the aggregate in three equal installments upon the achievement of specified development milestones with respect to our Phase 3 program for pegcetacoplan in PNH and subject to our having cash resources at the time sufficient to fund at least 10 months of our operations.

 

In June 2019 we amended the SFJ agreement to include an additional $20 million funding payment. SFJ paid us $80.0 million under the amended SFJ agreement between June 2019 and January 2020.

 

Under the SFJ agreement, following regulatory approvals by the FDA and the European Commission, or the EC, for the use of systemic pegcetacoplan as a treatment for PNH, we paid SFJ $4.0 million in 2021 in connection with the FDA approval in May 2021 and $5.0 million in January 2022 in connection with the EC approval in December 2021. In addition, we paid $11.5 million in connection with the one-year anniversary of the FDA approval in May 2022 and $18.0 million in connection with the one-year anniversary of the EC approval in December 2022 and $24.5 million in connection with the two-year anniversary of FDA approval in May 2023 and $31.0 million in connection with the two-year anniversary of EC approval in December 2023. We are obligated to pay SFJ $366.0 million in additional payments due on each anniversary of FDA and EC regulatory approval through 2027 with $37.5 million due in May 2024 and $61.3 million due in December 2024.

 

Convertible Notes

 

On September 16, 2019, we completed a private offering of convertible notes, or the 2019 Convertible Notes, with an aggregate principal amount of $220.0 million issued pursuant to an indenture, or the Indenture, with U.S. Bank National Association, as trustee.

The net proceeds from the sale of the 2019 Convertible Notes were approximately $212.9 million after deducting the initial purchasers’ discounts and commissions of $6.6 million and offering expenses of $0.5 million. We used $28.4 million of the net proceeds from the sale of the 2019 Convertible Notes to pay the cost of the capped call transactions in September 2019 described below.

 

On May 12, 2020, we issued convertible notes, or the 2020 Convertible Notes, with an aggregate principal amount of $300.0 million. The net proceeds from the sale of the 2020 Convertible Notes were approximately $322.9 million after deducting the purchasers’ discounts and commission of $5.7 million and offering expenses of $0.3 million. We used $43.1 million of the net proceeds from the sale to pay the cost of the additional capped call transactions in May 2020 described below.

 

The 2019 Convertible Notes and the 2020 Convertible Notes are referred to together as the Convertible Notes. The Convertible Notes are our senior unsecured obligations 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 converted earlier, redeemed or repurchased in accordance with their terms.

 

The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 25.3405 shares per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $39.4625 per share of common stock). The conversion rate is subject to customary anti-dilution adjustments. In addition, following certain events that occur prior to the maturity date or if we deliver a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or a notice of redemption, as the case may be, in certain circumstances as provided in the Indenture.

 

Prior to March 15, 2026, the Convertible Notes are convertible only under the following circumstances:

 

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On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert the Convertible Notes at any time regardless of the foregoing circumstances. Upon conversion of the Convertible Notes, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of common stock, at our election.

 

As of September 20, 2023, we may redeem for cash all or a portion of the Convertible Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If we call any Convertible Notes for redemption, it will constitute a “make-whole fundamental change” with respect to such Convertible Notes, in which case the conversion rate applicable to the conversion of such Notes, if converted in connection with the redemption, will be increased in certain circumstances. We have not called for redemption any of the Convertible Notes as of March 31, 2024.

 

If we undergo a “fundamental change,” as defined in the Indenture, prior to maturity, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In January 2021, July 2021 and July 2022, we entered into separate, privately negotiated exchange agreements to modify the conversion terms with certain holders of the 2019 Convertible Notes and 2020 Convertible Notes. Under the terms of these exchange agreements, in January 2021, July 2021 and July 2022, the holders exchanged approximately $126.1 million of 2019 Convertible Notes, $201.1 million of 2019 Convertible Notes and 2020 Convertible Notes, and $98.1 million of 2020 Convertible Notes, respectively, in aggregate principal amount held by them for an aggregate of 3,906,869 shares, 5,992,217 shares and 3,027,018 shares, respectively, of common stock we issued. In accordance with FASB ASC Topic 470-20, “Debt – Debt with Conversion and Other Options,” or ASC 470-20, we accounted for the exchange as an induced conversion based on the short period of time the conversion offer was open and the substantive conversion feature offer. We accounted for the conversion of the debt as an inducement by expensing the fair value of the shares that were issued in excess of the original terms of the Convertible Notes.

The conditional conversion feature of the Convertible Notes was triggered as of December 31, 2023, and as a result the Convertible Notes are convertible at the option of the holders until March 31, 2024. No Convertible Notes were converted during this period.

 

The conditional conversion feature of the Convertible Notes was triggered as of March 31, 2024, and as a result the Convertible Notes are convertible at the option of the holders until June 30, 2024.

As of March 31, 2024, we held in treasury Convertible Notes in principal amount of $425.4 million which notes had not been cancelled.

Collaboration Agreement with Sobi

 

On October 27, 2020, we entered into the Sobi collaboration agreement, concerning the development and commercialization of pegcetacoplan and specified other structurally and functionally similar compstatin analogues or derivatives for use systemically or for local non-ophthalmological administration, collectively referred to as the licensed products. We granted Sobi an exclusive (subject to certain rights retained by us), sublicensable license of certain patent rights and know-how to develop and commercialize licensed products in all countries outside of the United States. We retained the right to commercialize licensed products in the United States, and, subject to specified limitations, to develop licensed products worldwide for commercialization in the United States. Under the Sobi collaboration agreement, Sobi made an upfront payment of $250.0 million in November 2020, and agreed to pay up to an aggregate of $915.0 million upon the achievement of specified one-time regulatory and commercial milestone events, including a $50.0 million milestone which would be payable following the first regulatory and reimbursement approval of systemic pegcetacoplan in any major European country, and to reimburse us for up to $80.0 million in development costs. In January 2021 we received a $25.0 million development reimbursement payment from Sobi and in January 2022 and 2023, we received a $20.0 million development reimbursement payment from Sobi. In January 2024, we waived the remaining reimbursement payment of $15.0 million in connection with the decision to discontinue the CAD program.

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In May 2023, we and Sobi announced that the Phase 2 MERIDIAN study evaluating systemic pegcetacoplan for amyotrophic lateral sclerosis, or ALS, did not meet its primary or key secondary endpoints. Based on this lack of efficacy, we and Sobi discontinued development of systemic pegcetacoplan for ALS.

 

The EC approved systemic Aspaveli (pegcetacoplan) for the treatment of adults with PNH in December 2021. In March 2022, we earned a $50.0 million payment from Sobi related to the first regulatory and reimbursement milestone in Europe, which we received in April 2022. We are also entitled to receive tiered, double-digit royalties (ranging from high teens to high twenties) on sales of licensed products outside of the United States, subject to customary deductions and third-party payment obligations, until the latest to occur of: (i) expiration of the last-to-expire of specified licensed patent rights; (ii) expiration of regulatory exclusivity; and (iii) ten (10) years after the first commercial sale of the applicable licensed product, in each case on a licensed product-by-licensed product and country-by-country basis. We remain responsible for our license fee obligations (including royalty obligations) to the University of Pennsylvania and for our payment obligations to SFJ.

Financial Operations Overview

Revenue

Our revenues consist of product sales of EMPAVELI and SYFOVRE, and revenues derived from our collaboration agreement with Sobi.

Revenue is recognized when, or as, we satisfy a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset. For performance obligations that are satisfied over time, we recognize revenue using an input or output measure of progress that best depicts the satisfaction of the relevant performance obligation.

Product Revenues

Product revenue is derived from our sales of our commercial products, EMPAVELI and SYFOVRE, in the United States.

Licensing and Other Revenue

Licensing and other revenue is derived from our collaboration agreement with Sobi concerning the development and commercialization of pegcetacoplan and specified other compstatin analogues or derivatives for use systemically or for local non-ophthalmic administration.

 

Cost of Sales

 

Cost of sales consists primarily of costs associated with the manufacturing of EMPAVELI and SYFOVRE, costs associated with revenue from our collaboration agreement with Sobi, royalties owed to our licensor for such sales, and certain period costs.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the

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related goods are delivered or the services are performed. We have not provided program costs since inception because historically we have not tracked or recorded our research and development expenses on a program-by-program basis from inception

The successful development of our product candidates in clinical development is highly uncertain. Accordingly, at this time, we cannot reasonably estimate the nature, timing and costs of the efforts that will be necessary to complete the remainder of the clinical development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from pegcetacoplan in other jurisdictions and indications or any other potential product candidates. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainties of:

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase for the foreseeable future as our product candidate development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist primarily of costs associated with the commercialization of approved products and general and administrative costs to support operations, including salaries, bonuses, benefits and share-based compensation. Selling expenses include product marketing, sales operations costs, and other costs incurred to support our sales efforts. General and administrative expenses include corporate support functions such as executive management, finance and accounting, business development, legal, human resources, information technology, and associated external costs to support those functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services.

 

We anticipate that our selling, general and administrative expenses will increase in the future to support continued commercial activities for our approved products, potential commercialization of our product candidates and costs of operating as a public company.

Critical Accounting Estimates

 

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to product revenue, licensing revenue, costs of research collaboration arrangements, inventory, accrued research and development expenses, convertible notes, capped call transactions and the development derivative and development liability, which we described in our 2023 Annual Report on Form 10-K. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, “Critical Accounting Estimates” in our 2023 Annual Report on Form 10-K. There have been no changes to our critical accounting policies and estimates since our 2023 Annual Report on Form 10-K.

Results of Operations

Three Months Ended March 31, 2024 and 2023 (in thousands, except percentages)

 

	For the Three Months Ended March 31,								Change				Change
	2024				2023				$				%
Revenue:
Product revenue, net	$	163,075			$	38,800			$	124,275				320	%
Licensing and other revenue		9,250				6,046				3,204				53	%
Total revenue:		172,325				44,846				127,479				284	%
Operating expenses:
Cost of sales		20,209				7,809				12,400				159	%
Research and development		84,701				110,027				(25,326	)			(23	%)
Selling, general and administrative		129,505				102,093				27,412				27	%
Total operating expenses:		234,415				219,929				14,486				7	%
Net operating loss		(62,090	)			(175,083	)			112,993				(65	%)
Interest income		3,303				5,393				(2,090	)			(39	%)
Interest expense		(6,967	)			(7,529	)			562				(7	%)
Other (expense)/income, net		(499	)			(277	)			(222	)			80	%
Net loss before taxes		(66,253	)			(177,496	)			111,243				(63	%)
Income tax expense		170				282				(112	)			(40	%)
Net loss	$	(66,423	)		$	(177,778	)		$	111,355				(63	%)

Product Revenue, Net

Our product revenue, net is derived from EMPAVELI sales in the United States which was launched in May 2021 and SYFOVRE sales in the United States which was launched in March 2023. We recognized $163.1 million and $38.8 million of net product revenue for the three months ended March 31, 2024 and 2023, respectively. The net product revenue of $163.1 million for the three months ended March 31, 2024, consists of $25.6 million in net product revenue from sales of EMPAVELI and $137.5 million in net product revenue from sales of SYFOVRE. The net product revenue of $38.8 million for the three months ended March 31, 2023, consists of $20.4 million in net product revenue from sales of EMPAVELI and $18.4 million in net product revenue from sales of SYFOVRE.

 

Licensing and Other Revenue

Licensing and other revenue of $9.3 million for the three months ended March 31, 2024 consisted of $4.8 million in revenue from product supplied to Sobi and $4.5 million in royalty revenue from Sobi. Licensing and other revenue of $6.0 million for the three months ended March 31, 2023 consisted of $4.5 million in revenue from product supplied to Sobi and $1.6 million in royalty revenue from Sobi.

 

Cost of Sales

Cost of sales was $20.2 million for the three months ended March 31, 2024 and $7.8 million for the three months ended March 31, 2023. The increase in cost of sales was primarily driven by a $1.9 million increase due to higher volume from commercial sales and product provided under our patient assistance programs, a $4.7 million increase in royalty expense, and a $5.4 million increase in expenses incurred related to excess or obsolete inventory.

 

In addition, prior to receiving FDA approval for EMPAVELI and SYFOVRE, the costs associated with the manufacturing of EMPAVELI and SYFOVRE inventory were expensed as incurred as research and development expense. This did not materially impact cost of sales for the three months ended March 31, 2024 and 2023. We expect this may continue to impact the cost of sales as

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the remaining pre-FDA approval inventory is sold to customers. As of March 31, 2024, the remaining pre-FDA approved inventory was $19.4 million, which primarily consisted of raw materials.

 

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

 

(In thousands)		For the Three Months Ended March 31,								Change				Change
		2024				2023				$				%
Program-specific external costs:
PNH		$	4,397			$	5,086				(689	)			(14	%)
IC-MPGN & C3G			9,230				8,464				766				9	%
ALS			358				6,341				(5,983	)			(94	%)
CAD			16,228				2,279				13,949				612	%
HSCT-TMA			564				1,712				(1,148	)			(67	%)
GA			9,975				15,559				(5,584	)			(36	%)
Other development and discovery programs			9,930				16,414				(6,484	)			(40	%)
Total program-specific costs			50,682				55,855				(5,173	)			(9	%)
Unallocated external costs
Non-program specific external costs			312				2,905				(2,593	)			(89	%)
Total unallocated external costs			312				2,905				(2,593	)			(89	%)
Unallocated internal costs
Compensation and related personnel costs			32,546				50,055				(17,509	)			(35	%)
Other expenses			1,161				1,212				(51	)			(4	%)
Total unallocated internal costs			33,707				51,267				(17,560	)			(34	%)
Total research and development costs		$	84,701			$	110,027			$	(25,326	)			(23	%)

Research and development expenses decreased by $25.3 million to $84.7 million for the three months ended March 31, 2024 from $110.0 million for the three months ended March 31, 2023, a decrease of 23%. The decrease in research and development expenses was primarily attributable to a $5.2 million decrease in program specific external costs, a $2.6 million decrease in non-program specific external costs, and a $17.5 million decrease in compensation and related personnel costs.

The decrease in our program-specific external costs of $5.2 million was driven by a $5.6 million decrease in GA costs which largely reflects the impact of the approval of SYFOVRE in February 2023, a $6.0 million decrease in ALS costs due to the discontinuation of the Phase 2 MERIDIAN study, and a $6.5 million decrease in other development and discovery program costs. These decreases were partially offset by a $15.0 million one-time expense related to the discontinuation of the CAD program.

The decrease in compensation and related personnel costs was driven by a $15.8 million decrease in salaries and benefits due to lower headcount compared to the prior year and a $1.7 million decrease in stock compensation expense associated with the grant of stock options and restricted stock units to employees. Lower headcount was driven by the reclassification of certain employee costs to selling, general and administrative expenses.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $27.4 million to $129.5 million for the three months ended March 31, 2024, from $102.1 million for the three months ended March 31, 2023, an increase of 27%. The increase was primarily attributable to an increase in personnel related costs of $7.4 million, an increase in professional and consulting fees and general commercial preparation activities of $17.7 million and higher office costs of $2.7 million, which were partially offset by a decrease of $0.2 million in travel expenses and a decrease of $0.2 million in insurance expenses. The increase in personnel related costs of $7.4 million consisted of a $4.4 million increase in salaries and benefits and an increase of $3.3 million related to stock compensation expense associated with the grant of stock options and restricted stock units to employees, partially offset by a decrease of $0.3 million in recruiting expenses. The increase in other professional and consulting fees and general commercial preparation activities of $17.7 million consisted primarily of higher commercialization related activity of $18.0 million primarily due to the commercial launch of SYFOVRE in March 2023, partially offset by a decrease in general professional fees of $0.3 million.

 

Interest Income

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Interest income was $3.3 million for the three months ended March 31, 2024, a decrease of $2.1 million, compared to $5.4 million for the three months ended March 31, 2023. The decrease in interest income was primarily attributable to decreased investments during the three months ended March 31, 2024.

 

Interest Expense

Interest expense was $7.0 million for the three months ended March 31, 2024 and $7.5 million for the three months ended March 31, 2023. The decrease is primarily due to a decrease in the balance of the development liability.

 

Other (Expense)/ Income, Net

Other income/(expense), net, was $0.5 million during the three months ended March 31, 2024 and $0.3 million for the three months ended March 31, 2023.

 

Income Tax Expense

Income tax expense was $0.2 million for the three months ended March 31, 2024, a decrease of $0.1 million, compared to $0.3 million for the three months ended March 31, 2023. The decrease primarily pertained to a decrease in state taxes.

 

Liquidity and Capital Resources

Sources of Liquidity

 

To date, we have financed our operations primarily through $1.9 billion in net proceeds from public offerings of our common stock and pre-funded warrants to purchase common stock, $535.8 million in net proceeds from offerings of Convertible Notes, a $250.0 million up-front payment and a $65.0 million development reimbursement payments from Sobi pursuant to the Sobi collaboration agreement, $112.6 million in proceeds from the private placement of shares of our convertible preferred stock prior to our IPO, $140.0 million under the SFJ agreement, $20.0 million in proceeds from borrowings under a term loan facility with Silicon Valley Bank, and $7.0 million in proceeds from our issuance and sale of a promissory note. We have repaid the term loan facility and the promissory note in full, and we exchanged $425.4 million of aggregate principal amount of our Convertible Notes for shares of our common stock.

 

In November 2023, we entered into a sales agreement, or the sales agreement, with Cowen and Company, LLC, or Cowen, as agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering from of up to $300.0 million from time to time. Any sales made under the sales agreement will be made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933. Any sales under the sales agreement will be made pursuant to our registration statement on Form S-3, which became effective on February 22, 2023. We agreed to pay Cowen compensation of up to 3.0% of the gross proceeds of the sale of shares made under the sales agreement. We did not make any sales under the sales agreement during the three months ended March 31, 2024.

 

In February 2023, we issued and sold 4,007,936 shares of our common stock and, in lieu of common stock to investors who so chose, pre-funded warrants to purchase 2,380,956 shares of our common stock in a follow-on offering, including 833,333 shares sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares of common stock. The price to the public of the shares of common stock was $63.00 per share and the price to the public of the pre-funded warrants was $62.9999 per pre-funded warrant. The pre-funded warrants have an exercise price equal to $0.0001 per share and do not expire. The pre-funded warrants were accounted for as equity instruments. We received total net proceeds of $384.4 million, after deducting underwriting discounts and commissions of $18.8 million and offering cost of $0.3 million.

 

We entered into agreements with the capped call counterparties to unwind a portion of the capped call transactions on February 27, 2024. The unwind agreements applied to the portion of the capped call transactions in a notional amount corresponding to the $426.1 million principal amount of Convertible Notes that we held in treasury as of December 31, 2023 or have been previously converted. The unwind transactions was settled based on the volume-weighted average price of our common stock over a 7-day averaging period beginning on and including February 27, 2024. The settlement of the unwind transactions was completed on March 8, 2024 at volume-weighted average price per share of $64.11, which resulted in cash proceeds to us of $98.8 million. As of March 31, 2024, the capped call transactions remaining is a notional amount corresponding to $93.9 million principal amount of Convertible Notes.

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Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

		For the Three Months Ended March 31,
		2024				2023
Net cash used in operating activities		$	(132,983	)		$	(177,620	)
Net cash used in investing activities			(293	)			(259	)
Net cash provided by financing activities			108,212				391,106
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(209	)			56
Net (decrease) increase in cash, cash equivalents and restricted cash		$	(25,273	)		$	213,283

Net Cash Used in Operating Activities

Net cash used in operating activities was $133.0 million for the three months ended March 31, 2024 and consisted primarily of a net loss of $66.4 million adjusted for $36.9 million of non-cash items, including share-based compensation expense of $30.3 million, depreciation expense of $0.4 million and accretion of discount to the development liability of $6.1 million. Further, it included a net increase in operating assets and liabilities of $103.5 million, which was driven by increases in accounts receivable of $61.4 million, an increase in inventory of $14.9 million, an increase in prepaid assets of $4.3 million, a decrease in other current assets of $10.7 million, a decrease in accounts payable and accrued expenses of $37.1 million, and an increase in deferred revenue of $3.6 million.

Net cash used in operating activities was $177.6 million for the three months ended March 31, 2023 and consisted primarily of a net loss of $177.8 million adjusted for $35.9 million of non-cash items, including share-based compensation expense of $28.8 million, depreciation expense of $0.4 million and accretion of discount to the development liability of $6.6 million. Further, it includes a net decrease in operating assets of $6.5 million, a decrease in accounts payable of $5.9 million and accrued expenses of $23.4 million.

 

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended March 31, 2024 was $0.3 million primarily due to purchases of fixed assets.

Net cash provided by investing activities during the three months ended March 31, 2023 was $0.3 million primarily due to purchases of fixed assets.

 

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $108.2 million during the three months ended March 31, 2024 and consisted primarily of proceeds from the settlement of capped call unwind transactions of $98.8 million and $9.5 million of proceeds from the exercise of stock options.

Net cash provided by financing activities was $391.1 million during the three months ended March 31, 2023 and consisted primarily of proceeds from the follow-on common stock and pre-funded warrant offering in March 2023 of $384.4 million, $17.7 million proceeds from the exercise of stock options offset by the payments of employee tax withholding related to equity-based compensation of $11.0 million.

Funding Requirements

 

We expect to continue incur expenses to support our ongoing commercial activities related to product manufacturing, marketing, sales and distribution of EMPAVELI for PNH and SYFOVRE for GA. In addition, we expect to continue to incur expenses as we prioritize the ongoing development of systemic pegcetacoplan and focus our research initiatives on high potential opportunities.

We believe that our cash and cash equivalents as of March 31, 2024, together with the cash that we anticipate will be generated from sales of EMPAVELI and SYFOVRE will be sufficient to fund our projected operating expenses and capital expenditure requirements for at least the next 12 months, as well as our anticipated longer-term cash requirements and obligations. Our expectations regarding

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our short-term and long-term funding requirements are based on assumptions that may prove to be wrong, and we may need additional capital resources to fund our operating plans and capital expenditure requirements.

 

We are devoting substantial resources to the commercial infrastructure for SYFOVRE for GA. We are also devoting substantial resources to the development of our product candidates. Because of the numerous risks and uncertainties associated with the commercialization of EMPAVELI and SYFOVRE and development of other product candidates, and because the extent to which we may enter into collaborations with third parties for any of these activities is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with the research, development and commercialization. Our future funding requirements and long-term capital requirements will depend on many factors, including:

 

If our cash and cash equivalents, and cash generated from sales of EMPAVELI and SYFOVRE are not sufficient to fund our planned expenditures, we will need to finance our cash needs through external sources of funds, which may include equity offerings, debt financings, collaborations, strategic alliances or licensing arrangements. We currently do not have any committed external source of funds.

If we are unable to generate sufficient funds from sales of EMPAVELI and SYFOVRE, or raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Contractual Obligations

 

The disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our 2023 Annual Report on Form 10-K. See Note 13 Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q for a discussion of obligations and commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are exposed to market risk related to changes in interest rates. As of March 31, 2024, we had cash and cash equivalents of $325.9 million, consisting primarily of money market funds and U.S. Government obligations. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.

Item 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

 

The term “disclosure controls and procedures,” as defined in Rules 13a-15(f) and 15d-15(e) under the Exchange Act of 1934 as amended, or the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024.

Changes in Internal Control Over Financial Reporting

 

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

 

See Note 13 Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10–K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risk factors disclosure in our Annual Report on Form 10-K for the year ended December 31, 2023 is qualified by the information that is described in this Quarterly Report on Form 10-Q. The risks described in our Annual Report on Form 10–K for the year ended December 31, 2023 are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Item 5. Other Information.

 

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Item 6. Exhibits.

 

Exhibit Number			Description
31.1*			Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		Apellis Pharmaceuticals, Inc.
Date: May 7, 2024	By:		/s/ Cedric Francois
			Cedric Francois
			President and Chief Executive Officer (principal executive officer)
Date: May 7, 2024	By:		/s/ Timothy Sullivan
			Timothy Sullivan
			Chief Financial Officer and Treasurer (principal financial officer)

 

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