Apellis(US:APLS)2022-11-06 16:00PART I. FINANCIAL INFORMATION This section covers the unaudited financial statements, management's analysis, market risk, and internal controls Financial Statements (Unaudited) For the nine months ended September 30, 2022, Apellis Pharmaceuticals reported total revenues of $52.8 million, a significant increase from $6.3 million in the prior year period, driven by EMPAVELI product sales, resulting in a net loss of $486.2 million, an improvement from $598.4 million in 2021, with $708.6 million in cash and equivalents and an accumulated deficit of $2.1 billion Condensed Consolidated Balance Sheets The balance sheet highlights key financial positions including assets, liabilities, and equity as of September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $584,189 | $640,192 | | Marketable securities | $124,364 | $60,358 | | Total current assets | $831,937 | $824,047 | | Total assets | $872,892 | $881,765 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $115,446 | $131,847 | | Long-term development liability | $340,142 | $345,151 | | Convertible senior notes | $92,663 | $189,024 | | Total liabilities | $565,476 | $683,103 | | Accumulated deficit | $(2,142,869) | $(1,656,688) | | Total stockholders' equity | $307,416 | $198,662 | Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) This statement details the company's revenues, expenses, and net loss for the three and nine months ended September 30, 2022 and 2021 Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $17,676 | $5,314 | $45,439 | $5,937 | | Total revenue | $22,056 | $5,650 | $52,759 | $6,273 | | Research and development | $95,207 | $87,733 | $287,813 | $267,688 | | General and administrative | $78,406 | $45,763 | $192,795 | $135,309 | | Total operating expenses | $174,994 | $133,645 | $483,319 | $453,146 | | Net operating loss | $(152,938) | $(127,995) | $(430,560) | $(446,873) | | Net loss | $(191,269) | $(195,571) | $(486,181) | $(598,421) | | Net loss per share | $(1.75) | $(2.28) | $(4.65) | $(7.31) | Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(373,001) | $(450,627) | | Net cash (used in)/provided by investing activities | $(64,236) | $162,636 | | Net cash provided by financing activities | $381,605 | $8,278 | | Net decrease in cash, cash equivalents and restricted cash | $(56,307) | $(281,737) | | Cash, cash equivalents and restricted cash at end of period | $585,448 | $285,308 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant accounting policies and events, including the company's liquidity position, deemed sufficient for at least the next twelve months - The company believes its cash, cash equivalents, and marketable securities of $708.6 million as of September 30, 2022, are sufficient to fund operations and capital expenditures for at least the next twelve months33 Product Revenue, Net (in millions) | Period | Revenue | | :--- | :--- | | Three months ended Sep 30, 2022 | $17.7 | | Three months ended Sep 30, 2021 | $5.3 | | Nine months ended Sep 30, 2022 | $45.4 | | Nine months ended Sep 30, 2021 | $5.9 | - The development liability to SFJ Pharmaceuticals, related to funding for pegcetacoplan, stood at a carrying value of $356.3 million as of September 30, 2022, with payments due through 2027544748 - Through a series of exchange agreements in 2021 and 2022, the company significantly reduced its convertible debt, with the aggregate principal balance of Convertible Notes held by third parties at $92.7 million as of September 30, 20227077 - Under the Sobi collaboration, Apellis is entitled to tiered, double-digit royalties on ex-U.S. sales and up to $915.0 million in milestone payments, recognizing $1.6 million in royalty revenue for the nine months ended September 30, 2022106112 - The company has non-cancelable purchase obligations of up to $112.1 million for pegcetacoplan drug substance and components with its manufacturing partners122 Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights the successful commercialization of EMPAVELI® for PNH, generating $45.4 million in net product revenue, and the advancement of intravitreal pegcetacoplan for Geographic Atrophy (GA) with an NDA under priority review Overview This overview discusses the commercialization of EMPAVELI®, the progress of intravitreal pegcetacoplan for GA, and future pipeline plans - EMPAVELI® (pegcetacoplan) was approved by the FDA in May 2021 for Paroxysmal Nocturnal Hemoglobinuria (PNH) and generated $45.4 million in net product revenue for the nine months ended September 30, 2022134 - The company submitted a New Drug Application (NDA) to the FDA for intravitreal pegcetacoplan for Geographic Atrophy (GA) in June 2022, granted priority review, with an amendment expected to extend the PDUFA target action date to February 2023136138 - The collaboration with Sobi for systemic pegcetacoplan covers ex-U.S. commercialization and co-development for multiple indications, including C3G, IC-MPGN, ALS, CAD, and HSCT-TMA135139148 - The company plans to advance up to three new product candidates into clinical development in 2023, including a siRNA treatment, an oral alternative pathway inhibitor, and a novel compound for both GA and wet AMD153 Results of Operations This section analyzes the changes in total revenue, operating expenses, and net loss for the three and nine months ended September 30 Comparison of Results for the Three Months Ended September 30 (in thousands) | Line Item | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $22,056 | $5,650 | $16,406 | 290% | | Research and development | $95,207 | $87,733 | $7,474 | 9% | | General and administrative | $78,406 | $45,763 | $32,643 | 71% | | Net loss | $(191,269) | $(195,571) | $4,302 | (2%) | Comparison of Results for the Nine Months Ended September 30 (in thousands) | Line Item | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $52,759 | $6,273 | $46,486 | 741% | | Research and development | $287,813 | $267,688 | $20,125 | 8% | | General and administrative | $192,795 | $135,309 | $57,486 | 42% | | Net loss | $(486,181) | $(598,421) | $112,240 | (19%) | - The 71% increase in G&A expenses for Q3 2022 versus Q3 2021 was primarily driven by a $15.7 million increase in employee-related costs and a $15.1 million increase in professional fees and commercial preparation activities186 - R&D expenses for Q3 2022 increased by 9% year-over-year, mainly due to a $12.3 million rise in compensation costs, partially offset by an $8.9 million decrease in clinical trial costs following the completion of the Phase 3 DERBY and OAKS trials185 Liquidity and Capital Resources This section details the company's cash position and management's assessment of its ability to fund future operations - As of September 30, 2022, the company had cash, cash equivalents, and marketable securities totaling $708.6 million156 - Management believes current cash reserves, along with anticipated revenue and committed payments from Sobi, will fund operations at least into the first quarter of 2024156224 - Net cash used in operating activities for the nine months ended September 30, 2022, was $373.0 million, a decrease from $450.6 million in the prior year period215216 - Net cash provided by financing activities was $381.6 million for the nine months ended September 30, 2022, primarily from a follow-on common stock offering in March 2022 that raised net proceeds of $380.1 million212221 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate sensitivity on its $708.6 million portfolio of cash, cash equivalents, and marketable securities - The company's market risk is primarily related to interest rate changes affecting its cash, cash equivalents, and marketable securities portfolio of $708.6 million as of September 30, 2022230 - Due to the short-term and low-risk nature of its investments, the company does not expect changes in market interest rates to have a significant impact on its operating results or cash flows230 Controls and Procedures Based on an evaluation as of September 30, 2022, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022233 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2022234 PART II. OTHER INFORMATION This section includes additional disclosures such as risk factors, other required information, and a list of exhibits Risk Factors The company directs investors to the risk factors discussed in its Annual Report on Form 10-K for the year ended December 31, 2021 - The report refers to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive understanding of potential risks236 Other Information The company reported no other information required to be disclosed under this item for the reporting period - There is no information to report under this item237 Exhibits This section lists the exhibits filed with the Form 10-Q, which include forms of exchange agreements, CEO and CFO certifications, and various XBRL data files - Exhibits filed with the report include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files239