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 September 30, 2019

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.)
6400 Westwind Way, Suite A Crestwood, KY	40014
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (502) 241-4114

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	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, 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 November 1, 2019, the registrant had 63,888,238 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	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	74
Signatures		75

i

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			September 30,
	2018			2019
Assets				(Unaudited)
Current assets:
Cash and cash equivalents	$	176,267,666		$	433,994,644
Prepaid assets		24,333,851			14,742,698
Other current assets		1,837,704			2,457,530
Total current assets		202,439,221			451,194,872
Non-current Assets:
Right-of-use assets		—			13,332,783
Property and equipment, net		977,918			1,592,787
Other assets		116,420			236,515
Total assets	$	203,533,559		$	466,356,957
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,254,938		$	11,836,609
Accrued expenses		5,103,002			30,431,607
Current portion of long-term debt		1,666,667			—
Current portion of right of use liabilities		—			2,304,147
Total current liabilities		17,024,607			44,572,363
Long-term liabilities:
Convertible senior notes		—			140,614,523
Development derivative liability		—			130,103,000
Term loan facility		18,722,321			—
Promissory note		6,655,193			—
Right-of-use liabilities		—			11,255,257
Other liabilities		158,783			250,000
Total liabilities		42,560,904			326,795,143
Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, and zero    shares issued and outstanding at December 31, 2018 and September 30, 2019		—			—
Common stock, $0.0001 par value; 200,000,000 shares authorized    at December 31, 2018 and September 30, 2019 and 56,279,307 shares    issued and outstanding at December 31, 2018 and 63,872,762    shares issued and outstanding at September 30, 2019		5,628			6,387
Additional paid in capital		437,855,681			608,015,713
Accumulated other comprehensive loss		(122,807	)		(205,249	)
Accumulated deficit		(276,765,847	)		(468,255,037	)
Total stockholders' equity		160,972,655			139,561,814
Total liabilities and stockholders' equity	$	203,533,559		$	466,356,957

See accompanying notes to unaudited condensed consolidated financial statements

1

APELLIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2019			2018			2019
Operating expenses:
Research and development	$	29,539,456			51,319,017		$	74,479,965		$	142,497,342
General and administrative		6,265,125			18,628,945			16,248,203			39,577,627
Operating loss		(35,804,581	)		(69,947,962	)		(90,728,168	)		(182,074,969	)
Loss on extinguishment of debt		—			(293,083	)		—			(1,501,215	)
Loss from remeasurement of development       derivative liability		—			(263,000	)		—			(10,103,000	)
Interest income		858,425			1,341,811			1,468,957			3,630,314
Interest expense		(577,534	)		(601,377	)		(1,270,743	)		(1,354,379	)
Other (expense)/income, net		(22,234	)		(61,048	)		(86,575	)		(85,941	)
Net loss		(35,545,924	)		(69,824,659	)		(90,616,529	)		(191,489,190	)
Other comprehensive gain:
Foreign currency gain/ (loss)		(86,249	)		(83,272	)		(86,249	)		(82,442	)
Total other comprehensive gain/ (loss)		(86,249	)		(83,272	)		(86,249	)		(82,442	)
Comprehensive loss, net of tax	$	(35,632,173	)	$	(69,907,931	)	$	(90,702,778	)	$	(191,571,632	)
Net loss per common share, basic and diluted	$	(0.64	)	$	(1.10	)	$	(1.69	)	$	(2.79	)
Weighted-average number of common shares used in net    loss per common share, basic and diluted		56,201,299			63,752,719			53,770,400			68,737,045

See accompanying notes to unaudited condensed consolidated financial statements

2

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

									Accumulated
	Common Stock					Additional			Other						Total
	Outstanding					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares		Amount			Capital			Loss			Deficit			Equity
Balance at January 1, 2018		50,334,152		$	5,033	$	298,201,480		$	—		$	(149,263,653	)	$	148,942,860
Issuance of common stock upon exercise of stock options		94,868			9		225,352			—			—			225,361
Share-based compensation expense		—			—		1,610,188			—			—			1,610,188
Net loss		—			—		—			—			(21,736,304	)		(21,736,304	)
Balance at March 31, 2018		50,429,020			5,042		300,037,020			—			(170,999,957	)		129,042,105
Issuance of common stock in follow-on offering, net of offering costs		5,500,000			550		131,324,477			—			—			131,325,027
Issuance of common stock upon exercise of stock options		225,418			23		275,726			—			—			275,749
Share-based compensation expense		—			—		2,243,527			—			—			2,243,527
Net loss		—			—		—			—			(33,334,301	)		(33,334,301	)
Balance at June 30, 2018		56,154,438			5,615		433,880,750			—			(204,334,258	)		229,552,107
Deferred issuance costs		—			—		(130,997	)		—			—			(130,997	)
Issuance of common stock upon exercise of stock options		88,133			9		114,980			—			—			114,989
Share-based compensation expense		—			—		2,050,924			—			—			2,050,924
Net loss		—			—		—			—			(35,545,924	)		(35,545,924	)
Foreign currency loss		—			—		—			(86,249	)		—			(86,249	)
Balance at September 30, 2018		56,242,571		$	5,624	$	435,915,657		$	(86,249	)	$	(239,880,182	)	$	195,954,850

See accompanying notes to unaudited condensed consolidated financial statements

3

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY

COntinued

(Unaudited)

									Accumulated
	Common Stock					Additional			Other						Total
	Outstanding					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares		Amount			Capital			Loss			Deficit			Equity
Balance at January 1, 2019		56,279,307		$	5,628	$	437,855,681		$	(122,807	)	$	(276,765,847	)	$	160,972,655
Issuance of common stock in follow-on offering, net of offering costs		6,900,000			690		109,603,159			—			—			109,603,849
Issuance of common stock upon exercise of stock options		39,169			4		192,001			—			—			192,005
Share-based compensation expense		—			—		4,558,588			—			—			4,558,588
Net loss		—			—		—			—			(50,574,367	)		(50,574,367	)
Foreign currency gain		—			—		—			2,162			—			2,162
Balance at March 31, 2019		63,218,476			6,322		552,209,429			(120,645	)		(327,340,214	)		224,754,892
Deferred issuance costs		—			—		(22,741	)		—			—			(22,741	)
Issuance of common stock upon exercise of stock options		453,954			45		1,262,117			—			—			1,262,162
Share-based compensation expense		—			—		4,183,221			—			—			4,183,221
Net loss		—			—		—			—			(71,090,164	)		(71,090,164	)
Foreign currency loss		—			—		—			(1,332	)		—			(1,332	)
Balance at June 30, 2019		63,672,430			6,367		557,632,026			(121,977	)		(398,430,378	)		159,086,038
Issuance of common stock upon exercise of stock options		200,332			20		954,372			—			—			954,392
Share-based compensation expense		—			—		5,295,152			—			—			5,295,152
Recognition of debt discount on convertible notes		—			—		72,514,163			—			—			72,514,163
Purchase of capped call transactions and associated costs		—			—		(28,380,000	)		—			—			(28,380,000	)
Net loss		—			—		—			—			(69,824,659	)		(69,824,659	)
Foreign currency loss		—			—		—			(83,272	)		—			(83,272	)
Balance at September 30, 2019		63,872,762		$	6,387	$	608,015,713		$	(205,249	)	$	(468,255,037	)		139,561,814

See accompanying notes to unaudited condensed consolidated financial statements

4

Apellis Pharmaceuticals, Inc.

CONDENSED Consolidated Statements of Cash Flows

	For the Nine Months Ended September 30,
	2018			2019
Operating Activities
Net loss	$	(90,616,529	)	$	(191,489,190	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		5,904,639			14,036,961
Loss on early extinguishment of debt		—			1,501,215
Loss from remeasurement of development derivative liability		—			10,103,000
Amortization of right-of-use assets		—			226,621
Depreciation expense		—			152,970
Amortization of debt discounts		53,047			51,725
Amortization of term loan facility discounts		463,088			104,172
Amortization of deferred financing costs		—			233,686
Changes in operating assets and liabilities:
Prepaid assets		(11,796,362	)		9,590,758
Other current assets		(169,704	)		(884,275	)
Other assets		(96,829	)		(120,018	)
Accounts payable		1,794,844			1,792,617
Accrued expenses		7,695,524			25,544,779
Other liabilities		5,708			91,217
Net cash used in operating activities		(86,762,574	)		(129,063,762	)
Investing Activities
Purchase of property and equipment		—			(1,537,536	)
Net cash used in investing activities		—			(1,537,536	)
Financing Activities
Proceeds from issuance of common stock, net of issuance costs		131,194,030			110,239,260
Deferred issuance costs		(22,426	)		(609,971	)
Proceeds from development derivative liability		—			120,000,000
Payments for capped call transactions and associated costs		—			(28,380,000	)
Proceeds from issuance of convertible notes, net of issuance costs		—			213,400,000
Proceeds from exercise of stock options		616,099			2,383,877
Repayment of promissory note		—			(7,000,000	)
Repayment of term loan facility		—			(21,701,292	)
Net cash provided by financing activities		131,787,703			388,331,874
Effect of exchange rate changes on cash and cash equivalents		(27,840	)		(3,598	)
Net increase in cash and cash equivalents		44,997,289			257,726,978
Cash and cash equivalents at beginning of period		175,643,529			176,267,666
Cash and cash equivalents at end of period	$	220,640,818		$	433,994,644
Supplemental Disclosure of Financing Activities
Cash paid for Interest	$	1,338,694		$	958,994

See accompanying notes to unaudited condensed consolidated financial statements

5

APELLIS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018 AND 2019

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 20