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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2025
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
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒ NO ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Small reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 June 30, 2025, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing
price of the shares of common stock on the Nasdaq Global Select Stock Market on such date, was $1.8 billion.
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The number of shares of the registrant’s common stock, par value $0.0001 per share outstanding as of February 17, 2026 was 127,829,909.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A in connection with its 2026 Annual Meeting of Stockholders within
120 days of the end of the registrant’s fiscal year ended December 31, 2025. Portions of such proxy statement are incorporated by reference into Part III of
this Annual Report on Form 10-K.
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PART I
Item 1.
Business
5
Item 1A.
Risk Factors
44
Item 1B.
Unresolved Staff Comments
92
Item 1C.
Cybersecurity
92
Item 2.
Properties
93
Item 3.
Legal Proceedings
93
Item 4.
Mine Safety Disclosures
93
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
94
Item 6.
[Reserved]
95
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
96
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
109
Item 8.
Financial Statements and Supplementary Data
109
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
141
Item 9A.
Controls and Procedures
141
Item 9B.
Other Information
143
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
143
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
144
Item 11.
Executive Compensation
144
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
144
Item 13.
Certain Relationships and Related Transactions, and Director Independence
144
Item 14.
Principal Accountant Fees and Services
144
PART IV
Item 15.
Exhibits and Financial Statement Schedules
145
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than
statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,”
“should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words.
These forward-looking statements include, among other things, statements about:
•
the ongoing commercialization of EMPAVELI and SYFOVRE;
•
our plans with respect to our ongoing and planned clinical trials for our product candidates, and preclinical studies, whether conducted by us
or our current or any future collaborators, including the timing of initiation, dosing of patients, enrollment and completion of these trials and
expectations regarding the anticipated results from these clinical trials or preclinical studies;
•
our sales, marketing and distribution capabilities and strategies, including for the commercialization and manufacturing of EMPAVELI,
SYFOVRE and any future products for which we receive marketing approval;
•
the rate and degree of market acceptance of EMPAVELI, SYFOVRE and any future products for which we receive marketing approval;
•
our ability to identify and develop current and future products or product candidates with significant clinical benefits and commercial
potential;
•
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates for current and future treatment
indications in the U.S. and other jurisdictions;
•
our current and any future collaborations for the development and commercialization of our current and future product candidates;
•
our intellectual property position and strategy;
•
the sufficiency of our cash and cash equivalents and our expected revenues from sales of EMPAVELI and SYFOVRE to fund our projected
operating expenses and capital expenditures to profitability;
•
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•
developments relating to our competitors and our industry;
•
the impact of general economic conditions, including inflation and the imposition of new or revised tariffs or other trade restrictions; and
•
the impact of new government laws and regulations (including tax).
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue
reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K,
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 Annual Report on Form 10-K and the documents that we have filed or incorporated by reference as exhibits to this Annual
Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We do not
assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by
applicable law.
This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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.”
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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 Annual Report on Form 10-K are the property of their respective owners.
Note Regarding Certain References in this Annual Report on Form 10-K
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 Annual Report on Form 10-K 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, C3 glomerulopathy, or C3G and primary immune complex membranoproliferative
glomerulonephritis, or primary IC-MPGN, in patients 12 years of age and older. References to Aspaveli refer to pegcetacoplan in the context of the
commercially available product in certain jurisdictions outside the United States 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 Annual Report on Form 10-K to “SYFOVRE (pegcetacoplan injection)” and “SYFOVRE” refer to intravitreal pegcetacoplan in the context of the
commercially available product for the treatment of geographic atrophy secondary to age-related macular degeneration, or GA, and the Therapeutic Goods
Administration in Australia in January 2025 for the every-other-month treatment of adult patients with GA with an intact fovea and when central vision is
threatened by GA lesion growth. Unless otherwise stated or the context indicates otherwise, all references herein to “pegcetacoplan” refer to pegcetacoplan
in the context of the product candidates 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 Annual Report on Form 10-K are the property of their respective owners.
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RISK FACTOR SUMMARY
Our business is subject to a number of risks that if realized could materially affect our business, financial condition, results of operations, cash flows
and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Annual Report on Form 10-K. Our principal risks include
the following:
•
We have incurred significant losses since inception, and we may never achieve or maintain profitability. Our net income was $22.4 million
for the year ended December 31, 2025, and our net losses were $197.9 million and $528.6 million for the years ended December 31, 2024
and 2023, respectively. We have obtained marketing approval for EMPAVELI for the treatment of paroxysmal nocturnal hemoglobinuria, or
PNH, C3 glomerulopathy, or C3G, and primary immune complex membranoproliferative glomerulonephritis, or primary IC-MPGN, and
SYFOVRE for the treatment of geographic atrophy secondary to age-related macular degeneration, or GA, in the United States and Australia.
•
Our prospects depend upon the commercial success of SYFOVRE and EMPAVELI. If we are unable to successfully commercialize
SYFOVRE and EMPAVELI for their approved indications or develop and obtain marketing approval for or successfully commercialize
pegcetacoplan for other indications, either alone or through a collaboration, or if we experience significant delays in doing so, our business
could be harmed. SYFOVRE is currently only approved in the United States and Australia. We cannot be certain that we will be able to
obtain regulatory approval for, and successfully commercialize, SYFOVRE in additional jurisdictions.
•
We or others may later discover that EMPAVELI or SYFOVRE is less effective than previously believed or causes safety issues that were
not previously identified, which could compromise our ability, or that of our collaborators, to market the product or to obtain approval of the
product for other indications.
•
We expect to continue to incur significant expenses in the course of operating our business. If our cash and cash equivalents, and cash
generated from sales of EMPAVELI and SYFOVRE, are not sufficient to fund our projected operating plans and capital expenditure
requirements to profitability, we will need to obtain additional funding. If we are unable to raise capital when needed, we could be forced to
delay, reduce or eliminate product development programs or delay or reduce our commercialization efforts.
•
Patients with PNH, C3G or primary IC-MPGN who were previously untreated may not start treatment with EMPAVELI or patients who are
being treated for these diseases with other treatments may not switch to treatment with EMPAVELI. Patients with GA may not be diagnosed
or seek treatment with SYFOVRE, may elect to be treated with a competitor treatment, or may fail to comply with the treatment regimen
over the progression of the disease.
•
Current and future legislation may increase the difficulty and cost for us and our collaborators to obtain reimbursement of and commercialize
our product candidates and affect the prices we, or they, may obtain.
•
If we are not able to maintain our agreements with wholesale distributors, specialty pharmacy providers, third-party payors, pharmacy benefit
managers and group purchasing organizations, or maintain our products on formularies, the market opportunity and revenue for our products
may be adversely affected.
•
EMPAVELI, SYFOVRE, or any other products that we develop may fail to achieve the degree of market acceptance by physicians, patients,
third-party payors, and others in the medical community necessary for commercial success, in which case we may not generate significant
revenues or become profitable.
•
We face substantial competition, which may result in others discovering, developing or commercializing products before or more
successfully than we do. In GA, we face competition from avacincaptad pegol. In PNH, we face competition from eculizumab, ravulizumab
and iptacopan. We also face competition in C3G from iptacopan.
•
We have incurred debt under our financing agreement with Sixth Street Lending Partners. Our business may not generate cash flows from
operations in the future that are sufficient to service our debt and support our growth strategies.
•
The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaborators such as Swedish
Orphan Biovitrum AB (Publ), or Sobi, from obtaining marketing approvals for systemic pegcetacoplan in indications other than PNH, C3G
and primary IC-MPGN, intravitreal pegcetacoplan for indications other than GA or in jurisdictions other than the United States and Australia,
or any other product candidate that we develop in any jurisdiction. As a result, we cannot predict when or if, and in which jurisdictions, we,
or our collaborators, will obtain marketing approval for systemic pegcetacoplan in other indications, for intravitreal pegcetacoplan for GA in
jurisdictions other than the United States and Australia or for any other product candidate that we develop in any jurisdiction.
•
If we or our collaborators experience any of a number of possible unforeseen events in connection with conducting clinical trials of our
product candidates, or experience delays or difficulties in the enrollment of patients in such clinical trials, the potential clinical development,
marketing approval or commercialization of our product candidates could be delayed or prevented.
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•
If clinical trials of any of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA, the European Medicines
Agency, or EMA, and other regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to
complete, the development and commercialization of these product candidates.
•
We contract with third parties for the manufacture, storage and distribution of commercial and clinical supply of EMPAVELI and SYFOVRE
and clinical supply for our product candidates and expect to continue to do so in connection with our development and commercialization
efforts. This reliance on third parties increases the risk that we will not have sufficient quantities of EMPAVELI, SYFOVRE, or our product
candidates or that such quantities may be acquired at an acceptable cost, which could delay, prevent or impair our development or
commercialization efforts. If these third parties do not perform satisfactorily, our development or commercialization efforts could be delayed
or impaired.
•
Our prospects for the development and commercialization of systemic pegcetacoplan outside of the United States will depend in part on the
success of our collaboration with Sobi.
•
If we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose
license rights that are important to our business, including our patent license agreements with the University of Pennsylvania under which we
license patents with claim that recite a class of compounds generically covering pegcetacoplan, and that specifically recite the active
component.
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PART I
Item 1. Business.
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. We believe this approach has the potential to effectively control diseases with high unmet need that are driven by excessive complement activation.
We currently have two marketed drugs that target C3, the central protein in the complement cascade: SYFOVRE (pegcetacoplan injection), approved by
the U.S. Food and Drug Administration, or FDA, in February 2023 for the treatment of geographic atrophy secondary to age-related macular degeneration,
or GA; and EMPAVELI (pegcetacoplan), approved by the FDA in May 2021 for the treatment of paroxysmal nocturnal hemoglobinuria, or PNH, and
approved by the FDA in July 2025 for the treatment of C3 glomerulopathy, or C3G, and primary immune complex membranoproliferative
glomerulonephritis, or primary IC-MPGN.
We believe SYFOVRE has the potential to be the standard of care for patients with GA, a disease that affects an estimated 1.5 million people in the
United States. While we have exclusive, worldwide commercialization rights for SYFOVRE, we intend to focus our commercialization efforts for
SYFOVRE in the U.S. and explore international expansion in select markets, including Australia, where we received marketing approval in January 2025.
We launched SYFOVRE in the United States in March 2023. For the years ended December 31, 2025 and 2024, we generated $586.9 million and $611.9
million, respectively, in U.S. net product revenue from sales of SYFOVRE. We are developing a next-generation therapy by combining SYFOVRE
treatment with APL-3007, which is a small interfering RNA, or siRNA, aimed at comprehensively blocking complement activity in the retina and the
choroid. We initiated a Phase 2 multi-dose clinical trial of this combination in patients with GA in June 2025.
We believe that EMPAVELI has the potential to be a best-in-class treatment for a range of indications with high unmet needs. We have exclusive
U.S. commercialization rights for EMPAVELI, and our collaboration partner, Swedish Orphan Biovitrum AB (Publ), or Sobi, has exclusive ex-U.S.
commercialization rights for systemic pegcetacoplan. For the years ended December 31, 2025 and 2024, we generated $102.4 million and $98.1 million,
respectively, in U.S. net product revenue from sales of EMPAVELI and received $13.2 million and $18.4 million, respectively, in royalties from Sobi.
We initiated two pivotal clinical trials with EMPAVELI in the fourth quarter of 2025, one for the treatment of primary focal segmental
glomerulosclerosis, or FSGS, and one for delayed graft function, or DGF. FSGS and DGF are both rare, severe nephrology conditions in which
complement overactivation plays a significant role.
On July 1, 2025, we entered into a Royalty Buy-Down Agreement, or the Royalty Agreement, with Sobi under which Sobi paid us an upfront
payment of $275.0 million, and agreed to pay up to an aggregate of $25.0 million upon the European Medicines Agency, or EMA, approval of Aspaveli for
C3G and primary IC-MPGN, and we agreed to reduce Sobi’s royalty payment obligations under our Collaboration and License Agreement with Sobi, or
the Sobi Collaboration Agreement, by 90%, subject to defined caps tied to Aspaveli’s performance, including an initial cap of 1.45x of the amounts paid by
Sobi to us under the Royalty Agreement. If a cap is met, Sobi’s royalty payment obligations under the Sobi Collaboration Agreement will revert to 100%.
In January 2026, Sobi received EMA approval of Aspaveli for C3G and primary IC-MPGN. Sobi paid us our $25.0 million milestone in February
2026 under the Royalty Agreement.
Finally, we are developing new product candidates to further advance our pipeline. Through our collaboration with Beam Therapeutics, Inc., or
Beam, we have commenced preclinical studies for APL-9099, a treatment targeting the neonatal Fc receptor, or FcRn, which has the potential to be a first-
in-class gene editing treatment for future target indications with one-time dosing. We are also developing other programs with our proprietary in-house
capabilities and under our Beam collaboration.
Our Strategy
We aim to become a leading biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutic
compounds to treat diseases with high unmet need through the inhibition of the complement system.
We have designed pegcetacoplan to target complement proteins centrally in the complement system at the level of C3 and its fragment C3b. We
believe that this approach can result in broad inhibition of the complement pathways and has the potential to effectively control complement-dependent
diseases. We believe that pegcetacoplan has the potential to be a best-in-class treatment and may address the limitations of existing treatment options or
provide a treatment option where there is none.
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We are leveraging our expertise in complement immunology to develop new pipeline candidates that may affect different components or pathways
within the complement system, whether as independent treatments or as a supplement to the effects of pegcetacoplan.
To achieve our goals, we are pursuing the following strategies in 2026, with a continued focus on compassion and commitment to patients:
•
Transform the treatment of GA with SYFOVRE;
•
Maximize EMPAVELI’s impact in rare diseases; and
•
Advance our innovative pipeline, leveraging our complement expertise.
Our Programs
Pegcetacoplan targets C3, the central protein of the complement cascade. Pegcetacoplan is a conjugate of a compstatin analogue, formulated both
for intravitreal administration by injections directly into the eye, and systemic administration by subcutaneous injection, which is an injection into the tissue
under the skin. We have developed and are developing pegcetacoplan and other product candidates through various routes of administration.
The following table summarizes key information about our products and our clinical programs:
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Ophthalmology
We are commercializing SYFOVRE as a monotherapy for patients with GA.
Geographic Atrophy
GA is a type of age-related macular degeneration, or AMD. According to the Brightfocus Foundation, over ten million people in the United States
have some form of AMD. AMD is a disorder of the central portion of the retina in the eye, known as the macula, which is responsible for central vision and
color perception. AMD affects vision in one or both eyes and results in progressive and chronic degeneration of the macula, often resulting in irreversible
vision loss. AMD is a disease of aging, typically occurring after the age of 50. In the early stage of the disease, yellow deposits, or drusen, appear under the
retina. Over time, the disease can progress to an intermediate stage where drusen deposits grow larger and other changes reflective of disease progression
appear and then to an advanced stage associated with progressive and often severe vision loss which may be characterized as either GA or wet AMD. GA is
characterized by a degenerative process resulting in the progressive loss of retinal cells, which over the course of several years results in blindness. Based
on published studies, we estimate that at least five million people worldwide, including approximately 1.5 million people in the United States, are living
with GA.
Because pegcetacoplan both blocks the production of C3a and C5a and prevents the accumulation of C3 fragments on retinal cells through the
inhibition of C3, we believe that pegcetacoplan may control complement activation in the retinal environment to return it to its quiescent state. We do not
believe that selective inhibitors of the alternative pathway, which would only partially block the formation of C3b on the retinal cell surface, or C5
inhibitors, which cannot prevent C3b deposition on retinal cells, can cause the retinal environment to return to its quiescent state.
Benefits of Our Approach
We believe SYFOVRE, with its inhibition of complement activation at the level of C3 in the retinal environment, may provide the following
benefits for patients with GA:
•
Prevention or reduction of the rate of retinal cell death, with increasing treatment effects over time. We believe SYFOVRE may mitigate or
prevent retinal cell death in GA, leading to a reduction in GA lesion growth over time. In our Phase 3 trials, SYFOVRE showed a slowing of
GA progression, with evidence of treatment effects increasing over the 24-month period, and well-demonstrated safety profile following
nearly 12,000 injections.
•
Treatment effects observed in two dosing regimens. In our Phase 3 trials, SYFOVRE showed a slowing of GA progression over 24 months in
both every-other-month and monthly dosing. The prescribing label for SYFOVRE indicates that the recommended dose to be administered to
each eye is once every 25 to 60 days. This provides physicians with flexibility to determine the appropriate dosing schedule for their
individual patients.
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•
Potential application to all patients with GA regardless of lesion location. SYFOVRE, by targeting C3, has been designed to inhibit all three
principal complement activation pathways and may therefore be effective in a broad patient population. In our Phase 3 trials at 24 months,
pegcetacoplan showed a slowing of GA progression in lesions with or without subfoveal involvement. DERBY and OAKS are the only
clinical trials to-date that have shown a slowdown in the progression of GA regardless of lesion location.
Regulatory Matters
In February 2023, the FDA approved intravitreal pegcetacoplan with the brand name SYFOVRE for the treatment of adult patients with GA
secondary to AMD. In January 2025, the Therapeutic Goods Administration, or TGA, in Australia, approved SYFOVRE for every-other-month treatment
of adult patients with GA with an intact fovea where central vision is threatened by lesion growth.
We are currently evaluating our regulatory strategy for select jurisdictions outside the United States.
Commercial and Medical Activities for GA
We launched SYFOVRE, the first approved treatment for GA, in the United States in March 2023. SYFOVRE is currently the market-leading
treatment for GA, a disease that affects an estimated 1.5 million people in the United States.
Our U.S. field sales team has been engaging with eyecare professionals, or ECPs, focusing specifically on retina specialists and treating
ophthalmologists. Field teams are focused on SYFOVRE brand messaging, highlighting key advantages such as increasing effects over time, its strong
clinical profile, and dosing flexibility. We also have a thought leader liaison team, which is focused on building advocacy with key opinion leaders in the
retina space, and a strategic account team, which identifies and develops working relationships with key decision makers within targeted private equity
groups and large accounts. Our marketing efforts are designed to reach ECPs through digital and print media. We seek to reach patients through direct-to-
consumer disease state education and branded SYFOVRE messaging encouraging them to see their eye doctor if they have symptoms or a previous
diagnosis. Additionally, our efforts have focused on increasing awareness of GA and SYFOVRE with general ophthalmologists and optometrists to ensure
GA patients are able to connect with a retina specialist or ophthalmologist who can treat them. We launched a practice finder tool to help physicians and
patients identify practices near them that have recently treated GA.
Our market access team has been engaging with primary and secondary payors representing a significant percentage of GA patients. We have also
established a robust distribution network by partnering with key specialty distributors and specialty pharmacies to maximize product access by retina
specialists. Finally, we have a field reimbursement team to educate practices and address access issues to fully support the reimbursement journey for
SYFOVRE.
ApellisAssist for SYFOVRE is designed to eliminate patient access barriers by providing enrolled individuals with insurance support, financial
assistance for eligible patients, and education on the importance of maintaining treatment as prescribed. Additionally, prescribers have the option to enroll
their patients in GAMyWay, our patient services program, for ongoing treatment support and continuous education.
Our medical affairs team is engaging with ECPs through our presence at medical meetings and other in-person engagements. Throughout 2025, we
participated in key scientific meetings, including the American Academy of Ophthalmology, Retina Society, FLORETINA, and Macula Society.
Clinical Development
Our registrational Phase 3 DERBY and OAKS trials evaluated the efficacy and safety of SYFOVRE in patients with GA secondary to AMD. The
DERBY and OAKS trials were initiated in September 2018, and we presented reported 24-month results in August 2022. Prior to DERBY and OAKS, we
completed the Phase 2 FILLY trial in August 2017. We conducted two post-marketing studies: GALE and GARLAND.
Post-Marketing Studies
We conducted a 36-month, open-label extension study (GALE) to evaluate the long-term safety and efficacy of SYFOVRE in patients with GA
secondary to AMD. The objectives of the study were to evaluate the long-term incidence and severity of ocular and systemic treatment emergent adverse
events as well as change in the total area of GA lesions as measured by fundus autofluorescence. Approximately 800 patients enrolled into the GALE
extension study.
In February 2026, we presented data from GALE following five years of continuous treatment with SYFOVRE. Results showed that SYFOVRE
continued to demonstrate increasing treatment effects over time. In November 2025, we announced five-year
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data from a post hoc analysis of the GALE extension study, which demonstrated that SYFOVRE delayed the progression of GA by approximately one-and-
a-half years in patients with nonsubfoveal GA when compared to sham/projected sham.
We are currently conducting a 36-month, open label, Phase 4 study (GARLAND) to evaluate the safety, tolerability and treatment patterns of
SYFOVRE in patients over the age of 60 with GA in a clinical practice setting. Secondary endpoints include GA progression, changes in drusen over time
and the ability of physicians to determine GA lesion location. Approximately 234 patients have been enrolled into the GARLAND study.
Phase 3 Clinical Trials
Our Phase 3 clinical program in GA consisted of two prospective, multicenter, randomized, double-masked, sham-injection controlled trials
(DERBY and OAKS) conducted at more than 200 sites worldwide to assess the efficacy and safety of multiple intravitreal injections of pegcetacoplan in
patients with GA. We enrolled 621 patients in DERBY and 637 patients in OAKS.
Patients in each Phase 3 trial received a dose of 15 mg of pegcetacoplan injected intravitreally in a 0.1 cc volume, monthly or every other month for
24 months. In the sham-injection cohorts, patients received a simulated injection. As with our Phase 2 FILLY clinical trial, the primary endpoint of each
trial was the change in total area of GA lesions in the study eye compared to sham. The measurements of change in lesion size were analyzed at 12 months,
18 months, and 24 months. Patients who develop new onset exudation in the study eye continued to be treated with pegcetacoplan along with anti-VEGF
injections, the current standard of care for wet AMD.
We completed the primary analysis for the 24-month treatment period in August 2022. Monthly and every-other-month, or EOM, treatment with
SYFOVRE showed increased effects over time. In OAKS, monthly and EOM treatment with SYFOVRE reduced GA lesion growth by 22% (p<0.0001)
and 18% (p=0.0002), respectively. In DERBY, monthly and EOM treatment with SYFOVRE reduced GA lesion growth by 19% (p=0.0004) and 16%
(p=0.0030), respectively. All p-values are nominal and were calculated using the same methodologies as the 12-month primary endpoint analysis.
Between months 18-24, the pegcetacoplan treatment effect accelerated compared to previous six-month periods, with robust reductions of GA lesion
growth versus sham (all p-values are nominal). The increased effects were driven by a greater slowing of lesion growth by pegcetacoplan and not by an
increase in the lesion growth rate in the sham group, which was highly consistent over each of the four six-month intervals (1.0+/-0.05 mm2).
•
DERBY: 36% monthly, p<0.0001; 29% EOM, p=0.0002
•
OAKS: 24% monthly, p=0.0080; 25% EOM, p=0.0007
Additionally, the reduction of GA lesion growth in lesions without subfoveal involvement (28% monthly; 28% EOM) was comparable to the
reduction in lesions with subfoveal involvement (34% monthly; 28% EOM) in the combined studies between months 18-24.
SYFOVRE was well-tolerated in both DERBY and OAKS, generally consistent with longer-term exposure to intravitreal injections. The most
common adverse reactions (≥ 5%) reported in patients receiving SYFOVRE in these studies were ocular discomfort, neovascular AMD, vitreous floaters,
and conjunctival hemorrhage. Rates of ischemic optic neuropathy events were higher in the monthly group as compared to the every-other-month and sham
groups (1.7% of patients treated monthly, 0.2% of patients treated EOM and 0.0% of patients assigned to sham). Rates of endophthalmitis and intraocular
inflammation were generally in line with those reported in studies of other intravitreal therapies. No events of occlusive or non-occlusive vasculitis or
retinitis were observed over 24 months.
SYFOVRE and APL-3007
In January 2025, we shared data from a Phase 1 trial of APL-3007, our siRNA, in healthy volunteers showing greater than 90% knockdown of C3 as
measured by the remaining levels of protein in the blood. Based on the results of this study, we are developing a next generation treatment for GA by
combining SYFOVRE plus APL-3007, which we believe may comprehensively block complement activity in the retina and the choroid. We believe that
with less C3 present in the eye following administration with APL-3007, there may be a greater degree of efficacy contribution from SYFOVRE. We
initiated a Phase 2 multi-dose trial of the combination in patients with GA in June 2025 to evaluate the safety, biologic activity and pharmacodynamics of
multiple doses of APL-3007 in combination with SYFOVRE.
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Product Development
We developed a single package for SYFOVRE, or co-pack, that contained SYFOVRE vials packaged with the necessary ancillaries for its
administration. The co-pack standardizes administration of SYFOVRE and provides physicians with a more convenient way to store and handle the drug
and ancillaries. The co-pack also streamlines both distribution operations and receipt by customers. We made the supply of the co-pack available in the
fourth quarter of 2025.
We are also developing a single dose, sterilized prefilled syringe for SYFOVRE, which we believe will provide physicians with a new way to
administer SYFOVRE that requires fewer steps compared to the current administration. We plan to submit for regulatory approval in the first half of 2026.
Rare Diseases
EMPAVELI in PNH
EMPAVELI received orphan drug designation from the FDA for the treatment of PNH in April 2014 and we launched EMPAVELI in the United
States for patients with PNH following its approval by the FDA in May 2021. We believe that EMPAVELI elevates the standard of care for patients with
PNH.
Paroxysmal Nocturnal Hemoglobinuria (PNH)
PNH is a rare, chronic, debilitating blood disorder that is most frequently acquired in early adulthood and usually continues throughout the life of
the patient. Some of the prominent symptoms of PNH include severe anemia, a condition that results from having too few red blood cells, severe abdominal
pain, severe headaches, back pain, excessive weakness, fatigue and recurrent infections. If not treated, PNH results in the death of approximately 35% of
affected individuals within five years of diagnosis and 50% of affected individuals within ten years of diagnosis, primarily due to the formation of life-
threatening blood clots inside the blood vessels, or thrombosis. Based on prevalence data published in an abstract in a peer-reviewed journal, we estimate
that there are approximately 4,700 patients with PNH in the United States and approximately 15,000 patients with PNH worldwide.
PNH is caused by the presence of mutant stem cells in the bone marrow that lack important proteins on their surface that protect against activation
of the complement system. In patients with PNH, an autoimmune response targets and eliminates normal stem cells, enabling mutant cells to become
dominant in the bone marrow. These mutant stem cells lead to mutant platelets and red blood cells that, unlike normal cells, are overly susceptible to
activation or destruction by the complement system. Mutant platelets, activated by the membrane attack complex, increase the risk of thrombosis, which is
the leading cause of mortality in patients with PNH. Mutant red blood cells are susceptible to destruction by intravascular and extravascular hemolysis.
Intravascular hemolysis, which involves the destruction of blood cells within the blood vessels, is caused by the formation of the membrane attack complex
on the surface of red blood cells causing them to rupture. Intravascular hemolysis causes severe anemia and contributes to the risk of thrombosis.
Extravascular hemolysis, which involves the destruction of blood cells outside the blood vessels, is caused by C3-related opsonization on red blood cells
leading to removal of the cells from the blood stream by the liver and the spleen. Extravascular hemolysis further contributes to severe anemia and
transfusion dependency in patients with PNH.
Commercialization
Our sales efforts are focused on the health care professionals, or HCPs, and key treatment centers, who have patients that continue to experience
breakthrough hemolysis, have persistently low hemoglobin, high fatigue, and require transfusions despite being on C5 inhibitors.
Our market access team is engaging with primary and secondary payors representing a significant percentage of PNH patients. Our discussions with
primary and secondary payors have yielded positive feedback on the clinical profile of pegcetacoplan and resulted in EMPAVELI being added to several
positive formulary positions. We implemented a limited distribution specialty pharmacy model, which we believe provided patients with a consistent,
positive experience at the time of treatment initiation and long-term assistance to the extent needed.
We also have ApellisAssist, a patient-focused program specifically designed to assist patients with onboarding, product training and ongoing
support with pegcetacoplan treatment, and we have built a care educator team to connect directly with PNH patients and their caregivers to provide
education and training on the use of pegcetacoplan.
Our medical affairs team is engaging with physicians through our presence at medical meetings and other in-person engagements. In December
2025, we participated in the American Hematology Society, or ASH, annual meeting.
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Development in PNH
In June 2018, we initiated the Phase 3 PEGASUS trial in patients. The PEGASUS trial was an 80-patient randomized head-to-head trial comparing
systemic pegcetacoplan monotherapy to eculizumab monotherapy in patients with PNH currently on treatment with eculizumab who have a hemoglobin
level of less than 10.5 g/dL, regardless of eculizumab dose or transfusion history. The primary efficacy endpoint of the trial was the change in hemoglobin
level from baseline at week 16.
We initiated the Phase 3 PRINCE trial in September 2019. The PRINCE trial was a 54-patient randomized, multicenter, open-label trial to evaluate
the efficacy of systemic pegcetacoplan in treatment-naïve PNH patients. The primary endpoints were avoidance of a greater than 1 g/dL decrease in
hemoglobin level from baseline in the absence of transfusion through week 26 and reduction in LDH level from baseline to week 26, in patients with PNH
who are currently not being treated with complement inhibitors.
In January 2020, we announced top-line data from the PEGASUS trial that showed that systemic pegcetacoplan met the primary efficacy endpoint,
demonstrating superiority to eculizumab with a statistically significant improvement in adjusted means of 3.8 g/dL of hemoglobin at week 16 (p < 0.0001).
In May 2021, we reported top-line results from PRINCE demonstrating statistical superiority on the co-primary endpoints of hemoglobin stabilization and
reduction in LDH compared to standard of care, which did not include complement inhibitors, at week 26. In both the PEGASUS and PRINCE trials, the
safety profile of systemic pegcetacoplan was comparable to eculizumab and consistent with previously reported data.
In all trials of pegcetacoplan administered systemically by subcutaneous injection, we have monitored the safety of our targeting of C3 closely.
Individuals who lack functional levels of C3 or C5 have been shown to be susceptible to infection by certain bacterial species, including Neisseria
meningitidis in C5-deficient individuals and Neisseria meningitidis, Streptococcus pneumoniae and Haemophilus influenzae in C3-deficient individuals. As
a result, we vaccinate patients in these trials against these three pathogens, which we believe minimizes the risk of infection. No unexpected safety
concerns have been observed in patients in the clinical or post-marketing settings.
EMPAVELI in Nephrology
We launched EMPAVELI in the United States for patients with C3G and primary IC-MPGN, following approval by the FDA in July 2025. C3G and
primary IC-MPGN are rare, debilitating kidney diseases that affect an estimated 5,000 people in the United States. Symptoms of these diseases include
blood in the urine, dark foamy urine due to the presence of protein, swelling, and high blood pressure. Approximately 50% of people living with C3G and
primary IC-MPGN ultimately suffer kidney failure within five to 10 years of diagnosis. Although primary IC-MPGN is considered a distinct disease from
C3G, the underlying cause and progression of the two diseases are similar and include overactivation of the complement cascade, with excessive
accumulation of C3 breakdown products in the kidney causing inflammation and damage to the organ. Since pegcetacoplan is designed to prevent C3
activation, we believe it has the potential to prevent further deposition of C3 activation products in the glomeruli, which may protect the kidney from
further injury.
We initiated two pivotal studies with EMPAVELI in focal segmental glomerulosclerosis, or FSGS, and delayed graft function, or DGF, in the fourth
quarter of 2025. Complement plays a significant role in both diseases, and there are currently no FDA-approved therapies. FSGS is a rare kidney disease
that causes scarring in the glomeruli and, similar to C3G and primary IC-MPGN, results in end stage kidney disease within 5-10 years for approximately
half of patients. There are an estimated 13,000 primary FSGS patients in the United States. DGF is a complication in kidney transplantation where the
transplanted kidney fails to function and typically requires dialysis within the first week of transplant. This negatively affects the long-term survival of the
kidney and overall patient outcomes. In 2023, there were an estimated 21,000 transplants in the U.S. using deceased donor kidneys, of which DGF occurred
in 30-35% of them.
EMPAVELI in FSGS
Study APL2-FSG-319 is a sequential Phase 2/3 study that evaluates the efficacy and safety of twice-weekly subcutaneous (SC) infusions of
pegcetacoplan in patients diagnosed with FSGS. The initial phase 2 portion is a single-arm, open-label study in adults diagnosed with FSGS. The phase 3
portion of the study is a randomized, placebo-controlled, double-blinded, multicenter study in patients diagnosed with FSGS. An independent data
monitoring committee will review efficacy and safety data collected from adults in phase 2 prior to initiation of phase 3 of this study. Both the phase 2
portion and phase 3 portion consist of an up to 8-week screening period, 104-week treatment period, and 8- week follow-up period. The primary objective
of both phases of the study is to assess the efficacy of pegcetacoplan in participants with FSGS on the basis of a reduction of proteinuria.
EMPAVELI in DGF
Study APL2-DGF-318 a randomized, double-blind, placebo-controlled, study conducted in participants with end-stage kidney disease who are
receiving a deceased donor kidney transplantation from deceased donors who are considered to be at high risk for
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DGF. An initial open-label sentinel portion of the study will be conducted in approximately 6 participants prior to the start of enrollment in the randomized
controlled portion of the study. Both the sentinel portion and randomized controlled portion of the study will consist of an up to 16-week screening period,
90-day treatment period, and 40-week follow-up period. The primary objective of the study is assess the efficacy of pegcetacoplan compared with that of
placebo in participants at high risk of DGF following donor kidney allograft transplant surgery; the primary endpoint is time to freedom from dialysis to
Day 90.
Regulatory Matters and Clinical Development
EMPAVELI received orphan drug designation from the FDA for the treatment of C3G in December 2018.
In August 2024, we announced positive results from our VALIANT study, a randomized, placebo-controlled, double-blinded, multi-center Phase 3
trial in 124 patients who are 12 years of age and older with naive and post-transplant recurrence C3G or primary IC-MPGN. The VALIANT study
demonstrated positive effects on the three key markers of disease at Week 26: a 68% reduction in proteinuria in pegcetacoplan-treated patients compared to
placebo (p<0.0001), the primary endpoint. Results were consistent across all subgroups, including disease type, age, and transplant status. Additionally,
pegcetacoplan-treated patients achieved stabilization of kidney function (nominal p=0.03), as measured by estimated glomerular filtration rate, and a
substantial proportion of patients achieved a reduction in C3c staining intensity (nominal p<0.0001). Pegcetacoplan also demonstrated favorable safety and
tolerability results, consistent with its established profile.
In October 2023, we announced positive results from our NOBLE trial, a randomized, placebo-controlled Phase 2 trial in post-transplant recurrence
of C3G and primary IC-MPGN. Specifically, at 12 weeks, 80% of patients showed a reduction in C3c staining by one or more orders of magnitude of
intensity from baseline, the primary endpoint, and 40% of patients showed zero staining intensity, indicating that C3c deposits were cleared. Patients also
showed improvements across key clinical measures, including a mean reduction in proteinuria, and stabilized kidney function. There were no
discontinuations due to treatment-emergent adverse events.
In October 2020, we reported data from the DISCOVERY trial in five C3G patients treated with systemic pegcetacoplan for 48 weeks. In those
patients, mean (SE) proteinuria decreased from 3.48 (0.82) mg/mg at baseline to 0.93 (0.27) mg/mg at week 48, a decrease of 73.3%, as measured by 24-
hour uPCR. Importantly, this reduction in proteinuria was accompanied by a corresponding increase in mean serum albumin. Since albumin is the most
abundant protein in serum, its level increases when urinary protein losses are reduced. Other biomarkers improved, including an observed increase in mean
serum C3 and stabilization of renal function, as measured by mean serum creatinine. No serious or severe adverse events were reported, and pegcetacoplan
was well tolerated overall.
We initiated two pivotal studies with EMPAVELI in FSGS and DGF in the fourth quarter of 2025. Complement plays a significant role in both
diseases, and there are currently no FDA-approved therapies. FSGS is a rare kidney disease that causes scarring in the glomeruli and, similar to C3G and
primary IC-MPGN, results in end stage kidney disease within 5-10 years for approximately half of patients. There are an estimated 13,000 primary FSGS
patients in the United States. DGF is a complication in kidney transplantation where the transplanted kidney fails to function and typically requires dialysis
within the first week of transplant. This negatively affects the long-term survival of the kidney and overall patient outcomes. In 2023, there were an
estimated 21,000 transplants in the U.S. using deceased donor kidneys, of which DGF occurred in 30-35% of them.
Collaboration and License Agreement and Royalty Agreement with Sobi
On October 27, 2020, we and our subsidiaries, Apellis International GmbH (f/k/a Apellis Switzerland GmbH) and APL DEL Holdings, LLC,
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, which we collectively refer
to as the Licensed Products.
Under the Sobi Collaboration Agreement, we granted Sobi an exclusive (subject to certain rights we retain), sublicensable license of certain patent
rights and know-how to develop and commercialize Licensed Products in all countries outside of the United States.
We retain 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, we and Sobi agreed to collaborate to develop Licensed Products for certain indications, including PNH,
C3G, primary IC-MPGN and any other indications subsequently agreed upon by the parties, for commercialization by or on behalf of us in the United
States and by or on behalf of Sobi outside of the United States. If the parties do not agree to jointly pursue any development activities for the Licensed
Products, the party proposing to pursue such activities may conduct such activities at its sole expense (with the non-proposing party having the right to
obtain rights to the data generated by such development activities by paying a specified percentage of that expense), subject to agreed-upon exceptions that
limit each party’s
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unilateral development rights. In July 2025, we and Sobi decided to discontinue development of systemic pegcetacoplan for Transplant-associated
Thrombotic Microangiopathy (TA-TMA) (inclusive of HSCT-TMA), following completion of the Phase 2 study and a strategic assessment of the TA-
TMA market landscape. We and Sobi are not collaborating on other development activities for the Licensed Products for additional indications. As of
December 31, 2025 and 2024, the Company recognized $10.6 million and $9.9 million, respectively, of contra‑research and development expense related
to reimbursements from Sobi for certain agreed upon development activities.
We agreed to supply Licensed Products to Sobi for development and for commercialization outside of the United States in accordance with a supply
agreement negotiated by the parties. The Sobi Collaboration Agreement grants Sobi the right to perform or have performed drug product manufacturing of
Licensed Products for development and for commercialization outside the United States and to manufacture or have manufactured drug substance under
certain circumstances.
Through June 30, 2025, we were 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. On July 1, 2025, we and certain of our
subsidiaries entered into the Royalty Agreement, under which we agreed to reduce Sobi’s royalty payment obligations under the Sobi Collaboration
Agreement by 90%, subject to defined caps tied to Aspaveli’s performance, including an initial cap of 1.45x of the amounts paid by Sobi to us under the
Royalty Agreement. If a cap is met, Sobi’s royalty payment obligations under the Sobi Collaboration Agreement will revert to 100%. We remain
responsible for our license fee obligations (including royalty obligations) to the Trustees of the University of Pennsylvania, or Penn, as a licensor of
Apellis.
We received $13.2 million and $18.4 million in royalties from Sobi during the year ended December 31, 2025 and 2024, respectively.
Unless earlier terminated, the Sobi Collaboration Agreement will expire upon the expiration of the last royalty term for the last Licensed Product
outside of the United States. The Sobi Collaboration Agreement may be terminated in its entirety by Sobi upon 90 days’ prior written notice at any time.
Either party may, subject to specified cure periods, terminate the agreement in its entirety in the event of the other party’s uncured material breach. In
addition, we may, subject to specified cure periods, terminate the agreement in any of China, Japan, Brazil, or Canada if Sobi materially breaches its
obligation to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize a Licensed Product for PNH in such
country. Either party may also terminate the agreement under specified circumstances relating to the other party’s insolvency. We may terminate the Sobi
Collaboration Agreement in the event Sobi or its specified affiliates or sublicensees challenges the validity, scope or enforceability of the licensed patent
rights under specified circumstances.
Research Collaboration with Beam
In June 2021, we entered into an exclusive five-year research collaboration, or the Beam Collaboration Agreement, with Beam focused on the use of
Beam’s proprietary base editing technology to discover new treatments for complement-driven diseases. We and Beam agreed to collaborate on up to six
research programs focused on C3 and other complement targets in the eye, liver and brain. Under the terms of the Beam Collaboration Agreement, we are
responsible for selecting specific genes within the complement system in various organs including the eye, liver and brain, or the Target List, and providing
analytical support while Beam will apply its base editing technology and conduct preclinical research on up to six base editing programs for the Target List.
During the first five years of the Beam Collaboration Agreement, Beam is prohibited from developing on its own or with a third-party any base editing
therapies associated with the items on the Target List but does not prevent Beam from licensing its intellectual property to a third-party for another purpose
outside of the Target List. We will have exclusive rights to license each of the six programs and will assume responsibility for subsequent development and
commercialization. Beam may elect to enter a 50-50 co-development and U.S. co-commercialization agreement with us with respect to any one program
licensed under the Beam Collaboration Agreement and upon such election any license agreement in place at that time, would be terminated.
As part of the Beam Collaboration Agreement, we paid $50.0 million up-front, non-refundable payment to Beam in July 2021 and $25.0 million in
June 2022. We and Beam are each responsible for their own costs during the research collaboration. If and after the opt-in license rights are exercised for
each of the up to six programs, Beam will be eligible to receive development, regulatory and sales milestones from us, as well as royalty payments on sales.
The Beam Collaboration Agreement has an initial term of five years and may be extended up to two years on a per year program-by-program basis.
In August 2025, we opted in and entered into a license agreement with Beam, or the Beam License Agreement, to collaborate on the FcRn in the
liver, which triggered an upfront milestone payment of $3.8 million, paid in September 2025. Under the Beam License Agreement, we may pay Beam up to
$168.8 million in regulatory and development milestones, up to $215.0 million in sales-based milestones, and may owe low single-digit royalties on annual
net sales within the licensed territory.
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Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to
operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect our proprietary
position in a variety of ways, including by pursuing patent protection in certain jurisdictions where it is available. For example, we file U.S. and certain
foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We
also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.
As of December 31, 2025, we own a total of 31 U.S. patents and 29 pending U.S. patent applications, including original filings, continuations, and
divisional applications, as well as numerous foreign counterparts of many of these patents and patent applications.
Pegcetacoplan is an analog of the cyclic peptide compstatin, based on technologies that we have developed internally or have exclusively licensed
from Penn.
Our patents and patent applications include families of United States and foreign patent and patent applications relating, for example, to the
composition of matter of certain compstatin analogs with a prolonged in vivo half-life, including pegcetacoplan, and/or to methods of treatment and dosing
regimens for treating particular complement-dependent diseases. Patents in these families would expire in 2032 or 2033. We have submitted applications
for patent term extension for certain of these patents. Our patent applications also include families relating in part to particular doses and dosing regimens
for intravitreally or subcutaneously administered pegcetacoplan that are granted or pending in the United States and a number of other jurisdictions. Patents
in these families would expire between 2036 and 2038. Seven of our U.S. patents are listed for EMPAVELI in the FDA’s publication, “Approved Drug
Products with Therapeutic Equivalence Evaluations,” or the Orange Book. Our filings also include certain U.S. and foreign patents and patent applications
relating to methods of treating eye disorders associated with complement activation. These patent rights include issued U.S. patents with claims to methods
of treating AMD by administration of compstatin analogs and a granted European patent with claims to a class of compstatin analogs for use in treatment of
macular degeneration. These patents have terms that extend into 2026. Eight of our U.S. patents are listed for SYFOVRE in the FDA’s Orange Book. We
also own a patent family relating in part to use of C3 inhibitors, including pegcetacoplan, to facilitate gene therapy with AAV vectors. Patents in this family
would have terms extending into 2040. In addition, we own patent families relating to use of pegcetacoplan for the treatment of PNH or for the treatment of
GA that have terms extending into 2041 through 2043.
In addition to the technology that we developed internally relating to compstatin analogs, we hold exclusive licenses from Penn. The intellectual
property in-licensed under our two license agreements with Penn includes four U.S. patents and numerous foreign counterparts, with claims granted in
Europe, Japan and elsewhere. These licensed patent rights include issued patents with claims that recite a class of compounds generically covering
pegcetacoplan, and that specifically recite the active component. These patents have terms that extend to 2026.
We also own or have exclusive rights to a number of patent applications relating to additional modalities and molecules for inhibiting complement,
including nucleic acid, small molecule, and protein-based approaches. The filings cover, for example, the composition of matter of certain of our product
candidates and methods of use for treating particular complement-mediated disorders. Patents issuing based on these applications would have terms
extending into 2041 through 2044.
We have a non-exclusive license to intellectual property covering aspects of base editing technology, including CRISPR proteins and base editors,
for use in the context of our collaboration with Beam, and have an exclusive license from Beam to this intellectual property to the extent it specifically
covers therapeutic candidates developed under the collaboration.
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the
United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In
the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays
by the U.S. Patent and Trademark Office in examining and granting a patent or may be shortened if a patent is terminally disclaimed over a commonly
owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of
1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for
the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent
beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those
claims covering the approved drug, a method for using it or a method for manufacturing it may be extended.
Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a patent that covers an approved
drug, and we have applied for and will continue to apply for such extensions in jurisdictions in which pegcetacoplan is approved. In the future, if and when
our product candidates receive approval by the FDA or foreign regulatory
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authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for
each drug and other factors. Expiration dates referred to above are without regard to potential patent term adjustment or extension or other market
exclusivity that may be available to us.
We granted worldwide rights to use and license the intellectual property that we hold with respect to pegcetacoplan to our wholly owned
subsidiaries, APL DEL Holdings, LLC and Apellis International GmbH (f/k/a Apellis Switzerland GmbH). Certain of our wholly owned subsidiaries hold
rights to use our intellectual property to manage our clinical trials in certain jurisdictions or territories and exclusive rights to distribute our product with
respect to specific indications within certain jurisdictions or territories. We granted Sobi an exclusive (subject to certain retained rights), sublicensable
license of certain patent rights and know-how to develop and commercialize pegcetacoplan for non-ophthalmological indications in all countries outside of
the United States.
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to
protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and
contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and
physical and electronic security of our information technology systems.
Patent License Agreement with The Trustees of the University of Pennsylvania (Non-ophthalmic Fields of Use)
We are party to an agreement with Penn for an exclusive worldwide license, under specified patent rights controlled by Penn, to develop and
commercialize products covered by the licensed patent rights for all fields except the treatment of ophthalmic indications. We have the right to grant
sublicenses under this license.
The patent rights licensed to us by Penn include patents with claims that recite a class of compounds generically covering pegcetacoplan, and
specifically recite the active component. Three of these patents are listed for EMPAVELI in the FDA’s Orange Book.
Under the license agreement, we were obligated to make a $0.1 million annual license maintenance payment to Penn until the first commercial sale
of a licensed product, some of which may become creditable against milestone payments under specified circumstances. We may also become obligated to
make payments to Penn aggregating up to $1.7 million, based on achieving specified development and regulatory approval milestones and up to $2.5
million based on achieving specified annual sales milestones with respect to each of the first two licensed products, and to pay low single-digit royalties to
Penn based on net sales of each licensed product by us and our affiliates and sublicensees and specified minimum quarterly royalty thresholds. In addition,
we are obligated to pay Penn a specified portion of income we receive from sublicensees.
Our royalty obligation with respect to each licensed product in a country extends until the later of the expiration of the last-to-expire patent licensed
from Penn covering the licensed product in the country or the expiration of a specified number of years after the first commercial sale of the licensed
product in the country. As of December 31, 2025 and 2024, respectively, we have incurred royalty expense of $7.3 million and $6.4 million on sales of
EMPAVELI and Aspaveli.
We also are obligated to use commercially reasonable efforts to develop licensed products in accordance with a development plan, which we will
update annually, and a development milestone timetable specified in the agreement and to use commercially reasonable efforts to commercialize licensed
products.
Penn has the right to terminate the agreement if we breach the agreement and fail to cure our breach within specified cure periods or in the event of
specified bankruptcy, insolvency and liquidation events. We have the right to terminate the agreement for our convenience at any time on 60 days’ notice to
Penn.
From January 2021 through December 2025, we have made sublicense payments totaling $30.5 million and development and sales milestone
payments totaling $3.5 million to Penn.
Amended and Restated Patent License Agreement with The Trustees of the University of Pennsylvania (Ophthalmic Field of Use)
We are party to an agreement with Penn for an exclusive worldwide license, under specified patent rights controlled by Penn, to develop and
commercialize products covered by the licensed patent rights for the treatment of ophthalmic indications. Three of the licensed patents are listed for
SYFOVRE in the FDA’s Orange Book. We have the right to grant sublicenses under the license.
Under the license agreement, we were obligated to make a $0.1 million annual license maintenance payment to Penn until the first commercial sale
of a licensed product. We also became obligated to make payments to Penn aggregating up to $3.2 million based on achieving specified development and
regulatory approval milestones, including $2.3 million upon approval of an NDA, and up to $5.0 million based on achieving specified annual sales
milestones with respect to each licensed product, and to pay low single-digit
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royalties to Penn based on net sales of each licensed product by us and our affiliates and sublicensees and specified minimum quarterly royalty thresholds.
In addition, we are obligated to pay Penn a specified portion of income we receive from sublicensees.
From 2023 through December 2025, we paid $7.3 million related to regulatory and sales milestones for SYFOVRE to Penn.
For the years ended December 31, 2025 and 2024, we have incurred royalty expense of $19.1 million and $19.8 million, respectively, as a result of
sales of SYFOVRE.
Our royalty obligation with respect to each licensed product in a country will extend until the later of the expiration of the last-to-expire patent
licensed from Penn covering the licensed product in the country or the tenth anniversary of the first commercial sale of the licensed product in the country.
We also are obligated to use commercially reasonable efforts to develop licensed products in accordance with a development plan, which we will
update annually, and a development milestone timetable specified in the agreement and to use commercially reasonable efforts to commercialize licensed
products.
Penn has the right to terminate the agreement if we breach the agreement and fail to cure our breach within specified cure periods or in the event of
specified bankruptcy, insolvency and liquidation events. We have the right to terminate the agreement for our convenience at any time on 60 days’ notice to
Penn.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we
face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic
institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and
commercialize will compete with existing therapies and new therapies that may become available in the future.
There are a number of currently marketed products and product candidates in preclinical research and clinical development by third parties to treat
the various diseases that we are targeting. In general, these products and product candidates can be categorized based on their proposed mechanisms of
action. The mechanisms of action for these product candidates include inflammation suppression by agents such as complement inhibitors and
corticosteroids, as well as immune modulators, visual cycle modulators, anti-amyloid agents, antioxidants, neuroprotectants, cell and gene therapies and
vascular and interstitial tissue remodeling agents.
Our approved product competes, and if our product candidates are approved for the indications for which we are currently undertaking or planning
clinical trials, they will compete, with the products and product candidates discussed below.
GA. In August 2023, Astellas Pharma US Inc. received FDA approval for avacincaptad pegol, a C5 inhibitor, for the treatment of GA. We are aware
of other companies that are actively developing product candidates for the treatment of GA, including the following product candidates that are in clinical
development: vonaprument (formerly known as ANX007), an intravitreal C1q inhibitor being developed by Annexon Biosciences, Inc. in Phase 3 clinical
trials; pozelimab, a subcutaneous C5 antibody developed by Regeneron Pharmaceuticals Inc. in combination with cemdisiran, an RNAi therapeutic
targeting C5 developed by Alnylam Pharmaceuticals, Inc., and cemdisiran monotherapy in Phase 3 clinical trials; JNJ1887 , an intravitreal gene therapy
targeting CD59 being developed by Johnson & Johnson Innovative Medicine in Phase 2 clinical trials; AVD104, an intravitreal glycan-coated nanoparticle
targeting macrophage and complement factor H, being developed by Aviceda Therapeutics, Inc., which plans to initiate in Phase 3 clinical trials; BI
771716, an intravitreal C3 antibody fragment being developed by Boehringer Ingelheim Pharmaceuticals, Inc., or Boehringer Ingelheim, in Phase 2 clinical
trials; SAR 446597, an intravitreal dual-complement targeting gene therapy being developed by Sanofi S.A. in Phase 2 clinical trials; and other product
candidates that do not target the complement system that are either in Phase 3 or in Phase 2 clinical trials, including but not limited to therapies being
developed by Stealth BioTherapeutics, Inc., Belite Bio, Inc., Lineage Cell Therapeutics, Inc. (in collaboration with Roche Holding AG, or
Roche/Genentech, Inc.), Boehringer Ingelheim, ONL Therapeutics, Inc., ADARx Pharmaceuticals, Inc., AbbVie Inc., Ocugen Inc., and Novartis AG, or
Novartis, has initiated a Phase 2 trial of orally administered iptacopan, a factor B inhibitor, in patients with early or intermediate AMD.
PNH. The principal competitors for EMPAVELI are eculizumab (marketed as Soliris) and ravulizumab (marketed as Ultomiris), which are C5
inhibitors marketed by AstraZeneca Pharmaceuticals LP, or AstraZeneca. The FDA approved danicopan as an add-on treatment to eculizumab and
ravulizumab in April 2024. In December 2023, the FDA approved iptacopan, which is marketed by Novartis, for the treatment of adults with PNH.
Iptacopan is an oral, Factor B inhibitor of the alternative complement pathway. The FDA approved crovalimab, an anti-C5 antibody developed by Roche
and Chugai Pharma USA, Inc., in the United States in June 2024.
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We are aware of several other companies that are actively developing product candidates using complement inhibition for the treatment of PNH
in late-stage clinical development, including pozelimab + cemdisiran, currently in Phase 3 clinical trials, as well other products in early stages of
development.
Amgen Inc. developed BKEMV, a biosimilar for eculizumab, which has been approved in the U.S., as has Epysqli from Samsung Bioepis Co.,
Ltd.. Other non-U.S. entities are developing biosimilars for eculizumab in local markets. The approval of a biosimilar or a generic to one of our products or
a product with which we compete could have a material impact on our business because it may be significantly less costly to bring to market and may be
priced significantly lower than our products or the other products with which we compete.
C3G. In March 2025, Novartis received FDA approval for iptacopan, a Factor B inhibitor, for the treatment of C3 glomerulopathy. We are aware of
other companies that are actively developing product candidates for the treatment of C3G, including the following product candidates that are in clinical
development: OMS906, (or zaltenibart), a MASP-3 inhibitor monoclonal antibody being developed by Novo Nordisk Health Care AG, or Novo Nordisk
(formerly, Omeros Corp.), in a Phase 2 trial; KP104, an anti C5-Factor H bifunctional protein being developed by Kira Pharmaceuticals, LLC, currently in
a Phase 2 renal basket trial; and ARO-C3, an RNAi to reduce C3 production developed by Arrowhead Pharmaceuticals, Inc., currently in a Phase 1/2 renal
basket trial.
IC-MPGN. We are aware of potential treatments in clinical development for primary IC-MPGN, including iptacopan being developed by Novartis,
currently in Phase 3 clinical trials, and OMS906 (zaltenibart), a MASP-3 inhibitor monoclonal antibody being developed by Novo Nordisk, in a Phase 2
clinical trial.
FSGS. We are aware of potential treatments in clinical development for FSGS, including sparsentan, an Ang/endothelin II antagonist from Travere
Therapeutics Inc.; Inaxaplin, an APOL1 inhibitor being developed by Vertex Pharmaceuticals Incorporated; DMX-200, a CCR2 inhibitor being developed
by Dimerix Limited; and BI 764198, a TRPC6 inhibitor being developed by Boehringer Ingelheim, all in Phase 3 trials.
DGF. We are aware of potential treatments in clinical development for DGF, including avulizumab, a C5 antibody marketed as Ultomiris by
AstraZeneca in a Phase 3 trial; and ARGX117, a C2 antibody under development by Argenx SE in a Phase 2 clinical trial.
Sales and Marketing
We retain U.S. commercialization rights for systemic pegcetacoplan and worldwide commercialization rights for intravitreal pegcetacoplan. We are
conducting commercialization efforts for EMPAVELI and SYFOVRE in the United States and plan to conduct commercial development for EMPAVELI
in the United States if it is approved in other indications. Sobi has global co-development and exclusive ex-U.S. commercialization rights for Aspaveli. We
plan to conduct commercial development for intravitreal pegcetacoplan in select countries outside of the U.S. We have developed focused capabilities to
commercialize development programs for certain indications where we believe that the medical specialists for the indications are sufficiently concentrated
to allow us to effectively promote the product with a targeted sales team.
For EMPAVELI and SYFOVRE we have defined our marketing, disease education, patient support and distribution strategies, identified primary
and secondary payors representing a significant percentage of patients with PNH, C3G, primary IC-MPGN and GA, and have built our field market access
teams and our sales teams.
For programs involving compounds other than pegcetacoplan, we plan to develop our own capabilities to commercialize our products worldwide.
We may seek to enter into collaborations that we believe may contribute to our ability to advance development and ultimately commercialize our product
candidates. We may also seek to enter into collaborations where we believe that realizing the full commercial value of our development programs will
require access to broader geographic markets or the pursuit of broader patient populations or indications.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates.
Although we rely on third-party contract manufacturers to produce our products, we have recruited personnel with experience to manage the third-party
contract manufacturers producing our products, product candidates and other product candidates that we may develop in the future.
The process for manufacturing our products and product candidates consists of chemical synthesis, purification using liquid chromatography, and
freeze drying into solid form. The drug substance is then dissolved in solution and aliquoted into small vials for individual dosing. Each of these steps
involves a relatively routine chemical engineering process. We believe the costs associated with
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manufacturing drug product for our products and product candidates is comparable to the current manufacturing costs for other similarly sized peptide-
based components.
We have engaged a limited number of third-party manufacturers to provide all of our raw materials, drug substances and finished products for use in
clinical trials and commercial sale. We have entered into a commercial supply agreement with Bachem Americas, Inc., or Bachem, agreeing to purchase a
significant portion of our requirements for the pegcetacoplan drug substance, and a commercial supply agreement with NOF Corporation, or NOF, to
purchase activated polyethylene glycol derivative, or PEG, which is a component of pegcetacoplan. We also have a separate supply agreement for the
manufacture of the drug product for each of EMPAVELI and SYFOVRE.
Our raw materials, drug substances and finished products have been produced under master service contracts and specific work orders from these
manufacturers pursuant to agreements that include specific supply timelines and volume and quality expectations. We choose the third-party manufacturers
of the raw materials and drug substances based on the volume required and the regulatory requirements at the relevant stage of development. All lots of
drug substances and finished products used in clinical trials and for commercial use are manufactured under current good manufacturing practices. Separate
third-party manufacturers are for fill and finish services and for labeling and shipment of the final drug products to the clinical trial sites and for
commercial use.
We believe that our manufacturing arrangements are sufficient to supply pegcetacoplan at the scale and with the quality required for our ongoing
and planned clinical trials, our commercialization efforts and our collaboration with Sobi. We continuously review our supply chain risk, including with
respect to our manufacturing footprint, and update and implement risk mitigation plans.
Commercial Supply Agreement with Bachem
In December 2020, we entered into a commercial supply agreement, or the Bachem Agreement, with Bachem to supply the drug substance for the
finished dosage form of systemic pegcetacoplan and intravitreal pegcetacoplan.
Under the Bachem Agreement, we agreed to purchase from Bachem a significant portion of our requirements for the drug substance during the term
of the agreement, and to purchase all of our requirements for drug substance for commercial sale, subject to certain exceptions, for a period after the
effective date of the agreement.
The initial term of the Bachem Agreement ended on December 31, 2025 and was automatically renewed for an additional two-year term. We may
terminate the Bachem Agreement in the event any required license, permit or certificate of Bachem related to the manufacturing facility or the drug
substance is not approved or issued (or is withdrawn) by the relevant governmental authority. Additionally, each party may terminate the Bachem
Agreement upon an uncured material breach of the Bachem Agreement by the other party or upon the other party’s insolvency or bankruptcy.
The Bachem Agreement also includes customary provisions relating to, among others, delivery, inspection procedures, warranties, quality, storage,
handling and transport, intellectual property, confidentiality and indemnification.
Amended and Restated Commercial Supply Agreement with NOF
In March 2021, we entered into an amended and restated commercial supply agreement, or the NOF Agreement, with NOF to purchase PEG, which
is a component of each of systemic pegcetacoplan and intravitreal pegcetacoplan.
Under the NOF Agreement, NOF’s affiliate, NOF America Corporation, supplies PEG to us on a non-exclusive basis. NOF agreed to manufacture
and deliver PEG to us in accordance with purchase orders issued by us pursuant to the NOF Agreement. We may purchase PEG or any polyethylene glycol
derivative from other third-party suppliers. Notwithstanding the foregoing, we agreed to purchase at least a minimum purchase obligation, which will be
based on our 24-month rolling forecasts as set forth in the NOF Agreement. In the event we fail to meet the minimum purchase obligation, we will pay
NOF the amount equal to a specified percentage of the remaining quantity of the minimum purchase obligation for the relevant time period, in addition to
any payments due for all outstanding firm orders. We may eliminate the minimum purchase obligation on or before October 1 of the preceding calendar
year by paying a specified percentage of the then-applicable supply price of the remaining minimum purchase obligation for the remainder of the term. In
September 2024, we terminated the minimum purchase obligation with NOF for 2025. As a result of this termination, we incurred an expense of $6.4
million, which is included in Cost of sales on the consolidated statements of operations and comprehensive income/(loss). As the amount was due in
January 2026, it is included in current liabilities on the consolidated balance sheet as of December 31, 2025.
The term of the NOF Agreement has been extended through December 31, 2030. Either party may terminate the NOF Agreement upon an uncured
material breach by the other party, upon the other party’s insolvency or bankruptcy or for convenience upon twenty-four (24) months prior written notice.
We may terminate the NOF Agreement for safety, efficacy or regulatory issues. If
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the NOF Agreement is terminated by NOF for convenience or by us for NOF’s breach, we have no minimum purchase obligations and any agreement to
buy out such minimum purchase obligations shall be of no force or effect.
The NOF Agreement also includes customary provisions relating to, among others, delivery, inspection procedures, warranties, quality, storage,
handling and transport, intellectual property, confidentiality and indemnification.
Government Regulation and Product Approvals
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European
Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage,
recordkeeping, labeling, advertising, promotion, distribution, marketing, pricing, reimbursement, post-approval monitoring and reporting, and import and
export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along
with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and
financial resources. The regulatory requirements applicable to drug product development, approval and marketing are subject to change, and regulations
and administrative guidance often are revised or reinterpreted by the agencies in ways that may have a significant impact on our business.
Review, Approval and Regulation of Drug Products in the United States
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The
failure to comply with applicable requirements under the FDCA and other applicable laws at any time during the product development process, approval
process or after approval may subject a sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending
applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or
civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities, including state agencies.
The FDA must approve our product candidates for therapeutic indications before they may be marketed in the United States. A company, institution
or organization which takes responsibility for the initiation and management of a clinical development program for such products is referred to as a
sponsor. A sponsor seeking approval to market and distribute a new drug or biologic product in the United States must typically secure the following:
•
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or
GLP, regulations and standards;
•
design of a clinical protocol and submission to the FDA of an investigational new drug application, or IND, which must take effect before
human clinical trials may begin;
•
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
•
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety
and efficacy of the proposed drug product for each indication;
•
preparation and submission to the FDA of an NDA for a new drug product, or a sNDA for a change to a previously approved drug product,
which includes not only the results of the clinical trials, but also, detailed information on the chemistry, manufacture and quality controls for
the product candidate and proposed labeling for one or more proposed indication(s);
•
review of the product by an FDA advisory committee, where appropriate or if applicable;
•
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components
thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the
facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
•
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
•
payment of application and program fees pursuant to the Prescription Drug User Fee Act, or PDUFA;
•
securing FDA approval of the NDA or sNDA authorizing marketing of the drug product for particular indications in the United States; and
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•
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies
required by the FDA.
Preclinical Studies
Before a sponsor begins testing a product candidate with potential therapeutic value in humans, the product candidate enters the preclinical testing
stage. Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient
and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and
to establish a rationale for therapeutic use. These studies are generally referred to as IND-enabling studies. The conduct of the preclinical tests and
formulation of the compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards and the U.S.
Department of Agriculture’s Animal Welfare Act, if applicable. With passage of the FDA’s Modernization Act 2.0 in December 2022, Congress eliminated
provisions in both the FDCA and the Public Health Service Act, or PHSA, that required animal testing in support of an NDA or BLA. While animal testing
may still be conducted, the FDA was authorized to rely on alternative non-clinical tests, including cell-based assays, microphysiological systems, or
bioprinted or computer models. In April 2025, the FDA released a roadmap to replace animal testing in preclinical safety studies with scientifically
validated new approach methodologies. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical
data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing may
continue after the IND is submitted.
Companies usually must complete some long-term preclinical testing, such as carcinogenicity and must also develop additional information about
the chemistry and physical characteristics of the investigational product and finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and,
among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo
unacceptable deterioration over its shelf life.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce for use in an investigational clinical
trial and a request for FDA authorization to administer an investigational drug to humans. Such authorization must be secured prior to interstate shipment
and administration of any new drug that is not the subject of an approved NDA. In support of a request for an IND, sponsors must submit a protocol for
each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests,
together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are
submitted to the FDA as part of an IND. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This
waiting period is designed to allow the FDA to review the IND to assure the safety and rights of patients and to help assure that the quality of the
investigation will be adequate to permit an evaluation of the proposed drug’s effectiveness and safety. At any time during this 30-day period, the FDA may
raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND
sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. A clinical
hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is
a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to
proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the
sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after
the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor
correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed or recommence. Occasionally, clinical holds
are imposed due to manufacturing issues that may present safety issues for the clinical study subjects.
In addition to the IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any
clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must
review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in
compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical
trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to
patients.
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Once an IND application takes effect, the sponsor of the IND may amend the application as needed to ensure that the clinical trials are conducted
according to protocols included in the IND. The FDA has indicated that sponsors are expected to submit amendments for new protocols or changes to
existing protocols before implementation of the respective changes. New studies may begin, however, when the sponsor has submitted the change to the
FDA for its review and the new protocol or changes to the existing protocol have been approved by the IRB with the responsibility for review and approval
of the studies.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data monitoring
committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access that only the group
maintains to available data from the study. Suspension or termination of development during any phase of clinical trials can occur if it is determined that
the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on
evolving business objectives and/or competitive climate.
Clinical Studies Outside the United States in Support of FDA Approval
Sponsors frequently conduct clinical trials at sites outside the United States. When a foreign clinical study is conducted under an IND, all IND
requirements must be met unless waived. When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies
with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval. Specifically, the
studies must be conducted in accordance with GCP, including undergoing review and receiving approval by an independent ethics committee, or IEC, and
seeking and receiving informed consent from subjects. GCP requirements encompass both ethical and data integrity standards for clinical studies. The
FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and
integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND
studies.
The acceptance by the FDA of study data from clinical trials conducted outside the United States in support of US approval may be subject to
certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing
approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the
U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP
regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be
necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for
an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to
validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements.
In addition, such foreign trials are subject to the applicable local laws of the foreign jurisdictions where the trials are conducted.
Reporting Clinical Trial Results
Under the PHSA, sponsors of clinical trials of certain FDA-regulated products, including prescription drugs and biologics, are required to register
and disclose certain clinical trial information on a public registry (clinicaltrials.gov) maintained by the U.S., National Institutes of Health, or the NIH. In
particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is
made public as part of the registration of the clinical trial. Although sponsors are also obligated to disclose the results of their clinical trials after
completion, disclosure of the results can be delayed in some cases for up to two years after the date of completion of the trial.
The PHSA grants the Secretary of Health and Human Services, or HHS, the authority to issue a notice of noncompliance to a responsible party for
failure to submit clinical trial information as required. The responsible party, however, is allowed 30 days to correct the noncompliance and submit the
required information. The failure to submit clinical trial information to clinicaltrials.gov, as required, is also a prohibited act under the FDCA with
violations subject to potential civil monetary penalties of up to $10,000 for each day the violation continues. Violations may also result in injunctions
and/or criminal prosecution or disqualification from federal grants. As of January 31, 2026, the FDA had issued eight notices of non-compliance, thereby
signaling the government’s willingness to begin enforcing these requirements against non-compliant clinical trial sponsors. These notices have not resulted
in civil monetary penalties.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients
with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. The rules
and regulations related to expanded access are intended to improve access to investigational drugs for patients who may benefit from investigational
therapies. FDA regulations allow access to investigational drugs under an IND by the company or the treating physician for treatment purposes on a case-
by-case basis for: individual patients (single-patient
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IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of
the drug under a treatment protocol or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients,
the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or
immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or
condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to
be treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical
investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
There is no obligation for a sponsor to make its investigational products available for expanded access; however, as required by amendments to the
FDCA included in the 21st Century Cures Act, or the Cures Act, passed in 2016, if a sponsor has a policy regarding how it responds to expanded access
requests with respect to product candidates in development to treat serious diseases or conditions, it must make that policy publicly available. Sponsors are
required to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study; or 15 days after the investigational drug or
biologic receives designation from the FDA as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.
In addition, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain
patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA
approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under
the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the
Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.
Human Clinical Trials in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing
before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and
exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol,
and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND, and progress reports detailing the status of the
clinical trials must be submitted to the FDA annually.
Human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:
•
Phase 1: The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease
or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early
indication of its effectiveness and to determine optimal dosage.
•
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
•
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-
controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the
overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. These clinical trials are
commonly referred to as “pivotal” studies, which denotes a study that presents the data that the FDA or other relevant regulatory agency will
use to determine whether or not to approve a drug.
•
Phase 4: Post-approval studies, which are conducted following initial approval, are typically conducted to gain additional experience and data
from treatment of patients in the intended therapeutic indication.
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing
approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be
sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and
reviewed by the FDA. Moreover, as noted above, a pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of a product
candidate’s safety and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to support regulatory approval. Generally, pivotal
trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an
area of unmet medical need.
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In December 2022, Congress required sponsors to develop and submit a diversity action plan, or DAP, for each Phase 3 clinical trial or any other
“pivotal study” of a new drug or biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage
clinical trials of FDA-regulated products. In June 2024, as mandated by the Food and Drug Omnibus Reform Act, or FDORA, the FDA issued draft
guidance outlining the general requirements for DAPs. In response to an Executive Order issued by President Trump on January 21, 2025, on diversity,
equity and inclusion programs, the FDA removed this draft guidance from its website. Subsequently, in July 2025, pursuant to a court order, the FDA
restored the draft DAP guidance to its website with a statement that “information on this page may be modified and/or removed in the future subject to the
terms of the court’s order and implemented consistent with applicable law.” In light of these ongoing actions, there is considerable uncertainty surrounding
the draft DAP guidance and how the FDA will consider DAPs in connection with its review of NDAs.
In September 2025, the FDA issued final guidance with updated recommendations for current Good Clinical Practices aimed at modernizing the
design and conduct of clinical trials. The updates are intended to help pave the way for more efficient clinical trials to facilitate the development of medical
products. The final guidance is adopted from the International Council for Harmonisation’s recently updated E6(R3) final guideline that was developed to
enable the incorporation of rapidly developing technological and methodological innovations into the clinical trial enterprise. In addition, the FDA issued
final guidance outlining recommendations for the implementation of decentralized clinical trials.
In October 2025, the FDA issued final guidance that focuses on patient-focused drug development. The guidance outlines how stakeholders, such as
patients, caregivers, researchers and medical product developers, can submit patient experience data in support of the development and approval of drug
products. To that end, the guidance provides an overview of clinical outcome assessments, or COAs, in clinical trials, and the role that COAs may play in
in evaluating the clinical benefit of a medical product.
Interactions with FDA During the Clinical Development Program
Following the clearance of an IND and the commencement of clinical trials, the sponsor will continue to have interactions with the FDA. A
development safety update report detailing the results of the clinical trials must be submitted annually to the FDA. In addition, IND safety reports must be
submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing
that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over
that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified
period, or at all. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.
In addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Specifically, sponsors may
meet with the FDA prior to the submission of an IND (Pre-IND meeting), at the end of Phase 2 clinical trial (EOP2 meeting) and before an NDA is
submitted (Pre-NDA meeting). Meetings at other times may also be requested. There are five types of meetings that occur between sponsors and the FDA.
Type A meetings are those that are necessary for an otherwise stalled product development program to proceed or to address an important safety issue.
Type B meetings include pre-IND and pre-NDA meetings, as well as end of phase meetings such as EOP2 meetings. A Type C meeting is any meeting
other than a Type A or Type B meeting regarding the development and review of a product, including for example meetings to facilitate early consultations
on the use of a biomarker as a new surrogate endpoint that has never been previously used as the primary basis for product approval in the proposed context
of use. A Type D meeting is focused on a narrow set of issues (should be limited to no more than 2 focused topics) and should not require input from more
than 3 disciplines or divisions. Finally, INTERACT meetings are intended for novel products and development programs that present unique challenges in
the early development of an investigational product.
These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA to
provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase 2 clinical results and present its plans for the
pivotal Phase 3 clinical trial(s) that it believes will support the approval of the new product. Such meetings may be conducted in person, via
teleconference/videoconference or written response only with minutes reflecting the questions that the sponsor posed to the FDA and the FDA's responses.
The FDA has indicated that its responses, as conveyed in meeting minutes and advice letters, only constitute mere recommendations and/or advice made to
a sponsor and, as such, sponsors are not bound by such recommendations and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to
follow the FDA’s recommendations for design of a clinical program may put the program at significant risk of failure.
Manufacturing and Other Regulatory Requirements
Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with
cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things,
must develop methods for testing the identity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must be selected
and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
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Specifically, the FDA’s regulations require that pharmaceutical products be manufactured in specific approved facilities and in accordance with
cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and
product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records
and reports and returned or salvaged products. Manufacturers and other entities involved in the manufacture and distribution of approved pharmaceuticals
are required to register their establishments with the FDA and some state agencies, and they are subject to periodic unannounced inspections by the FDA
for compliance with cGMPs and other requirements. Inspections must follow a “risk-based schedule” that may result in certain establishments being
inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying,
denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. Changes to the manufacturing process,
specifications or container closure system for an approved product are strictly regulated and often require prior FDA approval before being implemented.
The FDA’s regulations also require, among other things, the investigation and correction of any deviations from cGMP and the imposition of reporting and
documentation requirements upon the sponsor and any third-party manufacturers involved in producing the approved product.
The PREVENT Pandemics Act, which was enacted in December 2022, clarifies that foreign drug manufacturing establishments are subject to
registration and listing requirements even if a drug or biologic undergoes further manufacture, preparation, propagation, compounding, or processing at a
separate establishment outside the United States prior to being imported or offered for import into the United States. In May 2025, the FDA disclosed plans
to expand its use of unannounced inspections of foreign manufacturing facilities that produce drugs and biologics distributed in the United States.
Subsequently, in August 2025, the FDA introduced a “PreCheck” program with the intention of supporting companies as they build new facilities in the
United States. The PreCheck program provides manufacturers with more frequent FDA communication at critical development stages, including facility
design, construction, and pre-production. These FDA initiatives flow from an Executive Order issued by President Trump on May 5, 2025, calling for
actions to reduce regulatory barriers to pharmaceutical manufacturing in the United States.
Pediatric Studies
Under the Pediatric Research Equity Act, or the PREA, applications and certain types of supplements to applications must contain data that are
adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. The sponsor must submit an initial Pediatric Study Plan, or PSP,
within 60 days of an end-of-phase 2 meeting or as may be agreed between the sponsor and the FDA. Those plans must contain an outline of the proposed
pediatric study or studies the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a
justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement
to provide data from pediatric studies along with supporting information. The sponsor and the FDA must reach agreement on a final plan. A sponsor can
submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from
nonclinical studies, early phase clinical trials, and/or other clinical development programs.
For investigational products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of a sponsor, meet to
discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, the FDA will meet early in the
development process to discuss pediatric study plans with sponsors, and the FDA must meet with sponsors by no later than the end-of-phase 1 meeting for
serious or life-threatening diseases and by no later than ninety days after the FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the sponsor, grant deferrals for submission of some or all pediatric data until after approval
of the product for use in adults, or full or partial waivers from the pediatric data requirements. A deferral may be granted for several reasons, including a
finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or
effectiveness data needs to be collected before the pediatric trials begin. The FDA is required to send a PREA Non-Compliance letter to sponsors who have
failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request
approval for a required pediatric formulation. It further requires the FDA to publicly post the PREA Non-Compliance letter and the sponsor’s response.
Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation intended for a non-cancer
indication, although the FDA has recently taken steps to limit what it considers abuse of this statutory exemption in PREA by announcing that it does not
intend to grant any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease. Further, Section 505B of
the FDCA, as amended by the FDA Reauthorization Act of 2017, or FDARA, requires that any original NDA or BLA submitted on or after August 18,
2020, for a new active ingredient, must contain reports on the molecularly targeted pediatric cancer investigation, unless the requirement is waived or
deferred, if the drug that is the subject of the application is: (i) intended for the treatment of an adult cancer, and (ii) directed at a molecular target that the
Secretary of HHS determines to be substantially relevant to the growth or progression of a pediatric cancer in accordance with FDA guidance. The FDA
also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease
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in the pediatric population. In May 2023, the FDA issued new draft guidance that further describes the pediatric study requirements under PREA.
Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a
serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, priority review
and regenerative advanced therapy designation.
Specifically, the FDA may designate a product for fast-track review if it is intended, whether alone or in combination with one or more other
products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a
disease or condition. For fast-track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast
track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of
clinical data submitted by the sponsor, that a fast-track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for
the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track
application does not begin until the last section of the application is submitted. In addition, the fast track designation may be withdrawn by the FDA if the
FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA
may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process;
providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-
disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
The FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant
improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents a significant improvement
when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a
condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to
improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall
attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months
to six months.
With passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized the FDA to accelerate review and approval
of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended
to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the
potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early
interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and
accelerated approval based on surrogate or intermediate endpoints.
On June 17, 2025, the FDA announced the creation of the Commissioner’s National Priority Voucher, or CNPV, Program. Vouchers issued under
the CNPV Program can reportedly be redeemed by sponsors to shorten the review time of an NDA or BLA from approximately ten to twelve months to
one to two months. The CNPV Program will convene experts from the FDA’s offices for a team-based review rather than using the standard review
system. Clinical information will be reviewed by a multidisciplinary team of physicians and scientists who will pre-review the submitted information and
convene for a one-day meeting. Vouchers under the CNPV Program will reportedly be given to companies aligned with U.S. national priorities.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to
patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical
benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be
measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical
benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted
accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
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For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or
other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily
or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to
predict the clinical benefit of a drug, such as an effect on IMM. There is limited experience with accelerated approvals by the FDA based on intermediate
clinical endpoints. However, the FDA has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured
by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably
likely to predict the ultimate clinical benefit of a drug.
The accelerated approval pathway is most often used in settings in which the course of a disease is long, and an extended period of time is required
to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-
marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug
from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by
the FDA.
With the passage of FDORA, Congress modified certain provisions governing accelerated approval of drug and biologic products. Specifically, the
new legislation authorized the FDA to require a sponsor to have its confirmatory clinical trial underway before accelerated approval is awarded and to
submit progress reports on its post-approval studies to FDA every six months until the study is completed. Moreover, FDORA established expedited
procedures authorizing FDA to withdraw an accelerated approval if certain conditions are met, including where a required confirmatory study fails to verify
and describe the predicted clinical benefit or where evidence demonstrates the product is not shown to be safe or effective under the conditions of use. The
FDA may also use such procedures to withdraw an accelerated approval if a sponsor fails to conduct any required post-approval study of the product with
due diligence, including with respect to “conditions specified by the Secretary.” The new procedures include the provision of due notice and an explanation
for a proposed withdrawal, and opportunities for a meeting with the Commissioner or the Commissioner’s designee and a written appeal, among other
things.
In March 2023, the FDA issued draft guidance that outlines its current thinking and approach to accelerated approval. The FDA indicated that the
accelerated approval pathway is commonly used for approval of oncology drugs due to the serious and life-threatening nature of cancer. Although single-
arm trials have been commonly used to support accelerated approval, a randomized controlled trial is the preferred approach as it provides a more robust
efficacy and safety assessment and allows for direct comparisons to an available therapy. To that end, the FDA outlined considerations for designing,
conducting, and analyzing data for trials intended to support accelerated approvals of oncology therapeutics. Subsequently, in December 2024 and January
2025, the FDA issued additional draft guidances relating to accelerated approval. These guidances describe the FDA’s views on what it means to conduct a
confirmatory trial with due diligence and how the FDA plans to interpret whether such a study needs to be underway at the time of approval. While these
guidances are currently only in draft form and will ultimately not be legally binding even when finalized, sponsors typically observe the FDA’s guidance
closely to ensure that their investigational products qualify for accelerated approval.
Acceptance and Review of NDAs
Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, along with information
relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information and proposed labeling, are submitted to
the FDA as part of an application requesting approval to market the product candidate for one or more indications. Data may come from company-
sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by
investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of a drug
product.
The fee required for the submission and review of an application under the PDUFA is substantial (for example, for federal fiscal year 2026 this
application fee is $4,682,003), and the sponsor of an approved application is also subject to an annual program fee, currently set at $442,213 per eligible
prescription product for federal fiscal year 2026. These fees are typically adjusted annually, and exemptions and waivers may be available under certain
circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a significant barrier to innovation, or where the
sponsor is a small business submitting its first human therapeutic application for review.
The FDA conducts a preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether an
application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations state that an application “shall not be considered
as filed until all pertinent information and data have been received” by the FDA. In the event
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that FDA determines that an application does not satisfy this standard, it will issue a Refuse to File, or RTF, determination to the sponsor. The FDA may
request additional information rather than accept an application for filing. In this event, the application must be resubmitted with the additional information.
The resubmitted application is also subject to review before the FDA accepts it for filing.
Typically, an RTF will be based on administrative incompleteness, such as clear omission of information or sections of required information;
scientific incompleteness, such as omission of critical data, information or analyses needed to evaluate safety and efficacy or provide adequate directions
for use; or inadequate content, presentation, or organization of information such that substantive and meaningful review is precluded. In October 2025, the
FDA issued internal guidance clarifying that “materially incomplete or inadequately organized” applications that would not permit timely, efficient and
complete review will be the subject of an RTF. The internal guidance also provides that the FDA will issue an RTF for an application that relies on a single
adequate and well-controlled investigation to support approval if prior communications with the FDA determined the need for more than one clinical study
and any justification for a single investigation is inadequate.
After the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews the application to
determine, among other things, whether the proposed product is safe and effective for its intended use, whether it has an acceptable purity profile and
whether the product is being manufactured in accordance with cGMP. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten
months from the filing date in which to complete its initial review of a standard application that is a new molecular entity, and six months from the filing
date for an application with “priority review.” The review process may be extended by the FDA for three additional months to consider new information or
in the case of a clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission. Despite
these review goals, it is not uncommon for FDA review of an application to extend beyond the PDUFA goal date.
In connection with its review of an application, the FDA will typically submit information requests to the sponsor and set deadlines for responses
thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether the manufacturing
processes and facilities comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are
in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications. The FDA also may
inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity of the clinical data submitted
to the FDA. With passage of the FDORA, Congress clarified the FDA’s authority to conduct inspections by expressly permitting inspection of facilities
involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to FDA as well as other persons holding study records or
involved in the study process. To ensure cGMP and GCP compliance by its employees and third-party contractors, a sponsor may incur significant
expenditure of time, money and effort in the areas of training, record keeping, production and quality control.
Moreover, the FDA will review a sponsor’s financial relationship with the principal investigators who conducted the clinical trials in support of the
NDA. That is because, under certain circumstances, principal investigators at a clinical trial site may also serve as scientific advisors or consultants to a
sponsor and receive compensation in connection with such services. Depending on the level of that compensation and any other financial interest a
principal investigator may have in a sponsor, the sponsor may be required to report these relationships to the FDA. The FDA will then evaluate that
financial relationship and determine whether it creates a conflict of interest or otherwise affects the interpretation of the trial or the integrity of the data
generated at the principal investigator’s clinical trial site. If so, the FDA may exclude data from the clinical trial site in connection with its determination of
safety and efficacy of the investigational product.
Additionally, the FDA may refer an application, including applications for novel product candidates which present difficult questions of safety or
efficacy, to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what
conditions. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts that reviews, evaluates and
provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of
an advisory committee, but it considers such recommendations when making final decisions on approval. Data from clinical trials are not always
conclusive, and the FDA or its advisory committee may interpret data differently than the sponsor interprets the same data. The FDA may also re-analyze
the clinical trial data, which could result in extensive discussions between the FDA and the sponsor during the review process.
The FDA also may require submission of a REMS if it determines that a REMS is necessary to ensure that the benefits of the product outweigh its
risks and to assure the safe use of the product. The REMS could include medication guides, physician communication plans, assessment plans and/or
elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. The FDA determines the requirement
for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application
must submit a proposed REMS and the FDA will not approve the application without a REMS.
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Decisions on NDAs
The FDA reviews an NDA to determine, among other things, whether the product is safe and whether it is effective for its intended use(s), with the
latter determination being made on the basis of substantial evidence.
The FDA has typically interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to establish
effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain characteristics and additional
information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998 with legislation providing, in pertinent part, that “If
FDA determines, based on relevant science, that data from one adequate and well-controlled clinical investigation and confirmatory evidence (obtained
prior to or after such investigation) are sufficient to establish effectiveness, the FDA may consider such data and evidence to constitute substantial
evidence.” This modification to the law recognized the potential for the FDA to find that one adequate and well controlled clinical investigation with
confirmatory evidence, including supportive data outside of a controlled trial, is sufficient to establish effectiveness.
In December 2019, the FDA issued draft guidance further explaining the studies that are needed to establish substantial evidence of effectiveness.
The FDA also issued draft guidance in September 2023 that outlines considerations for relying on confirmatory evidence in lieu of a second clinical trial to
demonstrate efficacy. The FDA has not yet finalized such guidance, but, in December 2025, the FDA signaled that it is considering only requiring one
clinical trial for approval of most drug products. The FDA indicated at such time that it may issue guidance regarding this change through a press release or
other means, however, the FDA has not yet issued such guidance.
After evaluating the application and all related information, including the advisory committee recommendations, if any, and inspection reports of
manufacturing facilities and clinical trial sites, the FDA will issue either a Complete Response Letter, or CRL, or an approval letter. To reach this
determination, the FDA must determine that the drug is effective and that its expected benefits outweigh its potential risks to patients. This “benefit-risk”
assessment is informed by the extensive body of evidence about the product’s safety and efficacy in the NDA. This assessment is also informed by other
factors, including: the severity of the underlying condition and how well patients’ medical needs are addressed by currently available therapies; uncertainty
about how the premarket clinical trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management
tools are necessary to manage specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other
documents into an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior FDA official
makes a decision.
A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL generally
outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application.
The CRL may require additional clinical or other data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time- consuming requirements
related to clinical trials, preclinical studies or manufacturing. If a CRL is issued, the sponsor will have one year to respond to the deficiencies identified by
the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an additional six-month extension to respond.
The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with the
submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. The FDA
has taken the position that a CRL is not final agency action making the determination subject to judicial review. While CRLs were previously treated by the
FDA as confidential and were only disclosed in action packages for approved products, the FDA announced in September 2025 that it will now release
CRLs promptly after they are issued to sponsors. Since that announcement, the FDA has posted a number of CRLs on its website.
An approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific indications.
That is, the approval will be limited to the conditions of use (e.g., patient population, indication) described in the FDA-approved labeling. Further,
depending on the specific risk(s) to be addressed, the FDA may require that post-approval studies, including Phase 4 clinical trials, be conducted to further
assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other
conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and
profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance
programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling
claims, are subject to further testing requirements and FDA review and approval.
In the event that a sponsor wishes to make a change to a product that has been approved under an NDA, the sponsor must submit an sNDA to the
FDA. Such changes may include a revision of the labeling for the approved product, addition of a new indication, a change in the dosage, strength or
formulation of the drug product, or a modification of the manner in which the drug is manufactured. Under the timelines established pursuant to PDUFA,
the standard review time for an sNDA is generally 10 months from receipt of the application by the FDA.
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Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of
adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are
subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at
which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the
sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution
or other restrictions under a REMS program. Other potential consequences include, among other things:
•
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
•
fines, warning letters or holds on post-approval clinical trials;
•
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
•
product seizure or detention, or refusal to permit the import or export of products; or
•
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market. This regulation
includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-
sponsored scientific and educational activities, and promotional activities involving the Internet and social media. Promotional claims about a drug’s safety
or effectiveness are prohibited before the drug is approved. After approval, a drug product generally may not be promoted for uses that are not approved by
the FDA, as reflected in the product’s prescribing information. In the United States, healthcare professionals are generally permitted to prescribe drugs for
such uses not described in the drug’s labeling, known as off-label uses, because the FDA does not regulate the practice of medicine. However, the FDA’s
regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off-label uses.
On September 9, 2025, President Trump issued a Memorandum directing HHS to “ensure transparency and accuracy in direct-to-consumer
prescription drug advertising, including by increasing the amount of information regarding any risks associated with the use of any such prescription drug
required to be provided in prescription drug advertisements.” To that end, the FDA announced that it is initiating a rulemaking process “to eliminate the
‘adequate provision’ loophole that allows pharmaceutical advertisements to hide safety information by placing it in another format or location.” In this
context, the FDA declared that it will no longer tolerate what it characterized as “deceptive practices” in prescription drug advertising and that the FDA
would “aggressively deploy” its available enforcement tools, with “heightened scrutiny” of fair balance and disclosures in social media promotions. The
FDA also issued a generic “notice letter” directing companies to “remove any noncompliant advertising and bring all promotional communications into
compliance.
It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication
regarding off-label information, such as distributing scientific or medical journal information. Moreover, with passage of the Pre-Approval Information
Exchange Act in December 2022, sponsors of products that have not been approved may proactively communicate to payors certain information about
products in development to help expedite patient access upon product approval. Previously, such communications were permitted under FDA guidance, but
the new legislation explicitly provides protection to sponsors who convey certain information about products in development to payors, including
unapproved uses of approved products. In addition, in October 2023, the FDA published draft guidance outlining the FDA's non-binding policies governing
the distribution of scientific information on unapproved uses to healthcare providers. This draft guidance calls for such communications to be truthful,
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non-misleading, factual, and unbiased and include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity
and utility of the information about the unapproved use.
In addition, in January 2025, the FDA published final guidance outlining its policies governing the distribution of scientific information to
healthcare providers about unapproved uses of approved products. The final guidance calls for such communications to be truthful, non-misleading and
scientifically sound and to include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the
information about the unapproved use of the approved product. If a company engages in such communications consistent with the guidance’s
recommendations, the FDA indicated that it will not treat such communications as evidence of unlawful promotion of a new intended use for the approved
product.
If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial
enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of HHS, as well as state authorities. This could subject a
company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict
the manner in which a company promotes or distributes drug products. The federal government has levied large civil and criminal fines against companies
for alleged improper promotion and has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed.
In addition, the distribution of prescription pharmaceutical products is subject to a variety of federal and state laws, the most recent of which is still
in the process of being phased into the U.S. supply chain and regulatory framework. The Prescription Drug Marketing Act, or the PDMA, was the first
federal law to set minimum standards for the registration and regulation of drug distributors by the states and to regulate the distribution of drug samples.
Today, both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure
accountability in distribution. In November 2013, the federal Drug Supply Chain Security Act became effective in the United States, mandating an
industry-wide, electronic, interoperable system to trace prescription products through the pharmaceutical distribution supply chain with a ten-year phase-in
process. Manufacturers were required by November 2023 to have such systems and processes in place. So as not to disrupt supply chains, the FDA has
granted certain exemptions from enhanced distribution security requirements for eligible trading partners for particular periods of time.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the
proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative
type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the sponsor to rely, in part, on the FDA’s previous findings of safety
and efficacy for a similar product or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to
show whether or not the drug is safe for use and effective in use and relied upon by the sponsor for approval of the application “were not conducted by or
for the sponsor and for which the sponsor has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”
Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the sponsor. NDAs
filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or
new uses of previously approved products. If the Section 505(b)(2) sponsor can establish that reliance on the FDA’s previous approval is scientifically
appropriate, the sponsor may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies
to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all
or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)
sponsor.
Generic Drugs and Regulatory Exclusivity
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as
drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, the sponsor must submit an
abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical
testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active
ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug
is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not
show a significant difference from the rate and extent of absorption of the listed drug.”
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Upon approval of an abbreviated new drug application, or ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to
the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and
pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and
numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the
knowledge or consent of either the prescribing physician or patient.
Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA or 505(b)(2) application until any applicable period of regulatory
exclusivity for the RLD has expired. The FDCA provides a period of five years of regulatory data exclusivity for a new drug containing a new chemical
entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety that has previously been approved by the
FDA in any other NDA. This interpretation was confirmed with enactment of the Ensuring Innovation Act in April 2021. An active moiety is the molecule
or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted, a generic
or follow-on drug application may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV
certification, in which case the sponsor may submit its application four years following the original product approval.
The FDCA also provides for a period of three years of regulatory exclusivity if the NDA includes reports of one or more new clinical investigations,
other than bioavailability or bioequivalence studies, that were conducted by or for the sponsor and are essential to the approval of the application. This
three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration,
combination or indication. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the
statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the
FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically
makes decisions about awards of data exclusivity shortly before a product is approved.
The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug application within eight months for a
drug that has three or fewer approved patents listed in the Orange Book and is no longer protected by any patent or regulatory exclusivities, or is on the
FDA’s drug shortage list. The new legislation also authorizes the FDA to expedite review of competitor generic therapies or drugs with inadequate generic
competition, including holding meetings with or providing advice to the drug sponsor prior to submission of the application.
Hatch-Waxman Patent Certification and the 30-Month Stay
As part of the submission of an NDA or certain supplemental applications, NDA sponsors are required to list with the FDA each patent with claims
that cover the sponsor’s product or an approved method of using the product. Upon approval of a new drug, each of the patents listed in the application for
the drug is then published in the Orange Book. The FDA’s regulations governing patent listings were largely codified into law with enactment of the
Orange Book Modernization Act in January 2021.When an ANDA sponsor files its application with the FDA, the sponsor is required to certify to the FDA
concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA sponsor is not
seeking approval. To the extent that the Section 505(b)(2) sponsor is relying on studies conducted for an already approved product, the sponsor is required
to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA sponsor would.
Specifically, the sponsor must certify with respect to each patent that:
•
the required patent information has not been filed;
•
the listed patent has expired;
•
the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
•
the listed patent is invalid, unenforceable or will not be infringed by the new product.
A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is
called a Paragraph IV certification. If the sponsor does not challenge the listed patents or indicates that it is not seeking approval of a patented method of
use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents
involving indications for which the ANDA sponsor is not seeking approval).
If the ANDA sponsor has provided a Paragraph IV certification to the FDA, the sponsor must also send notice of the Paragraph IV certification to
the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement
lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph
IV certification automatically prevents the FDA from approving
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the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is
favorable to the ANDA sponsor.
To the extent that the Section 505(b)(2) sponsor is relying on studies conducted for an already approved product, the sponsor is required to certify to
the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA sponsor would. As a result, approval
of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as
exclusivity for obtaining approval of an NCE, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV
certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is
favorable to the Section 505(b)(2) sponsor.
Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an
additional six months of exclusivity to the term of any existing unexpired patent or regulatory exclusivity, including the orphan drug exclusivity, for drug
products. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for
such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond
to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the
statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a
patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. With regard to patents, the
six-month pediatric exclusivity period will not attach to any patents for which a generic (ANDA or 505(b)(2) NDA) sponsor submitted a paragraph IV
patent certification, unless the NDA sponsor or patent owner first obtains a court determination that the patent is valid and infringed by a proposed generic
product.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition
(generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the
cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the
product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of
the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review
and approval process.
If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select
indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity.
Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years,
except in certain limited circumstances. Those circumstances include instances in which another sponsor’s application for the same drug product and
indication is shown to be “clinically superior” to the previously approved drug. In this context, clinically superior means that the drug provides a significant
therapeutic advantage over and above the already approved drug in terms of greater efficacy, greater safety or by providing a major contribution to patient
care. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for
the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an
indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.
Under FDARA, orphan exclusivity will not bar approval of another orphan drug under certain circumstances, including if a subsequent product with
the same drug for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a
major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. The new legislation reverses prior
precedent holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical
superiority.
The FDA and the U.S. Congress may further reevaluate the Orphan Drug Act and its regulations and policies. This may be particularly true in light
of a decision from the Court of Appeals for the Eleventh Circuit (Catalyst Pharms., Inc. v. Becerra) in September 2021 finding that, for the purpose of
determining the scope of exclusivity, the term “same disease or condition” means the designated “rare disease or condition” and could not be interpreted by
the FDA to mean the “indication or use.” On January 23, 2023, the FDA announced that, in matters beyond the scope of that order, the FDA will continue
to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for which the orphan drug was approved. In February 2025, a
federal district court in Washington, D.C. fully embraced the reasoning in the Eleventh Circuit decision in another court decision (Neurelis v. Brenner)
challenging the scope of orphan drug exclusivity, and in April 2025, the FDA appealed this decision to the U.S. Court of Appeals for the D.C. Circuit. The
implications of this decision, and its impact on the FDA’s implementation of the Orphan Drug Act, are unclear at this point.
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Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent
restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically
one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the
ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval
date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to
the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the
approvals. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the
FDA.
Review and Clearance or Approval of Medical Devices in the United States
Medical devices in the United States are strictly regulated by the FDA. Under the FDCA, a medical device is defined as an instrument, apparatus,
implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is, among
other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other
animals; or intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes
through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of
its primary intended purposes. This definition provides a clear distinction between a medical device and other FDA regulated products such as drugs. If the
primary intended use of the product is achieved through chemical action or by being metabolized by the body, the product is usually a drug. If not, it is
generally a medical device.
Unless an exemption applies, a new medical device may not be marketed in the United States until it has been cleared through filing of a 510(k)
premarket notification, or 510(k), or approved by the FDA pursuant to a premarket approval application, or PMA. The information that must be submitted
to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA.
Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety
and effectiveness. Class I devices have the lowest level or risk associated with them, and are subject to general controls, including labeling, premarket
notification and adherence to the Quality System Regulation, or QSR. Class II devices are subject to general controls and special controls, including
performance standards. Class III devices, which have the highest level of risk associated with them, such as life sustaining, life supporting or some
implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed
device, are subject to most of the aforementioned requirements as well as to premarket approval.
A 510(k) must demonstrate that the proposed device is substantially equivalent to another legally marketed device, or predicate device, that did not
require premarket approval. In evaluating a 510(k), the FDA will determine whether the device has the same intended use as the predicate device, and (a)
has the same technological characteristics as the predicate device, or (b) has different technological characteristics, and (i) the data supporting substantial
equivalence contains information, including appropriate clinical or scientific data, if deemed necessary by the FDA, that demonstrates that the device is as
safe and as effective as a legally marketed device, and (ii) does not raise different questions of safety and effectiveness than the predicate device. Most
510(k)s do not require clinical data for clearance, but the FDA may request such data. The FDA seeks to review and act on a 510(k) within 90 days of
submission, but it may take longer if the FDA finds that it requires more information to review the 510(k). If the FDA concludes that a new device is not
substantially equivalent to a predicate device, the new device will be classified in Class III and the manufacturer will be required to submit a PMA to
market the product. PMA applications are subject to an application fee. For federal fiscal year 2025, the standard fee is $540,783 and the small business fee
is $135,196.
Modifications to a 510(k)-cleared medical device may require the submission of another 510(k) or a PMA if the changes could significantly affect
safety or effectiveness or constitute a major change in the intended use of the device. Modifications to a 510(k)-cleared device frequently require the
submission of a traditional 510(k), but modifications meeting certain conditions may be candidates for FDA review under a Special 510(k). If a device
modification requires the submission of a 510(k), but the modification does not affect the intended use of the device or alter the fundamental technology of
the device, then summary information that results from the design control process associated with the cleared device can serve as the basis for clearing the
application. A Special 510(k) allows a manufacturer to declare conformance to design controls without providing new data. When the modification
involves a change in material, the nature of the “new” material will determine whether a traditional or Special 510(k) is necessary.
A clinical trial is typically required for a PMA application, and in a small percentage of cases, the FDA may require a clinical study in support of a
510(k) submission. A manufacturer that wishes to conduct a clinical study involving the device is subject to the FDA’s IDE regulation. The IDE regulation
distinguishes between significant and non-significant risk device studies and the procedures for obtaining approval to begin the study differ accordingly.
Also, some types of studies are exempt from the IDE regulations. A significant risk device presents a potential for serious risk to the health, safety, or
welfare of a subject. Significant risk devices are devices that are substantially important in diagnosing, curing, mitigating, or treating disease or in
preventing impairment to human health. Studies of devices that pose a significant risk require both FDA and an IRB approval prior to initiation of a clinical
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study. Non-significant risk devices are devices that do not pose a significant risk to the human subjects. A non-significant risk device study requires only
IRB approval prior to initiation of a clinical study.
After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses
and indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with the FDA. A medical
device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the Quality System
Regulation, which covers the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging, and
shipping of medical devices. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA
also may inspect foreign facilities that export products to the United States.
Review and Approval of Combination Products in the United States
Certain products may be comprised of components that would normally be regulated under different types of regulatory authorities, and frequently
by different Centers at the FDA. These products are known as combination products. Under regulations issued by the FDA, a combination product may be:
•
a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and produced as
a single entity;
•
two or more separate products packaged together in a single package or as a unit and comprised of drug and device products;
•
a drug or device packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved
individually specified drug or device where both are required to achieve the intended use, indication, or effect and where upon approval of
the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form,
strength, route of administration, or significant change in dose; or
•
any investigational drug or device packaged separately that according to its proposed labeling is for use only with another individually
specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.
Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. That
determination is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a device-drug combination
product is attributable to the drug product, the FDA Center responsible for premarket review of the drug product would have primary jurisdiction for the
combination product. The FDA has also established an Office of Combination Products to address issues surrounding combination products and provide
more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is
also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has
primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
Federal and State Data Privacy Laws
There are multiple privacy and data security laws that may impact our business activities, in the United States and in other countries where we
conduct business or trials or where we may do business in the future. These laws are evolving and may increase both our obligations and our regulatory
risks in the future. In the health care industry generally, under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the HHS has
issued regulations to protect the privacy and security of protected health information, or PHI, used or disclosed by covered entities including certain
healthcare providers, health plans, and healthcare clearinghouses. HIPAA also regulates standardization of data content, codes, and formats used in
healthcare transactions and standardization of identifiers for health plans and providers. HIPAA also imposes certain obligations on the business associates
of covered entities that obtain protected health information in providing services to or on behalf of covered entities. HIPAA may apply to us in certain
circumstances and may also apply to our business partners in ways that may impact our relationships with them. Our clinical trials are regulated by the
Common Rule, which also includes specific privacy-related provisions. In addition to federal privacy regulations, there are a number of state laws
governing confidentiality and security of health information that may be applicable to our business. In addition to possible federal civil and criminal
penalties for HIPAA violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA
and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state attorneys general (along with private plaintiffs) have
brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. State attorneys general also
have authority to enforce state privacy and security laws. New laws and regulations governing privacy and security may be adopted in the future as well.
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In 2018 California passed into law the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, and imposed many
requirements on businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in
the General Data Protection Regulation, or GDPR, including requiring businesses to provide notice to data subjects regarding the information collected
about them and how such information is used and shared, and providing data subjects the right to request access to such personal information and, in
certain cases, request the erasure of such personal information. The CCPA also affords California residents the right to opt-out of “sales” of their personal
information. The CCPA contains significant penalties for companies that violate its requirements. In November 2020, California voters passed a ballot
initiative for the California Privacy Rights Act, or CPRA, which went into effect on January 1, 2023, and significantly expanded the CCPA to incorporate
additional GDPR-like provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably
necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring
greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency – the California
Privacy Protection Agency – whose sole responsibility is to enforce the CPRA, which will further increase compliance risk. The provisions in the CPRA
may apply to some of our business activities.
In addition to California, a number of other states have passed comprehensive privacy laws similar to the CCPA and CPRA. Like the CCPA and
CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data
(which includes health data in some cases). These laws are either in effect or will go into effect sometime before the end of 2026. Like the CCPA and
CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data,
which includes health data in some cases. Some of the provisions of these laws may apply to our business activities. Other states will be considering similar
laws in the future, and Congress has also been debating passing a federal privacy law.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is
possible that some of our current or future business activities, including certain clinical research, sales and marketing practices, and the provision of certain
items and services to our customers, could be subject to challenge under one or more of such privacy and data security laws. The heightening compliance
environment and the need to build and maintain robust and secure systems to comply with different privacy compliance and/or reporting requirements in
multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements.
Review, Approval and Regulation of Drug Products in the European Union
To market any product outside of the United States, a sponsor must also comply with numerous regulatory requirements of other countries and
jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and
distribution of products. Whether or not it obtains FDA approval for a product, a sponsor will need to obtain the necessary approvals by the comparable
regulatory authorities of foreign countries or economic areas, such as the 27-member European Union, or EU, and together, EU Member States, before it
can commence clinical trials or marketing of the product in those countries or jurisdictions. This process in the EU generally follows the same lines as in
the United States and requires the satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and
efficacy of the product for each proposed indication.
Preclinical Studies
Before a product enters clinical testing in the EU, the sponsor must conduct preclinical studies to demonstrate the safety of the investigational
product for such clinical testing. These studies must be conducted in compliance with the principles of GLP, as set forth in EU Directive 2004/10/EC. In
particular, preclinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with GLP
principles, which reflect the requirements of the Organization for Economic Co-operation and Development, or OECD.
Human Clinical Trials in Support of a Marketing Authorization
Clinical trials in the EU are governed by the Clinical Trials Regulation (EU) No 536/2014, or CTR, which replaced the prior Clinical Trials
Directive 2001/20/EC, or CTD. The CTR is designed to simplify and streamline the authorization, conduct and transparency of clinical trials in the EU.
Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one EU Member State
submits a single application for approval. The submission is made through the Clinical Trials Information System, a new clinical trials portal overseen by
the EMA and available to clinical trial sponsors, competent authorities of the EU Member States and the public. All clinical trials in the EU (including
those which are ongoing) are subject to the CTR
The CTR streamlines the process and includes a single set of documents to be prepared and submitted for the application, simplified reporting
procedures for clinical trial sponsors, and a harmonized procedure for the assessment of applications for clinical
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trials, which is divided in two parts. Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a
clinical trial has been submitted, and Part II is assessed separately by each EU Member State concerned. Strict deadlines have been established for the
assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure is governed by the national law of the
relevant EU Member State.
As in the United States, sponsors conducting certain clinical studies in the EU must post clinical trial information at the EudraCT website:
https://eudract.ema.europa.eu.
Pediatric Studies
Prior to obtaining a marketing authorization in EU, sponsors must demonstrate compliance with all measures included in an EMA-approved
Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver,
or a deferral for one or more of the measures included in the PIP. This requirement also applies when a sponsor wants to add a new indication,
pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant
deferrals for some medicines, allowing a company to delay development of the medicine for children until there is enough information to demonstrate its
effectiveness and safety in adults. The PDCO may also grant waivers when the development of a medicine for children is not needed or is not appropriate,
such as for diseases that only affect the elderly population. Before an MAA can be filed, or an existing marketing authorization can be amended, the EMA
determines whether a sponsor has complied with the agreed studies and measures listed in each relevant PIP.
PRIME Designation
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, which are often rare, for which few or
no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need, and it
provides for the accelerated assessment of product candidates that represent substantial innovation. Products from small- and medium-sized enterprises, or
SMEs, may qualify for early entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME
designation, including early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program
elements, and accelerated MAA assessment once an application has been submitted. Importantly, a dedicated EMA contact and rapporteur from the CHMP
or Committee for Advanced Therapies, or CAT, are appointed early in PRIME scheme facilitating increased understanding of the product candidate at
EMA’s Committee level.
Marketing Authorization
To obtain a marketing authorization, or MA, for a product under the EU regulatory system, a sponsor must submit an MAA either under a
centralized procedure administered by the EMA or one of the procedures administered by competent authorities in EU Member States, including the
decentralized procedure, national procedure, or mutual recognition procedure.
The centralized procedure provides for the grant of an MA by the European Commission, or EC, that is valid for all EU Member States. Pursuant to
Regulation (EC) No. 726/2004, the centralized procedure is compulsory for certain types of product candidates, including those produced by certain
biotechnological processes, designated as orphan drug products, that are advanced therapies, and that have a new active substance indicated for the
treatment of certain diseases, including cancer. However, the centralized procedure may be optional for product candidates with a new active substance
indicated for the treatment of other diseases and product candidates that are highly innovative or for which a centralized process is in the interest of
patients. Sponsors must demonstrate the quality, safety, and efficacy of their product candidates to the EMA, which provides an opinion regarding the
MAA. The EC then decides whether to grant or refuse the MA in light of the opinion delivered by the EMA.
The CHMP was established at the EMA and plays a vital role in the authorization of medicines in the EU. The CHMP provides scientific advice to
sponsors investigating and developing new medicines, prepares scientific guidelines and regulatory guidance to help sponsors prepare MAAs, and
cooperates with international partners on the harmonization of regulatory requirements. With respect to MAAs filed under the centralized procedure, the
CHMP is responsible for conducting an initial assessment of a product candidate and the data supporting approval of the MAA. The maximum timeframe
for the evaluation of an MAA is 210 days, excluding interruptions when additional information or written or oral explanation is to be provided by the
sponsor in response to questions from the CHMP. Accelerated evaluation with a time limit of 150 days may be granted by the CHMP in exceptional cases.
On the basis of its review, the CHMP provides a scientific opinion on whether or not an MA should be granted for a product candidate. Within 15
calendar days of receipt of a final opinion from the CHMP, the EC must prepare a draft decision concerning an MAA. This draft decision must take the
CHMP opinion and any relevant provisions of EU law into account. Before arriving at a final decision, the EC must consult the Standing Committee on
Medicinal Products for Human Use. This committee is composed of representatives of the EU Member States and is chaired by a non-voting EC
representative.
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The decentralized marketing authorization procedure, or MRP, requires a separate application to, and leads to separate approval by, the competent
authorities of each EU Member State in which the product candidate is applying to be marketed. This application is identical to the application that would
be submitted to the EMA for authorization through the centralized procedure. The reference Member State, or RMS, prepares a draft assessment and drafts
of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member
States which, within 90 days of receipt, must decide whether to approve the assessment report. If the relevant EU Member State cannot approve the RMS’s
assessment report due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the EC, whose decision is
binding on all EU Member States.
The mutual recognition procedure similarly is based on the acceptance by the competent authorities of the EU Member States of the MA of a
product by the competent authorities of other EU Member States. The holder of a national MA may submit an application to the competent authority of an
EU Member State requesting that this authority recognize the MA delivered by the competent authority of another EU Member State.
Periods of Authorization and Renewals
An MA is initially valid for five years and may be renewed after five years following a re-evaluation of the risk-benefit balance by the EMA or by
the competent authority of the EU Member State. In connection with seeking a renewal, the MA holder must provide the EMA or the competent authority
of the EU Member State with a consolidated version of the data in respect of quality, safety and efficacy or the medicine, including all variations
introduced since the MA was granted, at least six months before the MA ceases to be valid. The EC or the competent authority of the EU Member State
may decide, on justified grounds relating to pharmacovigilance, to proceed with an additional five-year period of MA. Once definitively renewed, the MA
shall be valid for an unlimited period. If a renewed MA is not followed by the actual placing of the medicine on the EU market (in the case of the
centralized procedure) or on the market of the authorizing EU Member State within three years after renewal, and is no longer actually present on the
applicable market for three consecutive years, the MA ceases to be valid.
Marketing Authorization Under Exceptional Circumstances
The EC may grant a “marketing authorization under exceptional circumstances” under Article 14(8) of Regulation (EC) No 726/2004. This
authorization is intended for products for which the sponsor can demonstrate that it is unable to provide comprehensive data on the efficacy and safety
under normal conditions of use, because: the indications for which the product in question is intended are encountered so rarely that the sponsor cannot
reasonably be expected to provide comprehensive evidence; given the present state of scientific knowledge, comprehensive information cannot be
provided; or it would be contrary to generally accepted principles of medical ethics to collect such information.
A marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following:
the sponsor must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of
a reassessment of the benefit-risk profile; the medicine in question may be supplied by medical prescription only and may in certain cases be administered
only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and the package leaflet and
any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in
question are as yet inadequate in certain specified respects.
A marketing authorization under exceptional circumstances is subject to an annual process to review and reassess the risk-benefit balance.
Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially result in the marketing authorization
being suspended or revoked. The renewal of a marketing authorization under exceptional circumstances, however, follows the same rules as a standard
MA. Thus, it is granted for an initial five-year period, after which the authorization will become valid indefinitely, unless the EMA decides that safety
grounds merit one additional five-year renewal.
Conditional Marketing Authorization
The EC may also grant a “conditional marketing authorization” to a product prior to obtaining the comprehensive clinical data required for an MAA
under Article 14-a of Regulation (EC) No 726/2004. A conditional marketing authorization may be granted for a product candidate (including product
candidates designated as orphan drug products) if: (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the sponsor will be in
a position to provide the required comprehensive clinical trial data, (iii) the product candidate fulfills an unmet medical need and (iv) the benefit to public
health of the immediate availability on the market of the product candidate outweighs the risk inherent in the fact that additional data are still required. A
conditional marketing authorization may contain specific obligations to be fulfilled by the holder, including obligations with respect to the completion of
ongoing or new studies and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may
be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific
obligations.
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Post-Approval Regulatory Requirements
Following the issuance of an MA for a product, the sponsor of the MA is required to comply with a range of requirements applicable to the
manufacturing, marketing, promotion and sale of products. These requirements include compliance with the EU’s stringent pharmacovigilance or safety
reporting rules, which may include post-authorization studies and additional monitoring obligations. Further, the manufacturing of authorized products, for
which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance,
including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the EC Guidelines for Good Manufacturing Practice. These
requirements include compliance with EU cGMP standards when manufacturing products and active pharmaceutical ingredients, including the manufacture
of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients into the EU.
At the same time, the marketing and promotion of authorized products, including industry-sponsored continuing medical education and advertising
directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU under Directive 2001/83EC, as amended, and are also
subject to EU Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited across the EU.
Regulatory Exclusivity
New products approved on the basis of a complete data package currently qualify for eight years of data exclusivity and an additional two years of
market exclusivity. Data exclusivity prevents sponsors that seek MA of generic products from referencing the innovator’s data in support of an abbreviated
application. During the additional two-year period of market exclusivity, a generic MAA can be submitted and the innovator’s data may be referenced in
that application, but no generic product can be placed on the EU market until the expiration of the market exclusivity. The overall ten-year period may be
extended to a maximum of 11 years if, during the first eight years of those ten years, the MA holder for the innovative product obtains an authorization for
one or more new therapeutic indications which are determined to bring a significant clinical benefit in comparison with existing therapies.
In November 2020, the EC launched a review of the EU’s pharmaceutical legislation, including its provisions governing regulatory exclusivity. The
EC’s proposal for revision of several legislative measures was published in April 2023 and includes, among other things, provisions that would potentially
reduce the duration of regulatory exclusivity protection. On December 11, 2025, the European Parliament and Council reached a provisional political
agreement on the legislation, which is expected to be adopted by mid-2026. Key changes include updating regulatory exclusivity to a new system with
eight years of data exclusivity and a reduced market exclusivity period to one year, which can be extended if specific conditions are fulfilled up to a
maximum of 11 years. This measure, and others, are expected to be adopted by mid-2026 and, following a transition period of 24 months, will likely take
effect in mid-2028.
Orphan Drug Designation and Exclusivity
As in the United States, a product candidate can be designated as an orphan drug by the EC if its sponsor can establish that the product candidate is
intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand
persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU that without
incentives is unlikely to generate sufficient return from marketing in the EU to justify the necessary investment. For either of these categories, the sponsor
must demonstrate that there is no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU
or, if such method exists, the product candidate will be of significant benefit to those affected by the condition.
If a product candidate is designated as an orphan drug, the product candidate will be eligible for a range of benefits during the development and regulatory
review process, including scientific assistance for study protocols, authorization through the centralized MRP covering all EU Member States and a
reduction or elimination of registration and MA fees.
Further, if and when the product candidate is authorized for marketing, the orphan product will be entitled to ten years of market exclusivity in all
EU Member States. However, an MA may be granted to a similar product with the same orphan indication during the ten-year period with the consent of
the MA holder of the original orphan product or if the manufacturer of the original orphan product is unable to supply sufficient quantities. An MA may
also be granted to a similar product with the same orphan indication if the product is safer, more effective or otherwise clinically superior to the original
orphan product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that
the original orphan product is sufficiently profitable not to justify maintenance of market exclusivity.
Pediatric Exclusivity
If a sponsor obtains an MA in all EU Member States, or an MA granted in the centralized procedure by the EC, and the study results for the
pediatric population are included in the application, even when negative, the product is eligible for an additional six-month period of qualifying patent
protection through extension of the term of the Supplementary Protection Certificate, or SPC.
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Patent Term Extensions
The EU provides for patent term extension through SPCs. The rules and requirements for obtaining a SPC are set out in Regulation (EC) 469/2009
and are similar to those in the United States. An SPC may extend the term of a patent for up to five years after its originally scheduled expiration date and
can provide up to a maximum of fifteen years of marketing exclusivity for a drug. Although SPCs are available throughout the EU, sponsors must apply on
a country-by-country basis.
Pricing Decisions
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only
after a reimbursement price has been agreed. Other countries may require the completion of additional studies that compare the cost-effectiveness of a
particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing
approval. For example, EU Member States have the option to restrict the range of products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. EU Member States may approve a specific price for a product or it may
instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other EU Member States allow
companies to fix their own prices for products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions.
Recently, many countries in the EU have increased the amount of discounts required on pharmaceuticals, and these efforts could continue as
countries attempt to manage health care expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The
downward pressure on health care costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being
erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations
may continue after reimbursement has been obtained. Reference pricing used by various EU Member States, and parallel trade, i.e., arbitrage between low-
priced and high-priced EU Member States, can further reduce prices.
General Data Protection Regulation
There are significant privacy and data security laws that apply in Europe and other countries. The collection, use, disclosure, transfer, or other
processing of personal data, including personal health data, regarding individuals who are located in the European Economic Area, or EEA, and the
processing of personal data that takes place in the EEA, is subject to the EU’s General Data Protection Regulation, or GDPR, which became effective in
2018. The GDPR is wide-ranging in scope, imposes numerous requirements on companies that process personal data, and imposes heightened requirements
on companies that process health and other sensitive data. These requirements include, in many situations, that a company obtain consent from an
individual before processing their sensitive personal data.
Examples of obligations imposed by the GDPR on companies processing personal data within its scope include providing information to individuals
regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, appointing a data protection
officer, providing notifications of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on
the transfer of personal data to countries outside the EEA, including the United States, and permits data protection authorities to impose large penalties for
violations of the GDPR, including potential fines of up to the greater of €20 million or 4% of annual global revenues. The GDPR also confers a private
right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain
compensation for damages resulting from violations of the GDPR. Compliance with the GDPR is a rigorous and time-intensive process that may increase
the cost of doing business or require companies to change their business practices to ensure full compliance.
Following the July 2020 Court of Justice of the EU judgement invalidating the so-called EU-U.S. Privacy Shield, the EC adopted an adequacy
decision for the EU-U.S. Data Privacy Framework in July 2023. This adequacy decision permits U.S. companies who self-certify under the EU-U.S. Data
Privacy Framework to rely on it as a valid data transfer mechanism for data transfers from the EU to the United States. However, some privacy advocacy
groups have already suggested that they will be challenging the EU-U.S. Data Privacy Framework, and there is currently one pending litigation against the
EU-U.S. Data Privacy Framework before the Court of Justice of the EU (CJEU), C-703/25 P – Latombe v Commission. If these challenges are successful,
they may not only impact the EU-U.S. Data Privacy Framework, but also further limit the viability of the so-called standard contractual clauses and other
data transfer mechanisms.
Review, Approval and Regulation of Drug Products in the United Kingdom
As of January 1, 2025, the Medicines and Healthcare Products Regulatory Agency, or the MHRA, is responsible for approving all products destined
for the United Kingdom market (Great Britain and Northern Ireland). The MHRA relies on the Human Medicines Regulations 2012 (SI 2012/1916) (as
amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into domestic law the body of EU law instruments governing
products that existed prior to the United Kingdom’s
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withdrawal from the EU. On April 28, 2025, the U.K. Parliament adopted amendments to improve and strengthen the clinical trials regulatory regime in the
United Kingdom. These revisions will take effect on April 28, 2026, and were needed to replace the prior requirements in the United Kingdom that were
based on the repealed CTD, which has been replaced by the CTR.
In addition, as of January 1, 2024, an international recognition procedure, or IRP, applies in the United Kingdom and is designed to facilitate
approval of pharmaceutical products in the United Kingdom. The IRP is open to sponsors that have previously received an authorization for the same
product from one of the MHRA’s specified Reference Regulators, or RRs. The RRs include the FDA, EMA and regulators in the EEA member states for
approvals in the EU centralized procedure and mutual recognition procedure, and the FDA for approvals granted in the United States. The RR assessment
must have undergone a full and standalone review. RR assessments based on reliance or recognition cannot be used to support an IRP application. A
CHMP positive opinion is an RR authorization for the purposes of IRP.
Following the withdrawal of the United Kingdom from the EU, the U.K. Data Protection Act applies to the processing of personal data that takes
place in the United Kingdom and includes parallel obligations to those set forth by GDPR. The U.K. government has determined that it considers all EU
Member States and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the U.K. to the EU/EEA remain
unaffected. Further, the EC decided in June 2021 that the level of data protection in the United Kingdom is “essentially adequate” for purposes of data
transfer from the EU to the United Kingdom. On December 19, 2025, the EC renewed this decision until December 27, 2031. The United Kingdom and the
United States have also agreed to a U.S.-UK “Data Bridge,” which functions similarly to the EU-U.S. Data Privacy Framework and provides an additional
legal mechanism for companies to transfer personal data from United Kingdom to the United States.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales
of products will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and
Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such products.
The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement
rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the
medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may
limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive
pharmacoeconomic, health outcome studies in order to demonstrate the medical necessity, quality of life benefits, and cost-effectiveness of the product, in
addition to the costs required to obtain FDA or other comparable regulatory approvals. Nonetheless, product candidates may not be considered medically
necessary or cost effective in light of cost-benefit analysis. Additionally, a payor’s decision to provide coverage for a drug product does not imply that an
adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors
will also provide coverage for the drug product. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an
appropriate return on investment in product development.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of drugs have been a focus
in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a
company or its collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Outside the United States, ensuring adequate coverage and payment for our product candidates will face challenges. Pricing of prescription
pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the
receipt of regulatory marketing approval for a product and may require us to conduct studies that compare the cost effectiveness of our product candidates
or products to other available therapies. The conduct of such studies could be expensive and result in delays in our commercialization efforts.
Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a
reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular
drug candidate to currently available therapies in order to obtain reimbursement. For example, the European Union provides options for its member states
to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. European Union
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Member States may approve a specific price for a drug product, or it may instead adopt a system of direct or indirect controls on the profitability of the
company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products but monitor and control
company profits and issue guidance to prescribers. The downward pressure on health care costs in general, particularly prescription drugs, has become
intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, reference pricing and cross-border imports from
low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations
for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare Law and Regulation
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of drug products that are granted regulatory
approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain our business and/or financial arrangements. Such restrictions under applicable federal and state
healthcare laws and regulations, include the following:
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, receiving or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, lease or order of, any good or service, for which payment may be made, in
whole or in part, under a federal healthcare program such as Medicare and Medicaid;
•
the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit
individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government;
•
HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willingly executing, or attempting
to execute, a scheme or making false statements in connection with the delivery of or payment for health care benefits, items, or services;
•
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which
also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information on covered entities and their business associates that associates that perform certain functions or
activities that involve the use or disclosure of protected health information on their behalf;
•
the Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making, or offering or promising to
make improper payments to non-U.S. officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment;
•
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable
Care Act, as amended by the Health Care Education Reconciliation Act, or collectively the ACA, which requires certain manufacturers of
drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance
Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, within HHS, information
related to payments and other transfers of value to certain healthcare providers and teaching hospitals and information regarding ownership
and investment interests held by physicians and their immediate family members; and
•
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or
services that are reimbursed by non-governmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to
physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in
some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts.
Healthcare Reform and Pharmaceutical Pricing
A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals
during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other
medical products, government control and other changes to the healthcare system in the United States.
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The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been several recent
U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to
pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under
Medicare and Medicaid.
On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law by President Biden. The new legislation has implications for
Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of
paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in
price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and
Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new
discounting program (beginning in 2025). The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed
to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and
biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for
ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or
Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least nine years and biologics that have been
licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. Drugs and biologics that
have been approved for a single rare disease or condition were originally categorically excluded from price negotiation but, with passage of the One Big
Beautiful Bill Act in July 2025, Congress extended this exemption to drugs and biologics with multiple orphan drug designations.
Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by
offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The
legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare
out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.
The first cycle of negotiations for the Medicare Drug Price Negotiation Program commenced in the summer of 2023 with the negotiated prices for
ten selected drug products becoming effective on January 1, 2026. The second cycle of negotiations with participating drug companies occurred during
2025, and the negotiated prices for this second set of 15 drugs will become effective on January 1, 2027. On January 27, 2026, CMS published the list of 15
drugs selected for the third cycle of negotiations. These negotiated prices will become effective on January 1, 2028.
In June 2023, Merck & Co. filed a lawsuit against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for
Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. Subsequently, a number of other parties also filed
lawsuits in various courts with similar constitutional claims. HHS has generally won the substantive disputes in these cases or succeeded in getting claims
dismissed for lack of standing or on the merits. For example, on May 8, 2025, the U.S. Court of Appeals for the Third Circuit rejected AstraZeneca PLC’s
challenge to the Medicare price negotiation program, finding that the program did not violate the company’s due process rights under the U.S. Constitution.
Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results.
Since adoption of the IRA, the Trump Administration has taken a number of actions to reduce the costs of pharmaceutical products. For example, on
April 15, 2025, President Trump issued an Executive Order which directs HHS to take steps to reduce the prices of pharmaceutical products. Further, on
May 12, 2025, President Trump issued an additional Executive Order calling on pharmaceutical manufacturers to voluntarily reduce the prices of medicines
in the United States. The Executive Order directs the Secretary of HHS to communicate most-favored-nation, or MFN, price targets to pharmaceutical
manufacturers to bring prices in line with comparably developed nations. Thereafter, on July 31, 2025, the President issued letters to 17 pharmaceutical
companies reiterating the requirements of the May 12, 2025, Executive Order and demanding that such companies extend MFN pricing to Medicaid
patients. Virtually all of these pharmaceutical companies have entered into agreements with the administration to provide for lower prices on certain
pharmaceuticals. On February 5, 2026, President Trump launched TrumpRx.gov, a website that directs individuals to pharmaceutical manufacturer
websites that are offering price discounts based on the Trump Administration’s pricing agreements with pharmaceutical manufacturers.
Separately, on December 23, 2025, CMS, through its Center for Medicare and Medicaid Innovation proposed two five-year pilot programs to
implement a “reference pricing” regime for drugs paid for under Medicare for 25% of covered beneficiaries. The programs are referred to as the Global
Benchmark for Efficient Drug Pricing Model for Medicare Part B drugs, referred to as GLOBE, and the Guarding U.S. Medicare Against Rising Drug
Costs for Medicare Part D drugs, referred to as GUARD. Under the proposed
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pilot programs, a manufacturer would owe rebates to Medicare if prices for their drugs exceeded the prices paid by other economically comparable
reference countries, defined in the proposed regulations as OECD countries with a gross domestic product of $400 billion and a per capita gross domestic
product that is at least 60% of the U.S. per capita gross domestic product (an initial list of 19 reference countries is included in the proposed rule). These
pilot programs are proposed to go into effect beginning October 1, 2026.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
This is increasingly true with respect to products approved pursuant to the accelerated approval pathway. State Medicaid programs and other payors are
developing strategies and implementing significant coverage barriers, or refusing to cover these products outright, arguing that accelerated approval drugs
have insufficient or limited evidence despite meeting the FDA’s standards for accelerated approval. In addition, regional health care organizations and
individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their
prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on
our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates
or additional pricing pressures.
Employees and Human Resources
As of December 31, 2025, we had 733 full-time employees and six part-time employees. Of these employees, 686 were based in the United
States, 53 were based in international locations and 69 held Ph.D., Pharm.D. or M.D. degrees. None of our employees are represented by a labor union or
covered under a collective bargaining agreement. We also retain independent contractors to support the goals of our organization. We are committed to
providing a positive employee experience and a culture that embodies our values.
Fostering a diverse and inclusive culture which invests in attracting, retaining, engaging and developing our people is critical to achieving our
business objectives and bringing value to patients, shareholders and all stakeholders. We recognize that there is still important progress to be made, and this
remains an area of continued emphasis for us.
We care for the health, well-being, and futures of our employees and their families. To incentivize and reward strong performance, we have
competitive compensation and benefits programs, including short-term and long-term incentives, health and wellness benefits along with vacation and
leave programs. We offer an array of flexible working options that balances the needs of our employees with business needs.
We offer equity incentives to all new employees and an annual equity award to all our employees in connection with our annual performance
reviews and regular Total Rewards programs. Our equity and cash incentive plans are aimed to increase stockholder value and the success of our company
by motivating our employees to perform to the best of their abilities and achieve our and their objectives. In addition, many of our employees are
stockholders of our company through participation in our Employee Stock Purchase Plan, which aligns the interests of our employees with our stockholders
by providing stock ownership on a tax-deferred basis. We also provide up to a 50% match on employee contributions (up to 5% of base salary) to our
401(k) retirement savings plan.
Our full-time U.S. employees are all eligible to participate in our health, vision, dental, life, and long-term disability insurance plans. We fund
employer contributions for employees enrolled in the high deductible medical plan, which help to cover healthcare expenses pre-tax, and we also offer
employees a flexible spending account for both healthcare and dependent care needs. Our employees outside of the United States receive competitive
compensation and benefits that are regularly benchmarked to ensure market norms and reflect our standards. All employees globally have access to
complimentary virtual fitness programs, mental and emotional health support services, as well as support programs to assist working parents with childcare
and tutoring. This benefit also extends to eldercare, pet care, and other needs facing our diverse global team.
We regularly evaluate the effectiveness of our talent management practices through employee surveys and fostering a culture of ongoing
feedback. In addition, we track important talent metrics such as turnover rate and employee engagement. Voluntary and involuntary turnover rates across
all levels (executives/ senior managers, mid-level managers and professionals) are in alignment with, or lower than, the industry average.
Corporate Responsibility
We are highly committed to policies and practices focused on sustainability, positively impacting our community and maintaining and
cultivating good corporate governance. By focusing on such policies and practices, we strive to bring transformative medicines to patients, provide an
engaging and inclusive workplace for our employees, minimize our impact on the environment, and always demonstrate integrity in our actions.
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Information in any ESG Sustainability Report that we may publish is not incorporated by reference into this Form 10-K. We look forward to
continuing our commitment to giving back to our local communities in 2026 and beyond.
Corporate Information
Our principal executive office is located at 100 Fifth Avenue, Waltham, Massachusetts, and our telephone number is 617-977-5700.
Available Information
We file reports and other information with the Securities and Exchange Commission, or the SEC, as required by the Securities Exchange Act of
1934, as amended, which we refer to as the Exchange Act. You can review our electronically filed reports and other information that we file with the SEC
on the SEC’s web site at http://www.sec.gov.
Our website address is www.apellis.com. We make available free of charge through our website our Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Exchange Act. We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or
furnish such reports to, the SEC. In addition, we regularly use our website to post information regarding our business, product development programs and
governance, and we encourage investors to use our website, particularly the information in the section entitled “Investors & Media,” as a source of
information about us.
The foregoing references to our website are not intended to, nor shall they be deemed to, incorporate information on our website into this Annual
Report on Form 10-K by reference.
Item 1A. Risk Factors
Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report on Form 10-K and
in other documents that we file with the Securities and Exchange Commission, or SEC, in evaluating our company and our business. Investing in our
common stock involves a high degree of risk. If any of the following risks actually occur, our business, financial condition, results of operations and future
growth prospects could be materially and adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since inception, expect to incur significant expenses, and may never achieve or maintain profitability.
We have incurred significant annual net operating losses in every year since our inception. We expect to continue to incur significant expenses for
the foreseeable future. Our net income was $22.4 million for the year ended December 31, 2025, and our net losses were $197.9 million and $528.6 million
for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2025, we had an accumulated deficit of $3.0 billion. While we are now
generating substantial revenue from sales of SYFOVRE and EMPAVELI, we have primarily financed our operations to date through the sale of our
common stock in our public offerings, the sale of convertible notes, private placements of our preferred stock prior to our initial public offering, the
development funding agreement with SFJ Pharmaceuticals Group, or SFJ, the financing agreement with Sixth Street Lending Partners, or Sixth Street, the
collaboration agreement with Swedish Orphan Biovitrum AB (Publ), or Sobi and the Royalty Agreement with Sobi. We have devoted substantially all of
our financial resources and efforts to research and development, including preclinical studies and our clinical trials across several disease indications, and
the commercialization of SYFOVRE and EMPAVELI. Our operating results may fluctuate significantly from quarter to quarter and year to year. Net losses
and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
We expect to continue to incur significant expenses for the foreseeable future and while we anticipate achieving net operating income based on our
current operating plan, we may not sustain profitability and could incur losses in the future. We anticipate that we will continue to incur increasing
expenses if and as we:
•
continue to commercialize EMPAVELI in the United States and commercialize SYFOVRE for the treatment of GA in the United States,
Australia, and select other jurisdictions;
•
prioritize the ongoing development of EMPAVELI and focus our research initiatives on high potential opportunities, including APL-3007
and APL-9099;
•
establish and continue to build sales, marketing, distribution and other commercial infrastructure for EMPAVELI and SYFOVRE and any
other products for which we may obtain marketing approval;
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•
prepare to submit additional applications for regulatory approval for SYFOVRE outside the United States;
•
continue to develop and conduct research and preclinical and clinical trials of our current and future product candidates;
•
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
•
continue to manufacture commercial quantities of our approved products and to manufacture our product candidates for clinical development
and, potentially, commercialization;
•
maintain, expand and protect our intellectual property portfolio;
•
hire and retain personnel;
•
add operational, financial and management information systems; and
•
add equipment and physical infrastructure to support our research and development programs.
Our ability to become and remain profitable depends on our ability to generate significant product revenue. Our ability to generate significant
revenue will require us to successfully commercialize EMPAVELI and SYFOVRE in the approved indications. While we have generated product revenue
from sales of EMPAVELI since May 2021 and SYFOVRE since March 2023, we have not generated sufficient revenue to achieve profitability and there
can be no assurance that we will generate sufficient revenue to achieve profitability in the next several years, or at all. Even if we achieve profitability,
there can be no assurance that we will be able to maintain profitability.
The successful commercialization of our approved products is subject to many risks. There are numerous examples of unsuccessful product launches
and failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us. We do not
anticipate our revenue solely from sales of EMPAVELI will be sufficient for us to become profitable for several years, if at all. Our prospects depend
substantially upon the commercial success of SYFOVRE.
Successful commercialization will require manufacturing, marketing and selling our approved products, satisfying any post-marketing requirements
and obtaining reimbursement for our products from private insurance or government payors. Because of the uncertainties and risks associated with these
activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve profitability. We and any collaborators
may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenues that are large enough for us to achieve
profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to
become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our
research and development efforts, diversify our pipeline of product candidates or continue our operations. A decline in the value of our company could
cause our stockholders to lose all or part of their investment.
We are continuing to devote significant resources to support our ongoing commercial activities related to product manufacturing, marketing, sales and
distribution of EMPAVELI, C3G and primary IC-MPGN and SYFOVRE, and if our cash, 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.
Developing and commercializing pharmaceutical products, including conducting preclinical studies and clinical trials and preparing for commercial
launch, is a very time-consuming, expensive and uncertain process that takes years to complete. We have consumed substantial amounts of cash since our
inception. For example, in the year ended December 31, 2025, we generated net cash from operating activities of $45.3 million, which included significant
non-recurring licensing and other revenue, however, for the years ended December 31, 2024 and December 31, 2023, we used net cash of $87.9 million and
$594.7 million, respectively. As of December 31, 2025, our cash and cash equivalents were $466.2 million. We expect our expenses to continue,
particularly as we continue to commercialize EMPAVELI and SYFOVRE, and prioritize the ongoing development of pegcetacoplan and focus our research
initiatives on high potential opportunities. In addition, as we continue to commercialize EMPAVELI and SYFOVRE, and if we obtain marketing approval
of pegcetacoplan in other indications or jurisdictions or for our other product candidates, we expect we will incur significant additional commercialization
expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not
the responsibility of a collaborator.
We believe that our cash and cash equivalents as of December 31, 2025, 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 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 commercialization of SYFOVRE for GA and EMPAVELI for the treatment of PNH, C3G and primary
IC-MPGN. We are also devoting substantial resources to our pivotal clinical trials of EMPAVELI for the
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treatment of FSGS and DGF, and the development of our product candidates. Because of the numerous risks and uncertainties associated with the
commercialization of EMPAVELI and SYFOVRE and the development of our 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:
•
our ability to successfully commercialize and sell EMPAVELI in the United States and SYFOVRE in the United States, Australia and select
other jurisdictions;
•
the cost of and our ability to obtain regulatory approvals of SYFOVRE outside of the United States;
•
the cost of and our ability to effectively establish and maintain, the commercial infrastructure and manufacturing capabilities required to
support the commercialization of EMPAVELI, C3G and primary IC-MPGN, systemic pegcetacoplan and SYFOVRE and any other products
for which we receive marketing approval including product sales, medical affairs, marketing, manufacturing and distribution;
•
the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for systemic pegcetacoplan,
SYFOVRE and our other product candidates;
•
our ability to maintain a productive collaborative relationship with Sobi with respect to systemic pegcetacoplan, including our ability to
achieve milestone payments under our agreement with Sobi;
•
our ability to identify additional collaborators for any of our product candidates and the terms and timing of any collaboration agreement that
we may establish for the development and any commercialization of such product candidates;
•
the number and characteristics of product candidates that we pursue and their development requirements;
•
the outcome, timing and costs of clinical trials and of seeking regulatory approvals of pegcetacoplan in other jurisdictions and indications and
other product candidates we may pursue;
•
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the
responsibility of any collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing
capabilities;
•
subject to receipt of marketing approval, revenue, if any, received from commercial sales of pegcetacoplan in other jurisdictions and
indications and our other product candidates;
•
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending
against intellectual property related claims;
•
the effect of competing technological and market developments;
•
the effect of public health crises, including pandemics and epidemics, on the healthcare system and the economy generally and on our clinical
trials and other operations specifically;
•
our ability to obtain adequate reimbursement for EMPAVELI and SYFOVRE or any other product we commercialize;
If our cash and cash equivalents, and the 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 sources 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.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or
product candidates.
We expect to continue to incur significant expenses in connection with our planned operations. To the extent that we raise additional capital through
the sale of common stock, convertible securities or other equity securities, the ownership interest of our then-existing stockholders may be diluted, and the
terms of these securities could include liquidation or other preferences and
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anti-dilution protections that could adversely affect the rights of our common stockholders. In addition, additional debt financing, if available, would result
in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our
ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that
could adversely impact our ability to conduct our business.
Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing financing
could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-
to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable
to 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.
The terms of our indebtedness could adversely affect our operations and limit our ability to plan for or respond to changes in our business. If we are
unable to comply with restrictions in our debt financing agreements, the repayment of our existing indebtedness could be accelerated.
As of December 31, 2025, we had $375.0 million of indebtedness under our financing agreement with Sixth Street and approximately $93.9 million
principal amount of the Convertible Notes which mature in September of 2026 and held by third parties as of December 31, 2025. We may also incur
additional indebtedness to meet future financing needs.
Under our financing agreement, or the Sixth Street Financing Agreement, by and among us, certain of our subsidiaries, the lenders party thereto and
Sixth Street, as the administrative agent for the lenders, we have incurred a substantial amount of debt, which could adversely affect our business. In May
2024, we drew down the senior secured term loan facility, or the Credit Facility, of $375.0 million. The lenders consented to the Sobi Royalty Agreement,
and, in connection with that consent, the Company has agreed to extend by one year the periods in which certain prepayment premiums would be owing
upon any applicable prepayments of the indebtedness under the Credit Facility provided for under the Financing Agreement. Among other permissions, we
are permitted, on terms and conditions set forth on the Sixth Street Financing Agreement, to enter into a separate asset-based financing arrangement with a
third-party in an amount of up to $100.0 million, which amount is increased to $200.0 million upon certain sales or market capitalization thresholds, and to
have outstanding convertible unsecured notes in an amount equal to the greater of $400.0 million and 10% of our market capitalization, but not to exceed
$600.0 million.
The Sixth Street Financing Agreement requires us to make certain payments of interest over time and contains several other negative covenants that,
subject to certain exceptions, restrict indebtedness, liens, investments (including acquisitions), fundamental changes, asset sales and licensing transactions,
dividends, modifications to material agreements, payment of subordinated indebtedness, and other matters customarily restricted in such agreements.
Among other requirements of the Sixth Street Financing Agreement, we and our subsidiaries party to the Sixth Street Financing Agreement must maintain
liquidity of at least $50.0 million if our market capitalization is below $3.0 billion. We are also subject to restrictions on sales and licensing transactions
with respect to our core intellectual property, defined to include SYFOVRE, EMPAVELI, and other pegcetacoplan product assets, subject to certain
exceptions, including certain transactions related to areas outside the United States and Europe. These and other terms in the Sixth Street Financing
Agreement could restrict our ability to grow our business or enter into transactions that we believe would be beneficial to our business.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the Convertible Notes depends on our future
performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from
operations in the future sufficient to service the Convertible Notes. If we are unable to generate cash flow, we may be required to adopt one or more
alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be unfavorable to us or highly dilutive. Our
ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time we seek to refinance such indebtedness. We
may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Furthermore, holders of the Convertible Notes have the right to require us to repurchase all or a portion of their Convertible Notes upon the
occurrence of a fundamental change at a price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest.
In addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than
paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes
surrendered therefor or
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Convertible Notes being converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversions of the Convertible Notes
may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Convertible Notes at a time
when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Convertible Notes as required by the indenture
would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements
governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace
periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash payments upon conversions
thereof.
Our indebtedness could affect our business in the following ways, among other things: make it more difficult for us to satisfy our contractual and
commercial commitments; require us to use a substantial portion of our cash flow from operations to pay interest and principal when due, which would
reduce funds available for working capital, capital expenditures and other general corporate purposes; limit our ability to obtain additional financing for
working capital, capital expenditures, acquisitions and other investments or general corporate purposes; heighten our vulnerability to downturns in our
business, our industry or in the general economy; place us at a disadvantage compared to those of our competitors that may have proportionately less debt;
limit management’s discretion in operating our business; and limit our flexibility in planning for, or reacting to, changes in our business, the industry in
which we operate or the general economy.
Our business may not generate cash flows from operations in the future that are sufficient to service our debt and support our growth strategies. If
we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as obtaining additional equity capital on terms that
may be onerous or highly dilutive, selling assets, or restructuring debt. Our ability to refinance our indebtedness will depend on the capital markets and our
financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result
in a default on our debt obligations.
We have substantial accounts receivable, and any delays in collecting accounts receivable or the failure to collect accounts receivable could have a
material adverse effect on our cash flows and results of operations.
Our accounts receivable balance was $366.2 million as of December 31, 2025, which primarily consisted of EMPAVELI and SYFOVRE product
sales receivable(s) and licensing and other revenue receivables from our collaboration with Sobi. While we monitor the financial performance and
creditworthiness of our customers and provide reserves against trade receivables for expected credit losses that may result from a customer’s failure to pay,
no assurances can be made that we will not experience delays in collecting payments, that we will collect the payments due to us. Sales to a small number
of distributors account for substantially all our gross revenue related to SYFOVRE during the year ended December 31, 2025. Distributors require industry-
standard payment terms, including an extended time period for distributors to make payments to Apellis. Any failures to receive cash payments could have
a material adverse effect on our results of operations and cash flows. We do not have a reserve related to expected credit losses against our accounts
receivable balance.
Risks Related to Commercialization and Product Development
Our business and prospects are substantially dependent on the success of SYFOVRE and EMPAVELI and the successful development and
commercialization of pegcetacoplan in other jurisdictions and disease indications. If we are unable to continue to successfully commercialize
SYFOVRE and EMPAVELI, or develop, obtain marketing approval for or successfully commercialize systemic pegcetacoplan in other indications and
jurisdictions, either alone or through a collaboration, or if we experience significant delays in doing so, our business could be harmed.
We are investing a significant portion of our efforts and financial resources to fund the commercialization of SYFOVRE and EMPAVELI and
development of systemic pegcetacoplan in other disease indications and jurisdictions. Our prospects are substantially dependent on our ability, or that of
current or any future collaborator, to successfully commercialize EMPAVELI in the United States and SYFOVRE worldwide and to develop, obtain
marketing approval for and successfully commercialize systemic pegcetacoplan in additional disease indications. SYFOVRE is currently only approved in
the United States and Australia. We did not obtain regulatory approval in the European Union, which has adversely affected our business and prospects.
We cannot be certain that we will be able to obtain regulatory approval for, and successfully commercialize, SYFOVRE in any additional jurisdiction. Our
prospects are dependent on successfully commercializing pegcetacoplan, including for the treatment of PNH, C3G and primary IC-MPGN, and our ability
to obtain additional marketing approvals for pegcetacoplan in other indications. Pursuant to our agreement with Sobi, we have granted to Sobi the exclusive
right to commercialize systemic pegcetacoplan outside the United States. All of our product candidates other than pegcetacoplan are in early stages of
development.
The success of EMPAVELI in PNH, C3G and primary IC-MPGN, and SYFOVRE in GA will depend on several factors, including the following:
•
our ability to successfully commercialize and sell EMPAVELI in the United States and SYFOVRE in the United States, Australia and
select other jurisdictions;
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•
commercial acceptance by patients, the medical community and third-party payors of EMPAVELI in PNH, C3G and primary IC-MPGN,
SYFOVRE in GA, pegcetacoplan in and in other indications, if approved, and other product candidates, if approved;
•
initiation and successful recruitment of patients, enrollment in and completion of our ongoing and planned clinical trials, including our
pivotal clinical trials of systemic pegcetacoplan for the treatment of FSGS and DGF, which were initiated in the fourth quarter of 2025;
•
safety, tolerability and efficacy profiles that are satisfactory to the FDA, EMA or any comparable foreign regulatory authority for
marketing approval;
•
our ability to identify success criteria and endpoints for our clinical trials and otherwise design our clinical trials such that the FDA, EMA,
and other regulatory authorities will be able to determine the clinical efficacy and safety profile of any product candidates we may
develop;
•
our ability to submit and obtain marketing approvals for SYFOVRE in additional jurisdictions;
•
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
•
establishment of arrangements with third-party suppliers and manufacturers for raw materials, drug intermediates, and finished products
that are appropriately packaged for sale;
•
obtaining pegcetacoplan drug product from third-party manufacturers of sufficient quality to be used in our clinical trials and for
commercial sale;
•
developing, validating and maintaining a commercially viable manufacturing process that is compliant with current good manufacturing
practices, or cGMPs;
•
the performance of Sobi and any future collaborators;
•
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;
•
protection of our rights in our intellectual property portfolio;
•
a continued acceptable safety profile following any marketing approval;
•
our ability to compete with other therapies; and
•
obtaining and maintaining healthcare coverage and adequate reimbursement.
Many of these factors are beyond our control, including the results of clinical development, the regulatory approval process, potential threats to our
intellectual property rights and the manufacturing, marketing and sales efforts of our collaborators, including Sobi. If we are unable to successfully
commercialize EMPAVELI in the United States for PNH, C3G and primary IC-MPGN, SYFOVRE in the United States and select other jurisdictions for
GA, or to develop, receive marketing approval for and successfully commercialize pegcetacoplan in other indications or jurisdictions on our own or with a
collaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.
We or others may later discover that EMPAVELI or SYFOVRE is less effective than previously believed or causes safety issues that were not identified
in clinical trials, which could compromise our ability, or that of our collaborators, to market the product.
Clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials.
Consequently, it is possible that our clinical trials, or those of our collaborators, may indicate an apparent positive effect of a product candidate that is
greater than the actual positive effect, if any, or alternatively fail to identify safety issues that may be observed once the product has been commercialized.
If safety problems occur or are identified with EMPAVELI or SYFOVRE or with any other product of ours that reaches the market, if any, the FDA or
comparable non-U.S. regulatory authorities may require that we amend the labeling of our product, recall our product, or even withdraw approval for our
product.
A small number of patients treated with SYFOVRE in the real world have experienced retinal vasculitis, a severe form of intraocular inflammation.
We plan to continue to submit all adverse events reported to us to the FDA consistent with reporting guidelines for drug manufacturers.
We cannot provide any assurances and the retinal community will believe that the expected benefits of SYFOVRE treatment outweigh its potential
risks to patients in light of these reported events or other events that might arise or that our applications for marketing approval of SYFOVRE in other
jurisdictions will not be adversely impacted by these events. A change in the perception of
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the benefit/risk profile of SYFOVRE may reduce market acceptance of the product and our product revenues may be adversely affected.
If we, or others, discover that a product is less effective than previously believed or causes safety issues that were not previously identified, such as
the reported events of retinal vasculitis following SYFOVRE treatment, any of the following events could occur:
•
the target patient population may be less willing to try, and physicians may be less willing to prescribe, the product;
•
regulatory authorities may withdraw their approval of the product or seize the product;
•
we, or our collaborators, may be required to recall the product, change the way the product is administered or conduct additional clinical
trials;
•
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
•
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
•
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
•
we, or our collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for
distribution to patients;
•
we, or our collaborators, could be sued and held liable for harm caused to patients;
•
the product may become less competitive; and
•
our reputation may suffer.
Any of these events could harm our business and operations, affect sales of our products and negatively impact our stock price.
We may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for
commercial success, of EMPAVELI or SYFOVRE, in which case we may not generate significant revenues or become profitable, and the market
opportunity for these products may be smaller than we estimate.
We may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community necessary for
commercial success of EMPAVELI or SYFOVRE.
Our commercial strategy for EMPAVELI for PNH is to maintain patients currently on treatment and drive growth by reinforcing EMPAVELI’s
differentiated efficacy profile, long-term data and real-world experience. Physicians are often reluctant to switch their patients from existing therapies even
when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently
taking and do not want to switch unless their physicians recommend switching products, they are required to switch therapies due to lack of reimbursement
for existing therapies, or they are not responding well to their existing therapy. If patients decide to switch their therapy, many may prefer an orally
administered therapy, such as iptacopan, for convenience reasons.
Our commercial strategy for EMPAVELI for C3G and primary IC-MPGN is to raise awareness on disease diagnosis, understand the important role
of C3 as a driver of disease, recognize the limitations of symptom management, and drive understanding of EMPAVELI’s differentiated efficacy profile. If
physicians and patients choose to initiate therapy, EMPAVELI is a self-administered subcutaneous injection and may not be the preferred route of
administration.
Our commercial strategy for SYFOVRE is to educate the ophthalmology and retina communities on the urgency to diagnose and treat GA, and to
establish SYFOVRE as the preferred product due to its differentiated efficacy, flexible dosing options, and real-world utilization. The commercial efforts
are also aimed at increasing the breadth of SYFOVRE utilization and experience among treating retina physicians and ensuring broad and sustained access
with payors.
Efforts to educate the medical community and third-party payors on the benefits of our products and product candidates may require significant
resources and may not be successful. If EMPAVELI, SYFOVRE, or any of our product candidates for which we obtain marketing approval do not achieve
an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of
EMPAVELI, SYFOVRE, or our other product candidates for which we obtain marketing approval, will depend on a number of factors, including:
•
the efficacy and safety of the product;
•
the potential advantages of the product compared to competitive therapies;
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•
the prevalence and severity of any side effects;
•
the clinical indications for which the product is approved;
•
whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;
•
the price at which the product is offered for sale;
•
the product’s convenience and ease of administration compared to alternative treatments;
•
the willingness of the target patient population to try, and of physicians to prescribe, the product;
•
limitations or warnings, including distribution or use restrictions contained in the product’s approved labeling;
•
the strength of sales, marketing and distribution support;
•
the approval of other new products for the same indications;
•
the timing of market introduction of our approved products as well as competitive products;
•
adverse publicity about the product or favorable publicity about competitive products;
•
potential product liability claims;
•
changes in the standard of care for the targeted indications for the product; and
•
availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
In addition, the potential market opportunity for EMPAVELI in PNH, C3G and primary IC-MPGN, and SYFOVRE in GA is difficult to precisely
estimate. Our estimates of the potential market opportunity for PNH, C3G, primary IC-MPGN, FSGS and DGF, and SYFOVRE in GA, or in other
indications include several key assumptions based on our industry knowledge, industry publications, scientific literature, third-party research reports and
other surveys. However, no independent source has verified such assumptions. If any of these assumptions proves to be inaccurate, then the actual market
for PNH, C3G and primary IC-MPGN, FSGS and DGF, SYFOVRE in GA, or any other future indication could be smaller than our estimates of potential
market opportunity. If the actual market for EMPAVELI in PNH, C3G, primary IC-MPGN, FSGS and DGF, SYFOVRE in GA, or in other future
indications is smaller than we expect, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we
do.
The development and commercialization of new products is highly competitive, as described in “Business - Competition,” above. We face
significant competition with respect to each of EMPAVELI and SYFOVRE. We expect that we, and our collaborators, will face significant competition
from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to any of our product
candidates that we, or our collaborators, may seek to develop or commercialize in the future, including from therapies that act through the complement
system and therapies that use different approaches.
Our competitors may succeed in developing, acquiring or licensing technologies and products that are more effective, have fewer side effects or
more tolerable side effects or are less costly than EMPAVELI, SYFOVRE, or any product candidates that we are currently developing or that we may
develop, which could render EMPAVELI, SYFOVRE, or our product candidates obsolete and noncompetitive.
EMPAVELI targets a market that is already served by a competitor with significantly greater financial resources than us. The principal competitors
for EMPAVELI for the treatment of PNH, are eculizumab (marketed as Soliris) and ravulizumab (marketed as Ultomiris), C5 inhibitors developed and
marketed by Alexion AstraZeneca Rare Disease, or AstraZeneca. Furthermore, in December 2023, the FDA approved iptacopan (marketed as Fabhalta), an
orally administered factor B inhibitor developed by Novartis, for the treatment of PNH. This product may have a competitive advantage if prescribers and
patients prefer to utilize an oral medication rather than an injected medication. Prior to the approval of EMPAVELI, eculizumab and ravulizumab were the
only drugs approved for the treatment of PNH. These products have widespread acceptance among clinicians, patients and payors. Eculizumab and
ravulizumab may also compete with EMPAVELI in other indications in our systemic programs. In 2022, AstraZeneca also obtained approval for a
subcutaneous version of ravulizumab. The principal competitors for EMPAVELI for the treatment of C3G is iptacopan (marketed as Fabhalta).
SYFOVRE was the first approved product in the United States for the treatment of GA. In August 2023, the FDA approved avacincaptad pegol,
marketed as Izervay, a complement C5 inhibitor developed by Astellas Pharma US Inc., for the treatment of GA.
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Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective,
have fewer or less severe side effects, are more convenient or are less expensive than any products that we, or our collaborators, may develop. Our
competitors also may obtain FDA or other marketing approval for their products before we, or our collaborators, are able to obtain approval for ours, which
could result in our competitors establishing a strong market position before we, or our collaborators, are able to enter the market.
Many of our existing and potential future competitors have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. Mergers and
acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our
competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of our
product candidates.
If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we may incur
additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product
candidates.
We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval
from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. We have received approval for SYFOVRE for the treatment
of patients with GA in the United States and Australia, but there is no assurance that we will receive regulatory approvals for SYFOVRE for the treatment
of GA in other jurisdictions. For example, in 2024, the European Commission adopted a negative opinion on the MAA for SYFOVRE in the European
Union, despite positive recommendations from the ad hoc expert groups convened by the EMA and a significant number of dissenting votes from European
Union member states, or EU Member States. Because regulators in other jurisdictions are influenced by decisions of the FDA and the EMA, a negative
opinion by the FDA or the EMA may adversely impact the prospects for approval in other jurisdictions. We have received approval for EMPAVELI for the
treatment of patients with PNH, C3G and primary IC-MPGN in several jurisdictions, but there is no assurance that we will receive regulatory approvals for
EMPAVELI in other indications.
Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We
cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our product
candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or
across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with
protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may
not continue development or is not approvable. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not
be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or
analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate
that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity or intolerability caused by our product
candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case. Many companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier
development, and we cannot be certain that we will not face additional setbacks. It is possible that any of our development programs may be placed on full
or partial clinical hold by regulatory authorities at any point, which would delay and possibly prevent further development of our product candidates.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us and impair our ability to generate
revenues from product sales, regulatory and commercialization milestones, and royalties. Moreover, if we are required to conduct additional clinical trials
or other testing of our product candidates beyond the trials and testing that we contemplate, if we are unable to successfully complete clinical trials of our
product candidates or other testing or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable
safety concerns associated with our product candidates, we may:
•
incur additional unplanned costs;
•
be delayed in obtaining marketing approval for our product candidates;
•
not obtain marketing approval at all;
•
obtain approval for indications or patient populations that are not as broad as intended or desired;
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•
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed
warnings;
•
be subject to additional post-marketing testing or other requirements; or
•
be required to remove the product from the market after obtaining marketing approval.
Under our collaboration with Sobi, we are relying on Sobi to conduct certain clinical trials of systemic pegcetacoplan and seek regulatory approval
for systemic pegcetacoplan outside the United States. If Sobi or any future collaborator are unable to successfully complete clinical trials of our product
candidates and obtain regulatory approvals on a timely basis, or at all, our ability to generate revenues from product sales, regulatory and
commercialization milestones and royalties may be materially impaired.
In addition, investigators for our clinical trials and other service providers may serve as scientific advisors or consultants to us from time to time and
receive compensation in connection with such services, including equity awards and option grants, and may have other financial interests in our company.
We are required to collect and provide financial disclosure notifications or certifications for our clinical investigators to the FDA. If the FDA concludes that
a financial relationship between us and a clinical investigator has created a conflict of interest or otherwise affected interpretation of the trial, the FDA may
question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result
in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of our current
and future product candidates.
Our failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain
regulatory approval to market any of our product candidates would significantly harm our business.
Adverse events or undesirable side effects caused by, or other unexpected properties of, any of our product candidates may be identified during clinical
development that could delay or prevent their marketing approval or limit their use.
Adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, or any collaborator
conducting clinical trials of our product candidates such as Sobi, an institutional review board or regulatory authorities to interrupt, delay or halt clinical
trials of one or more of our product candidates and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or
comparable foreign regulatory authorities. For example, by design pegcetacoplan has immunosuppressive effects and, in some cases, may be administered
to patients with underlying significantly compromised health. Administration of our product candidates could make patients more susceptible to infection.
If any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or our
collaborators, may abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side
effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed
promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the
compound.
In addition, clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited
duration of exposure, rare and severe side effects of our product candidates may only be uncovered when a significantly larger number of patients are
exposed to the product.
If we, or any collaborator conducting clinical trials of any of our product candidates, experience any of a number of possible unforeseen events in
connection with clinical trials of our product candidates, potential clinical development, marketing approval or commercialization of our product
candidates could be delayed or prevented.
We, or our collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical
development, marketing approval or commercialization of our product candidates, including:
•
clinical trials of our product candidates may produce unfavorable or inconclusive results;
•
we, or our collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product
development programs;
•
the number of patients required for clinical trials of our product candidates may be larger than we, or our collaborators, anticipate, patient
enrollment in these clinical trials may be slower than we, or our collaborators, anticipate or participants may drop out of these clinical trials at
a higher rate than we, or our collaborators, anticipate;
•
the cost of planned clinical trials of our product candidates may be greater than we anticipate;
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•
our third-party contractors or those of our collaborators, including those manufacturing our product candidates or components or ingredients
thereof or conducting clinical trials on our behalf or on behalf of our collaborators, may deviate from the trial protocol, fail to comply with
regulatory requirements or fail to meet their contractual obligations to us or our collaborators in a timely manner or at all;
•
regulators or institutional review boards may not authorize us, our collaborators or our or their investigators to commence a clinical trial or
conduct a clinical trial at a prospective trial site;
•
we, or our collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols
with prospective trial sites;
•
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol,
resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical
trial’s duration;
•
we, or our collaborators, may have to delay, suspend or terminate clinical trials of our product candidates for various reasons, including a
finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the
product candidate;
•
regulators or institutional review boards may require that we, or our collaborators, or our or their investigators suspend or terminate clinical
research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the
participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product
candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;
•
the FDA or comparable foreign regulatory authorities may disagree with our, or our collaborators’, clinical trial designs or our or their
interpretation of data from preclinical studies and clinical trials;
•
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or
facilities of third-party manufacturers with which we, or our collaborators, enter into agreements for clinical and commercial supplies;
•
the supply or quality of raw materials, drug intermediates or manufactured product candidates, other products evaluated in our clinical trials
or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an
acceptable cost, or we may experience interruptions in supply; and
•
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering
our clinical data insufficient to obtain marketing approval.
Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals and we may be required to obtain
additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical
tests or clinical trials will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical study or clinical
trial delays also could shorten any periods during which we, or our collaborators, may have the exclusive right to commercialize our product candidates or
allow our competitors, or the competitors of our collaborators, to bring products to market before we, or our collaborators, do and impair our ability, or the
ability of our collaborators, to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many
of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
If we, or any collaborator conducting clinical trials of any of our product candidates, experience delays or difficulties in the enrollment of patients in
clinical trials, our or their receipt of necessary regulatory approvals could be delayed or prevented.
We, or our collaborators, may not be able to initiate or continue clinical trials for any of our product candidates if we, or they, are unable to locate
and enroll a sufficient number of eligible patients to participate in clinical trials as required by the FDA or comparable foreign regulatory authorities.
Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
•
the size and nature of the patient population;
•
the severity of the disease under investigation;
•
the proximity of patients to clinical sites;
•
the patient referral practices of physicians;
•
the eligibility criteria for the trial;
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•
the design of the clinical trial;
•
efforts to facilitate timely enrollment;
•
competing clinical trials; and
•
clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies,
including any new drugs that may be approved for the indications we are investigating.
For example, in January 2024, we and Sobi agreed to cease clinical development of systemic pegcetacoplan for 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. In July 2025, we and Sobi agreed
to cease clinical development of systemic pegcetacoplan for patients with Transplant-associated Thrombotic Microangiopathy (TA-TMA) (inclusive of
HSCT-TMA), following completion of the Phase 2 study and a strategic assessment of the TA-TMA market landscape.
Many of the indications for which we are developing product candidates are rare diseases with small patient populations, and many of those patients
are treated with other therapies or products. Further, there are only a limited number of specialist physicians that regularly treat patients with these rare
diseases and major clinical centers that support such treatment are concentrated in a few geographic regions. In addition, other companies are conducting
clinical trials and have announced plans for future clinical trials that are seeking, or are likely to seek, to enroll patients with these rare diseases and patients
are generally only able to enroll in a single trial at a time. Both patients and their physicians may be reluctant to forgo, discontinue or otherwise alter
existing, approved life-saving therapeutic approaches. Given the severe and life-threatening nature of these indications and the expectation that many
patients will be on treatment with other therapies or products, we may encounter difficulty in recruiting a sufficient number of patients for our trials
including in particular our planned clinical trials. The small population of patients, competition for these patients, the nature of the disease and limited trial
sites may make it difficult for us to enroll enough patients to complete our clinical trials of pegcetacoplan in a timely and cost-effective manner.
Our inability, or the inability of our collaborators, to enroll a sufficient number of patients for our, or their, clinical trials could result in significant
delays or may require us or them to abandon one or more clinical trials altogether. Enrollment delays in our, or their, clinical trials may result in increased
development costs for our product candidates, delay or halt the development of and approval processes for our product candidates and jeopardize our, or
our collaborators’, ability to commence sales of and generate revenues from our product candidates, which could cause the value of our company to decline
and limit our ability to obtain additional financing, if needed.
Results of preclinical studies and Phase 1 and Phase 2 clinical trials may not be predictive of results of later clinical trials and preliminary or interim
results of clinical trials do not necessarily predict final results.
The outcome of preclinical studies and Phase 1 and Phase 2 clinical trials may not be predictive of the success of later clinical trials, and preliminary
or interim results of clinical trials do not necessarily predict final results. Many companies in the pharmaceutical and biotechnology industries have
suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier stages of clinical development, and we could face similar
setbacks. Similarly, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical
trial may not become apparent until the clinical trial is well advanced.
In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product
candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates.
Even if we, or our collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable
foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due
to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and
adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive
results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most
advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
Although the development and commercialization of pegcetacoplan is our primary focus, as part of our growth strategy, we are developing a
pipeline of product candidates for the treatment of complement-dependent diseases, including APL-3007, which is a siRNA, and our FcRn gene editing
treatment that we are developing through our collaboration with Beam. These product candidates
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utilize different mechanisms of action than EMPAVELI and SYFOVRE and we do not have experience conducting clinical trials of product candidates
with such mechanisms of action. These other product candidates will require additional, time-consuming and costly development efforts prior to
commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product
candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will
not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, there can be no assurance that any such products that
are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than
other commercially available alternatives.
If EMPAVELI and SYFOVRE, for which we recruited a sales force and established marketing, market access and medical affairs teams and
distribution capabilities, are not commercially successful for any reason, we could incur substantial costs and our investment would be lost if we cannot
retain or reposition our sales, marketing, market access and medical affairs personnel.
To achieve commercial success for EMPAVELI and SYFOVRE, we have expended and anticipate that we will continue to expend significant
resources to support our sales force, marketing, market access and medical affairs teams and distribution capabilities. There are risks involved with
establishing our own sales, marketing, distribution, training and support capabilities. For example, recruiting and training sales and marketing personnel is
expensive and time consuming and could delay our ability to focus on other priorities. If EMPAVELI or SYFOVRE are not commercially successful for
any reason, this would be costly, and our investment would be lost if we cannot retain or reposition our sales, marketing, market access and medical affairs
personnel or terminate on favorable terms any agreements entered into with third parties to support our commercialization efforts.
Factors that may inhibit our efforts to commercialize EMPAVELI or SYFOVRE on our own in the United States include:
•
our inability to train and retain adequate numbers of effective sales, marketing, training and support personnel;
•
the inability of sales personnel to obtain access to physicians, including key opinion leaders, or to educate an adequate number of physicians
of
•
the benefits of EMPAVELI or SYFOVRE over alternative treatment options;
•
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies
with
•
more extensive or integrated product offerings; and
•
unforeseen costs and expenses associated with establishing and maintaining an independent sales, marketing, training and support
organization.
If our salesforce, marketing, market access and medical affairs teams and distribution capabilities fail, or are otherwise unsuccessful, it would
materially adversely impact the commercial success of EMPAVELI or SYFOVRE, impact our ability to generate revenue and harm our business.
If we are unable to maintain our sales, marketing and distribution arrangements with third parties, we may not be successful in commercializing
EMPAVELI and SYFOVRE. Similarly, if we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and
distribution arrangements with third parties, we may not be successful in commercializing EMPAVELI, SYFOVRE, pegcetacoplan in other indications
or any of our other product candidates for which we obtain marketing approval.
We have built a sales, marketing and distribution infrastructure in the United States to support commercialization of EMPAVELI and SYFOVRE.
We are building focused capabilities to commercialize SYFOVRE and EMPAVELI to effectively promote the product with a targeted sales team.
The development of sales, marketing and distribution capabilities requires substantial resources, is time-consuming and could delay any product launch. In
addition, we may not be able to hire or retain a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that
we plan to target. If we are unable to establish or retain a sales force and marketing and distribution capabilities, our operating results may be adversely
affected. If a potential partner has development or commercialization expertise that we believe is particularly relevant to one of our products, then we may
seek to collaborate with that potential partner even if we believe we could otherwise develop and commercialize the product independently.
In certain indications, we may seek to enter into collaborations that we believe may contribute to our ability to advance development and ultimately
commercialize our product candidates. We may also seek to enter into collaborations where we believe that realizing the full commercial value of our
development programs will require access to broader geographic markets or the pursuit of broader patient populations or indications. As a result of entering
into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product
revenues may be lower, perhaps substantially
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lower, than if we were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering into the necessary
arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we may have little or no control over such third
parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not establish sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful
in commercializing EMPAVELI, SYFOVRE, or our other product candidates that receive marketing approval.
We have granted exclusive commercialization rights for systemic pegcetacoplan outside of the United States to Sobi under our agreement with Sobi.
If Sobi is unable to meet its contractual obligations, we may be forced to focus our efforts internally to commercialize systemic pegcetacoplan outside of
the United States without the assistance of a commercialization partner or seek another commercialization partner, either of which would result in us
incurring greater expenses and could cause a delay in market penetration while we expand our commercial operations or seek an alternative
commercialization partner. Such costs may exceed the increased revenues we would receive from direct systemic pegcetacoplan sales outside of the United
States, at least in the near term. We would also be forced to declare a breach of the agreement with Sobi and seek a termination of the agreement which
could result in an extended and uncertain dispute with Sobi, including arbitration or litigation, any of which would be costly.
If the FDA or comparable foreign regulatory authorities approve generic versions of any of our products that receive marketing approval, or such
authorities do not grant our products appropriate periods of data exclusivity before approving generic versions of our products, the sales of our
products could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “reference-listed drug” in the FDA’s publication, “Approved Drug Products with
Therapeutic Equivalence Evaluations,” or the Orange Book. Manufacturers may seek approval of generic versions of reference-listed drugs through
submission of an abbreviated new drug application, or ANDA, in the United States. In support of an ANDA, a generic manufacturer need not conduct
clinical trials. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration
and conditions of use or labeling as the reference-listed drug and that the generic version is bioequivalent to the reference-listed drug, meaning it is
absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference-listed
drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a
significant percentage of the sales of any branded product or reference-listed drug may be typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference-listed drug has
expired. The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing a new
chemical entity, or NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of
five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference-listed drug is either invalid or will not
be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference-listed drug.
Pegcetacoplan received its first approval from the FDA in May 2021. It is unclear whether the FDA will treat the active ingredients in our product
candidates as NCEs and, therefore, afford them five years of NCE data exclusivity if they are approved. If any product we develop does not receive five
years of NCE exclusivity, the FDA may approve generic versions of such product three years after its date of approval, subject to the requirement that the
ANDA applicant certifies to any patents listed for our products in the Orange Book. Manufacturers may seek to launch these generic products following the
expiration of the applicable marketing exclusivity period, even if we still have patent protection for our product.
Competition that our products may face from generic versions of our products could negatively impact our future revenue, profitability and cash
flows and substantially limit our ability to obtain a return on our investments in those product candidates.
EMPAVELI, SYFOVRE, or any product candidate that we or any collaborator, commercialize may become subject to unfavorable pricing regulations,
third-party payor reimbursement practices or healthcare reform initiatives, any of which could harm our business.
The commercial success of EMPAVELI, SYFOVRE, or any of our product candidates that we or any collaborator, such as Sobi, commercialize will
depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by third-party payors, including
government health administration authorities and private health coverage insurers. If coverage and reimbursement is not available, or reimbursement is
available only to limited levels, we, or our collaborators, may not be able to successfully commercialize EMPAVELI, SYFOVRE, or any other product
candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or our collaborators, to establish or
maintain pricing sufficient to realize a sufficient return on our or their investments. In the United States, no uniform policy of coverage and reimbursement
for products exists among third-party payors and coverage and reimbursement for products can differ significantly from payor to payor. As a result, the
coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical
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support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or
obtained in the first instance.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. The regulations that govern
marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may
significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require
approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing
approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. As a result, we, or our collaborators, might obtain marketing approval for a product in a particular country, but then be subject to price
regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to
generate from the sale of the product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product or product candidate to other available therapies. Adverse pricing limitations may hinder
our ability or the ability of our collaborators to recoup our or their investment in one or more products or product candidates, even if our product candidates
obtain marketing approval.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated
with their treatment. Therefore, our ability, and the ability of our collaborators, to commercialize EMPAVELI, SYFOVRE, or any of our product
candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-
party payors. Third-party payors decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused
on cost containment, both in the United States and abroad. Government authorities and other third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular medications, which could affect our ability or that of our collaborators to sell EMPAVELI,
SYFOVRE, or our product candidates profitably. These payors may not view our products, if any, as cost-effective, and coverage and reimbursement may
not be available to our customers, or those of our collaborators, or may not be sufficient to allow our products, if any, to be marketed on a competitive
basis. Cost-control initiatives could cause us, or our collaborators, to decrease the price we, or they, might establish for products, which could result in
lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party payors do not provide
coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.
The commercial potential of our products depends in part on reimbursement by government health administration authorities, private health insurers
and other organizations. If we, or any collaborator that is commercializing our product candidates such as Sobi are unable to obtain coverage or
reimbursement for our products, as monotherapy or in combination with other therapies, including possible combinations with eculizumab or ravulizumab,
at the levels anticipated, our financial condition could be harmed. Additionally, if new compounds currently in development by potential competitors,
including biosimilars of eculizumab or ravulizumab, obtain marketing approval, there may be downward pressure on reimbursement levels for therapies in
our target disease areas, which could have a negative impact on our ability to achieve and maintain profitability.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, such as EMPAVELI, SYFOVRE, and coverage may
be more limited for EMPAVELI and SYFOVRE than the indication for which the drug is approved by the FDA or comparable foreign regulatory
authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including
research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the
clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated
into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are
challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we, or any collaborator, including Sobi,
commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to
additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the
United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our
product candidates for which we, or our collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capital
needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of EMPAVELI,
SYFOVRE, and any other products that we may develop.
We face an inherent risk of product liability claims as a result of the commercial sale of EMPAVELI and SYFOVRE, and the clinical testing of our
product candidates despite obtaining appropriate informed consents from our clinical trial participants. For
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example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing,
marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we
cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our
product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
•
decreased demand for EMPAVELI, SYFOVRE, and any other product candidates that we may develop;
•
injury to our reputation and significant negative media attention;
•
withdrawal of clinical trial participants;
•
significant costs to defend resulting litigation;
•
substantial monetary awards to trial participants or patients;
•
loss of revenue;
•
reduced resources of our management to pursue our business strategy; and
•
the inability to successfully commercialize EMPAVELI, SYFOVRE, or any other products that we may develop.
Although we maintain product liability and clinical trial insurance coverage in the amount of up to $50.0 million in the aggregate, this insurance
may not fully cover potential liabilities that we may incur. The cost of any litigation or other proceeding, even if resolved in our favor, could be substantial.
We may need to increase our insurance coverage as we continue to commercialize EMPAVELI, SYFOVRE, and commercialize any other product
candidate that receives marketing approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to maintain sufficient
insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and
commercial production and sale of EMPAVELI, SYFOVRE, and our other product candidates, which could harm our business, financial condition, results
of operations and prospects.
Our internal information technology systems, or those of any contractors, consultants, vendors, business partners or other third parties, may fail or
suffer security breaches, which could result in a material disruption of our product development programs, compromise sensitive information related to
our business or prevent us from accessing critical information, trigger contractual and legal obligations, potentially exposing us to liability,
reputational harm or otherwise adversely affecting our business and financial results.
We are dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we
collect, store and transmit large amounts of confidential information, including personal information and information relating to intellectual property, on
internal information systems and through the information systems of our contractors, consultants, vendors, business partners or other third parties. It is
critical that we, our vendors, collaborators or other contractors or consultants, do so in a secure manner to maintain the availability, security,
confidentiality, privacy and integrity of such confidential information.
Despite the implementation of security measures, our internal information technology systems and those of third parties are vulnerable to damage
from computer viruses, malware, computer hackers, malicious code, employee error, theft or misuse, denial-of-service attacks, sophisticated nation-state
supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such systems are also vulnerable to
service interruptions or to security breaches from inadvertent or intentional actions by our employees, our collaborators, contractors, consultants, vendors,
business partners and other third parties, or from cyber-attacks by malicious third parties over the Internet or through other mechanisms. Cyber-attacks are
increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of
harmful malware, ransomware, denial of service attacks, unauthorized access to or deletion of files, social engineering and other means to affect service
reliability and threaten the confidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or e-mail fraud to
cause payments or information to be transmitted to an unintended recipient. We may not be able to anticipate all types of security threats, and we may not
be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be
recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime
affiliates, terrorist organizations or hostile foreign governments or agencies. We cannot guarantee that the measures we have taken to date, and actions we
may take in the future, will be sufficient to prevent any future breaches.
While we have not experienced any such material system failure, accident, cyber-attack or security breach to date, if such an event were to occur
and cause interruptions in our operations, it could result in a material disruption of our development programs, clinical trials and business operations,
whether due to a loss of our trade secrets or other proprietary or confidential information or
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other similar disruptions, in addition to possibly requiring substantial expenditures of resources to remedy. For example, the loss of clinical trial data from
clinical trials could result in delays or termination of our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In
addition, as risks with respect to our information systems continue to evolve, we will incur additional costs to maintain the security of our information
systems and comply with evolving laws and regulations pertaining to cybersecurity and related areas.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our or our vendors’, collaborators’ or other contractors’
or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, including litigation
exposure, penalties and fines, we could become the subject of regulatory action or investigation, enrollment in our clinical trials could be negatively
affected, our competitive position and reputation could be harmed and the further development and commercialization of our product candidates could be
delayed. As a result of such an event, we may be in breach of our contractual obligations. Furthermore, any such event that leads to unauthorized access,
use, or disclosure of personal information, including personal information regarding our customers or employees, could harm our reputation, compel us to
comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to
liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial
exposure and reputational damages. Any of the above could have a material adverse effect on our business, financial condition, results of operations or
prospects.
The financial exposure from the events referenced above could either not be insured against or not be fully covered through any insurance that we
maintain and could have a material adverse effect on our business, financial condition, results of operations or prospects. In addition, we cannot be sure that
our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. There
can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or
damages as a result of the events referenced above.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials. If they do not perform satisfactorily, our business could be harmed.
We do not independently conduct clinical trials of our product candidates. We rely, and expect to continue to rely, on third parties, such as contract
research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials of
pegcetacoplan and any other product candidate that we develop. Any of these third parties may terminate their engagements with us under certain
circumstances. We may not be able to enter into alternative arrangements or do so on commercially reasonable terms. In addition, there is a natural
transition period when a new contract research organization begins work. As a result, delays would likely occur, which could negatively impact our ability
to meet our expected clinical development timelines and harm our business, financial condition and prospects.
Further, although our reliance on these third parties for clinical development activities limits our control over these activities, we remain responsible
for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. For example,
notwithstanding the obligations of a contract research organization for a trial of one of our product candidates, we remain responsible for ensuring that each
of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply
with standards, commonly referred to as current Good Clinical Practices, or cGCPs, for conducting, recording and reporting the results of clinical trials to
assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA
enforces these cGCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional review boards. If we or our
third-party contractors fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may
require us to perform additional clinical trials before approving our product candidates, which would delay the marketing approval process. We cannot be
certain that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. Similar regulatory requirements apply outside the
United States, including the International Council for Harmonisation of Technical Requirements for the Registration of Pharmaceuticals for Human Use, or
ICH. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov,
within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our
agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs.
These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical
trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties do not
successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our
stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not
be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and
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the commercial prospects for any product candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues
could be delayed, impaired or foreclosed.
We contract with third parties for the manufacture, storage and distribution of commercial supply for EMPAVELI, SYFOVRE, and clinical supply for
our product candidates and expect to continue to do so in connection with our future development and commercialization efforts. This reliance on third
parties increases the risk that we will not have sufficient quantities of pegcetacoplan or our other product candidates or such quantities at an
acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We currently have no manufacturing facilities, and a relatively small number of personnel with manufacturing experience who can oversee the
manufacturing process. We rely on contract manufacturers to manufacture, store and distribute both drug substance and drug product required for our
clinical trials. We also rely upon contract manufacturers, and potentially collaboration partners to manufacture commercial quantities of EMPAVELI,
SYFOVRE, and any of our other product candidates, if approved. We may be unable to establish any agreements with contract manufacturers or to do so
on acceptable terms, or to maintain such agreements as we may enter. Even if we are able to establish agreements with contract manufacturers, reliance on
contract manufacturers entails additional risks, including:
•
manufacturing delays if our third-party contractors give greater priority to the supply of other products over EMPAVELI, SYFOVRE, or our
product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them, or if unforeseen
events in the manufacturing process arise;
•
the possible termination or nonrenewal of agreements by our third-party contractors at a time that is costly or inconvenient for us;
•
the possible breach by the third-party contractors of our agreements with them;
•
the failure of third-party contractors to comply with applicable regulatory requirements;
•
the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not
being properly identified;
•
the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not
being distributed to commercial vendors in a timely manner, resulting in lost sales; and
•
the possible misappropriation of our proprietary information, including our trade secrets and know-how.
We currently rely, and expect to continue to rely, on a small number of third-party contract manufacturers to supply most of our supply of active
pharmaceutical ingredients and required finished product for our commercial supply of EMPAVELI and SYFOVRE and for our clinical supply of our
product candidates. In particular, we have entered into commercial supply agreements with Bachem Americas, Inc., or Bachem, and NOF Corporation, or
NOF, to purchase a significant portion of our requirements for the pegcetacoplan drug substance and drug intermediaries, respectively. We have also
entered into long-term commercial supply agreements with other suppliers of raw materials, drug intermediaries, drug substance and drug product. We also
have a separate supply agreement for the manufacture of the drug product for each of EMPAVELI and SYFOVRE. If any of our existing manufacturers
should become unavailable to us for any reason, we may incur delays in identifying or qualifying replacements. We also rely on other third parties to store
and distribute drug supplies for our clinical trials. Any performance failure on the part of our contract manufacturers or distributors could delay clinical
development or marketing approval of our product candidates or commercialization of any resulting products, producing additional losses and depriving us
of potential product revenue. If we experience other issues or delays in the future, our commercial success may be materially and adversely impacted and
our development of pegcetacoplan may be materially delayed, and our business adversely affected.
Any manufacturing problem, the loss of a contract manufacturer or any loss of storage could be disruptive to our operations, result in lost sales of
EMPAVELI and/or SYFOVRE or delay our clinical trials. Accordingly, for example, if Bachem or NOF were to experience manufacturing and supply
issues, we would have difficulty in procuring the drug substance or drug intermediates needed for the supply and manufacture of pegcetacoplan.
Additionally, we rely on third parties to supply the raw materials needed to manufacture our product candidates. Any reliance on suppliers may involve
several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality.
Any unanticipated disruption to our contract manufacturing caused by problems at suppliers could delay shipment of our product candidates, increase our
cost of goods sold and result in lost sales with respect to any approved products. For EMPAVELI, SYFOVRE, and any product candidates that are
approved by any regulatory agency, we will need to maintain agreements with third-party contract manufacturers for the commercial production and
distribution of those products. It may be difficult for us to reach agreement with a contract manufacturer
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on satisfactory terms or in a timely manner. In addition, we may face competition for access to manufacturing facilities as there are a limited number of
contract manufacturers operating under cGMPs that can manufacture our product candidates. Consequently, we may not be able to reach agreement with
third-party manufacturers on satisfactory terms, which could delay our commercialization efforts.
Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States, such as the ICH.
Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product
candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing
process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of
our product candidates. If our manufacturers cannot successfully manufacture material that conforms to our specifications or the strict regulatory
requirements of the FDA and any applicable foreign regulatory authority, they may not be able to meet our supply requirements for clinical and commercial
operations and to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may
need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate.
In addition, our manufacturers are subject to ongoing periodic inspections by the FDA and corresponding state and foreign agencies for compliance
with cGMPs and similar regulatory requirements both prior to and following the receipt of marketing approval for any of our product candidates. Some of
these inspections may be unannounced. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could
result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions,
interruptions in supply and criminal prosecutions, any of which could significantly impact the available supplies of our product candidates and harm our
business, financial condition and results of operations.
We have developed the EMPAVELI injector, a custom, on-body drug delivery system that enables patients to self-administer pegcetacoplan through
subcutaneous infusion. If the EMPAVELI injector becomes unavailable, patients may need to rely upon commercially available ambulatory infusion
pumps. Any reliance on third-party infusion pumps may involve several risks, including reduced control over costs, delivery schedules, reliability and
quality.
We developed a single dose, sterilized prefilled syringe for SYFOVRE that provides physicians with a new way to administer SYFOVRE that
requires fewer steps compared to the current administration. If the prefilled syringe cannot be manufactured in accordance with applicable regulatory
requirements or the availability of prefilled syringe is delayed or is not approved by regulatory authorities, physicians will need to rely upon the existing
administration method.
Our prospects for the development and commercialization of our product candidates will depend in part on the success of our collaboration with
current and future collaborations.
We have entered into a collaboration with Sobi for the global co-development and commercialization outside of the United States of systemic
pegcetacoplan and we may seek to enter into additional collaborations for the development and commercialization of certain of our products or product
candidates. We may have limited control over the amount and timing of resources that our collaborators, including Sobi and Beam, will dedicate to the
development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’
abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators may have the right to abandon research
or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.
Collaborations involving our product candidates pose a number of risks, including the following:
•
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
•
collaborators may not perform their obligations as expected;
•
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew
development or commercialization programs, based on clinical trial results, changes in the collaborators’ strategic focus or available funding
or external factors, such as an acquisition, that divert resources or create competing priorities;
•
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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•
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates;
•
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
•
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of
development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to
additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-
consuming and expensive;
•
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
•
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
•
disputes may arise between the collaborators and us regarding ownership of or other rights in the intellectual property generated in the course
of the collaborations; and
•
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
For example, our agreement with Sobi is subject to early termination in the event of any uncured material breach of the agreement or under specific
circumstances relating to insolvency. If we do not maintain a productive collaborative relationship with Sobi or if Sobi is unable to meet its contractual
obligations or if there is an early termination of the agreement as described above, we would be forced to either establish a commercial infrastructure
outside of the United States so that we could undertake the commercialization efforts which had been theretofore undertaken by Sobi or we would need to
seek an alternative collaborator. The establishment of a commercial infrastructure and assumption by us of commercialization activities outside of the
United States would require substantial resources, financial and otherwise, and could result in us incurring greater expenses than the increase in revenues
from our direct sales of systemic pegcetacoplan. It could also cause a delay in market penetration while we expand our commercial operations. Seeking and
obtaining an alternative collaborator outside the United States could also adversely impact sales of systemic pegcetacoplan and market penetration outside
of the United States.
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner at all. If our
collaborators, are involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product
candidate licensed to it by us.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose license rights
that are important to our business.
We are a party to patent license agreements with The University of Pennsylvania, or Penn, under which we license patent rights relating to a family
of compounds for use in all fields. The licensed patent rights include issued U.S. and foreign patents with claims that recite a class of compounds
generically covering pegcetacoplan and that specifically recite the active component. We may enter into additional license agreements in the future. Our
license agreements with Penn impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance
and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors may have the right to terminate these license
agreements, in which event we might not be able to market any product that is covered by these agreements, or our licensors may convert the license to a
non-exclusive license, which could negatively impact the value of the product candidate being developed under the license agreement. Termination of these
license agreements or reduction or elimination of our licensed rights may also result in our having to negotiate new or reinstated licenses with less
favorable terms.
If we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not
sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize
our product candidates may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our
proprietary product candidates. If we do not adequately protect our intellectual property rights, competitors may be able to erode or negate any competitive
advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications
in the United States and abroad related to our product candidates that
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are important to our business; we also license, or purchase patent applications filed by others. The patent application and approval process is expensive and
time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Agreements through which we license patent rights may not give us control over patent prosecution or maintenance, so that we may not be able to
control which claims or arguments are presented and may not be able to secure, maintain, or successfully enforce necessary or desirable patent protection
from those patent rights. We have not had and do not have primary control over patent prosecution and maintenance for certain of the patents and patent
applications we license, and therefore cannot guarantee that these patents and applications will be prosecuted in a manner consistent with the best interests
of our business. We cannot be certain that patent prosecution and maintenance activities by our licensors have been or will be conducted in compliance
with applicable laws and regulations or will result in valid and enforceable patents.
We, or any partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development and
commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our
patent position. Moreover, in some circumstances, we might not have the right to control the preparation, filing and prosecution of patent applications, or to
maintain the patents, covering any technology that we may license from third parties in the future. These patents and applications may not be prosecuted
and enforced in a manner consistent with the best interests of our business. Our license agreements with Penn provide that Penn has the right under certain
circumstances to control the preparation, prosecution and maintenance of the underlying patent rights.
It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example
with respect to proper priority claims, inventorship, claim scope, or patent term adjustments. If we or our partners, collaborators, licensees, or licensors,
whether current or future, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated.
If our partners, collaborators, licensees, or licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any
patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of our patents or
patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these
outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of
claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the
determination of patent rights with respect to pharmaceutical compounds commonly involves complex legal and factual questions, which has in recent
years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly
uncertain.
Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent
issue from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled
to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the
scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published
until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents
or pending patent applications, or that we were the first to file for patent protection of such inventions. Similarly, we cannot be certain that parties from
whom we do or may license, or purchase patent rights were the first to make relevant claimed inventions or were the first to file for patent protection for
them. If third parties have filed patent applications on inventions claimed in our patents or applications on or before March 15, 2013, an interference
proceeding in the United States can be initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent
claims of our applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding in the United States can be initiated by
such third parties to determine whether our invention was derived from theirs.
Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent
applications may be challenged in the courts or patent offices in the United States and abroad. There is no assurance that all of the potentially relevant prior
art relating to our patents and patent applications has been found. If such prior art exists, it may be used to invalidate a patent, or may prevent a patent from
issuing from a pending patent application. For example, such patent filings may be subject to a third-party preissuance submission of prior art to the U.S.
Patent and Trademark Office, or USPTO, or to other patent offices around the world. Alternately or additionally, we may become involved in post-grant
review procedures, oppositions, derivations, proceedings, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere,
challenging patents or patent applications in which we have rights, including patents on which we rely to protect our business. An adverse determination in
any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could
limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of
our technology and products. In addition, given the amount
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of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or
shortly after such candidates are commercialized. Furthermore, while it is our policy to require our employees and contractors who may be involved in the
conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing
such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. As a result, the inventorship or
ownership of our intellectual property may be challenged in the future.
Pending and future patent applications may not result in patents being issued which protect our business, in whole or in part, or which effectively
prevent others from commercializing competitive products. Our issued patents or any patents that may issue in the future may be invalidated or interpreted
narrowly, such that they fail to provide us with any significant competitive advantage. Changes in either the patent laws or interpretation of the patent laws
in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign
countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, patent laws in various
jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than U.S.
law does.
Issued patents that we have or may obtain, or license may not provide us with any meaningful protection, prevent competitors from competing with
us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative
technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or otherwise
competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting ANDAs to the
FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend
or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with
jurisdiction may find our patents invalid or unenforceable or find that our competitors are competing in a non-infringing manner. Thus, even if we have
valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business
objectives.
Pursuant to the terms of some of our license agreements with third parties, some of our third-party licensors have the right, but not the obligation in
certain circumstances to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents. Even if we are
permitted to pursue such enforcement or defense, we will require the cooperation of our licensors, and cannot guarantee that we would receive it and on
what terms. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of
such claims to protect our interests in the licensed patents. If we cannot obtain patent protection, or enforce existing or future patents against third parties,
our competitive position and our financial condition could suffer.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be negatively impacted, and our business would be
harmed.
In addition to the protection afforded by patents, we also rely on trade secret protection for certain aspects of our intellectual property. We seek to
protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our
employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and
invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach
that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is
unpredictable. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties
for misappropriating the trade secret. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we
would have no right to prevent such third-party, or those to whom they communicate such technology or information, from using that technology or
information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and
competitive position could be harmed.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may
be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific
personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their
patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk
that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from
using the invention at issue. There
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is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right
to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation
or proceeding involving one or more of our patents could limit our ability to assert those patents against those parties or other competitors and may curtail
or preclude our ability to exclude third parties from making and selling similar or competitive products. Similarly, if we assert trademark infringement
claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark
infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only
monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There
could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could adversely affect the price of shares of our common stock. Moreover, there can be no assurance that we will
have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we
ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could
outweigh any benefit we receive as a result of the proceedings.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay
us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our products without infringing the intellectual
property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent applications relating to
compounds and methods of use for the treatment of the disease indications for which we are developing our products or product candidates or relating to
the use of complement inhibition that may cover our product candidates or approach to complement inhibition. For example, we are aware of a U.S. patent
with claims that could be construed to cover pegcetacoplan. Although we believe that these claims, if construed to cover pegcetacoplan, would be invalid
due to various prior art disclosures available more than a year before the priority date of the U.S. patent, there are no assurances that a court would agree. If
any third-party patents or patent applications are found to cover our products or product candidates or their methods of use or our approach to complement
inhibition, we may not be free to manufacture or market our products or product candidates as planned without obtaining a license, which may not be
available on commercially reasonable terms, or at all.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or
threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products or products candidates,
including interference proceedings before the USPTO. There may be third-party patents or patent applications with claims to materials, formulations,
methods of manufacture or methods for treatment related to the use or manufacture of our products or product candidates. Because patent applications can
take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may be
accused of infringing. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.
Accordingly, third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual
property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have
produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of
products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued
for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the
relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the
United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could
be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient
resources to bring these actions to a successful conclusion.
If we are found to infringe a third-party’s intellectual property rights, we could be forced, including by court order, to cease developing,
manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third-party
in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate or product. However, we
may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-
exclusive, thereby giving our competitors access to the same technologies licensed to us; alternatively, or additionally it could include terms that impede or
destroy our ability to compete successfully in the commercial marketplace. In addition, we could be found liable for monetary damages, including treble
damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our
products or product candidates or force us to cease some of our business operations, which could harm our
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business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our
business.
Some of our intellectual property that was discovered through government-funded programs may be subject to federal regulation such as “march-in”
rights, certain reporting requirements, and a preference for U.S. industry. Compliance with such regulations may limit our exclusive rights, subject us
to expenditure of resources with respect to reporting requirements and limit our ability to contract with foreign manufacturers.
Some of our in-licensed intellectual property with respect to our products and product candidates has been funded in part by the U.S. government
and, therefore, would be subject to certain federal regulations pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. As a result, the U.S.
government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act. The
“march-in” provisions of the Bayh-Dole Act allow the U.S. government under strictly limited circumstances to require the patent owners to grant exclusive,
partially exclusive or non-exclusive rights to third parties for intellectual property discovered through the government-funded program. The U.S.
government can exercise its march-in rights if it determines that action is necessary because the patent owner fails to achieve practical application of the
new invention or because action is necessary to alleviate health concerns or address the safety needs of the public. Intellectual property discovered under
the government-funded program is also subject to certain reporting requirements, compliance with which may require us or our licensors to expend
substantial resources. Such intellectual property is also subject to a preference for U.S. industry, which may limit our ability to contract with foreign
product manufacturers for products covered by such intellectual property. Penn requested a waiver of the U.S. manufacturing requirement in early 2021,
but there can be no assurance that such waiver will be granted.
Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to
protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and
enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and
inherently uncertain. Recent patent reform legislation in the United States, including the Leahy-Smith America Invents Act, or the America Invents Act,
could increase those uncertainties and costs. The America Invents Act was signed into law on September 16, 2011, and many of the substantive changes
became effective on March 16, 2013. The America Invents Act reformed U.S. patent law in part by changing the U.S. patent system from a “first to invent”
system to a “first inventor to file” system, expanding the definition of prior art, and developing a post-grant review system. This legislation changes U.S.
patent law in a way that may weaken our ability to obtain patent protection in the United States for those applications filed after March 16, 2013.
Further, the America Invents Act created new procedures to challenge the validity of issued patents in the United States, including post-grant review
and inter partes review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents of
competitors. For a patent with an effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third-party in a nine-
month window from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent if the patent has an
effective filing date prior to March 16, 2013. A petition for inter partes review can be filed after the nine-month period for filing a post-grant review
petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of
invalidity, whereas inter partes review proceedings can only raise an invalidity challenge based on published prior art and patents. These adversarial actions
at the USPTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts and use a lower burden of
proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third-party to have a U.S. patent
invalidated in a USPTO post-grant review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are
challenged by a third-party in such a USPTO proceeding, there is no guarantee that we or our licensors or collaborators will be successful in defending the
patent, which would result in a loss of the challenged patent right to us.
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain
circumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to the
patent laws of the United States and other countries that, if adopted, could impact our ability to enforce our patents. In addition to increasing uncertainty
with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once
obtained. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws
and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing
patents and patents that we might obtain in the future.
We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products or product candidates in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States are less extensive than those in
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the United States. The requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where we
do pursue patent protection, there can be no assurance that any patents will issue with claims that cover our products. Competitors may use our
technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise
infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These
products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other
intellectual property rights may not be effective or sufficient to prevent them from so competing.
Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual
property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same
extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual
property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the
enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the
misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner
must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the
United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and market their
own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to
stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be
effective or sufficient to prevent them from competing.
Agreements through which we license patent rights may not give us sufficient rights to permit us to pursue enforcement of our licensed patents or
defense of any claims asserting the invalidity of these patents (or control of enforcement or defense) of such patent rights in all relevant jurisdictions as
requirements may vary. For instance, under the Sobi collaboration, we retain the primary right to prosecute and defend its patent and other intellectual
property rights, but Sobi has the primary right to enforce such rights against competitive infringement outside the United States.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and
resources from other aspects of our business. Moreover, such proceedings could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and
the damages or other remedies awarded, if any, may not be commercially meaningful. Furthermore, while we intend to protect our intellectual property
rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may
wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
If we do not obtain patent term extension and data exclusivity for our products or product candidates we may develop, our business may be materially
harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of our products or product candidates we may develop, one or
more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984,
or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years as compensation for patent term lost
during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond 14 years from the date of product
approval, only one patent may be extended, and the extension only applies to those claims covering the approved drug, a method for using it, or a method
for manufacturing it. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or
regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy
applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to
obtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing products
following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership
of what we regard as our own intellectual property.
Many of our employees, including our senior management, were previously employed at universities or at other biotechnology or pharmaceutical
companies, including some which may be competitors or potential competitors. Some of these employees, including each member of our senior
management, executed proprietary rights, non-disclosure, non-competition and non-solicitation agreements, or similar agreements, in connection with such
previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we
may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information,
of any such
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third-party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we
may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third-party, and we
could be required to obtain a license from such third-party to commercialize our technology or products. Such a license may not be available on
commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a
distraction to management.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property
to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact
develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if
we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management
and scientific personnel.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the
USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The
USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar
provisions during the patent application process and after a patent has issued. While an inadvertent lapse can in many cases be cured by payment of a late
fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent
or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in
abandonment or lapse of a patent or patent application include, but are not limited to, the failure to respond to official actions within prescribed time limits,
non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our
products and product candidates, our competitive position would be adversely affected.
If we are unable to obtain licenses from third parties on commercially reasonable terms or fail to comply with our obligations under such agreements,
our business could be harmed.
It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be
required to obtain a license from these third parties. If we are unable to license such technology, or if we are forced to license such technology on
unfavorable terms, our business could be materially harmed. If we are unable to obtain a necessary license, we may be unable to develop or commercialize
the affected products or product candidates, which could materially harm our business and the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.
Even if we are able to obtain a license, it may be non-exclusive, which could enable our competitors to obtain access to the same technologies licensed to
us.
If we fail to comply with our obligations under license agreements, our counterparties may have the right to terminate these agreements, in which
event we might not be able to develop, manufacture or market, or may be forced to cease developing, manufacturing or marketing, any product that is
covered by these agreements or may face other penalties under such agreements. Such an occurrence could materially adversely affect the value of the
product or product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under
these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, cause us to lose our rights under these
agreements, including our rights to important intellectual property or technology, or impede, delay or prohibit the further development or
commercialization of one or more product candidates that rely on such agreements.
Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters
The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaborators such as Sobi from obtaining
approvals for the commercialization of pegcetacoplan or any of our product candidates that we develop. As a result, we cannot predict when or if, and
in which territories, we, or our collaborators, will obtain marketing approval to commercialize pegcetacoplan or any other product candidate that we
develop.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion, and distribution of products are subject to extensive
regulation by the FDA and comparable foreign regulatory authorities. We are not permitted to market our product candidates in the United States or in
other countries until we, or they, receive approval of an NDA from the FDA or marketing approval from applicable regulatory authorities outside the
United States. Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. The FDA
approved EMPAVELI for the treatment of PNH in May
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2021. The FDA approved SYFOVRE for the treatment of GA in February 2023 and the Therapeutic Goods Administration of Australia approved
SYFOVRE for the treatment of GA in January 2025. The FDA approved the sNDA for EMPAVELI for the treatment of C3G and primary IC-MPGN in
July 2025.
The process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if
approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates
involved. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information, including
manufacturing information, to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. The FDA or
other regulatory authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or
unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Any
marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not
commercially viable.
In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional
statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an
application. For example, in December 2022, with the passage of Food and Drug Omnibus Reform Act, or FDORA, Congress required sponsors to develop
and submit a diversity action plan for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans are meant to
encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. In June 2024, as mandated by
FDORA, the FDA issued draft guidance outlining the general requirements for DAPs. Unlike most guidance documents issued by the FDA, the DAP
guidance when finalized will have the force of law because FDORA specifically dictates that the form and manner for submission of DAPs are specified in
FDA guidance. On January 27, 2025, in response to an Executive Order issued by President Trump on January 21, 2025, on Diversity, Equity and Inclusion
programs, the FDA removed this draft guidance from its website. The implications of this action are not yet known. Subsequently, in July 2025, pursuant to
a court order, the FDA restored the draft DAP guidance to its website with a statement that “information on this page may be modified and/or removed in
the future subject to the terms of the court’s order and implemented consistent with applicable law.” Accordingly, in light of these ongoing actions, there is
considerable uncertainty surrounding the draft DAP guidance and how the FDA will consider DAPs in connection with its review of NDAs.
Further, in January 2022, the new Clinical Trials Regulation (EU) No 536/2014 became effective in the European Union and replaced the prior
Clinical Trials Directive 2001/20/EC. This regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in
the European Union. Under the coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one
European Union Member State will only be required to submit a single application for approval. The submission will be made through the Clinical Trials
Information System, a clinical trials portal overseen by the EMA and available to clinical trial sponsors, competent authorities of the European Union
Member States and the public. If we are not able to navigate this system properly, our clinical studies in the European Union could be delayed.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA, biologics license application, or BLA, or supplement to an NDA or BLA
for certain drugs and biological products must contain data to assess the safety and effectiveness of the drug or biological product in all relevant pediatric
subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective, unless the sponsor
receives a deferral or waiver from the FDA. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is
ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs to be collected before the
pediatric trials begin. The applicable legislation in the European Union also requires sponsors to either conduct clinical trials in a pediatric population in
accordance with a Pediatric Investigation Plan approved by the Pediatric Committee of EMA, or to obtain a waiver or deferral from the conduct of these
studies by this Committee. For any of our product candidates for which we are seeking regulatory approval in the United States or the European Union, we
cannot guarantee that we will be able to obtain a waiver or alternatively complete any required studies and other requirements in a timely manner, or at all,
which could result in associated reputational harm and subject us to enforcement action.
Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are
insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we, or our collaborators, ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. In addition, to the
extent that we seek to develop a combination drug-device product for delivery of a product candidate, or we rely on a previously cleared device to deliver a
product candidate, we will also be dependent on FDA clearance or approval of such products.
Moreover, principal investigators for our future clinical trials may serve as scientific advisors or consultants to us and receive compensation in
connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign
regulatory authorities. The FDA or a comparable foreign regulatory authority may conclude that a
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financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or
comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the
clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable
foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
Under our agreement with Sobi, Sobi is responsible for seeking regulatory approval outside the United States for systemic pegcetacoplan. A delay in
obtaining or failure to obtain required approvals and clearances could negatively impact our ability or that of our collaborators, including Sobi, to generate
revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad. Any approval we are
granted for our product candidates in the United States would not assure approval of our product candidates in foreign jurisdictions.
In order to market and sell EMPAVELI, SYFOVRE, pegcetacoplan in other indications or any of our other products in the European Union and
other foreign jurisdictions, we, and our collaborators, such as Sobi, must obtain separate marketing approvals and comply with numerous and varying
regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may
differ substantially from that required to obtain FDA approval. The marketing approval process outside the United States generally includes all of the risks
associated with obtaining FDA approval. In addition, in many countries outside the United States, a product must be approved for reimbursement before
the product can be approved for sale in that country. We, and our collaborators, such as Sobi, may not obtain approvals from regulatory authorities outside
the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and
approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by
the FDA. We may file for marketing approvals but not receive necessary approvals to commercialize our products in any market.
For example, in December 2024, the European Commission rejected the marketing authorization application, or MAA, for SYFOVRE in the
European Union, after a negative recommendation of the Committee for Medicinal Products for Human Use, or CHMP. Because regulators in other
jurisdictions are influenced by decisions of the FDA and the EMA, a negative opinion by the FDA or the EMA may adversely impact the prospects for
approval in other jurisdictions.
Additionally, we could face heightened risks with respect to obtaining marketing authorization in the United Kingdom as a result of the withdrawal
of the United Kingdom from the European Union, commonly referred to as Brexit. The United Kingdom is no longer part of the European Single Market
and EU Customs Union. As of January 1, 2025, the Medicines and Healthcare products Regulatory Agency, or MHRA, is responsible for approving all
medicinal products destined for the U.K. market (i.e., Great Britain and Northern Ireland). On April 28, 2025, the U.K. Parliament adopted amendments to
improve and strengthen the United Kingdom’s clinical trials regulatory regime, which will take effect on April 28, 2026. These changes were needed since
the current U.K. requirements are based upon the now-repealed EU Clinical Trials Directive (2001/20/EC), which has been replaced by the European
Clinical Trials Regulation (Regulation EU No 536/2014). Since the United Kingdom left the EU prior to the date on which the EU CTR took effect, the
U.K. legal framework did not benefit from the same revisions as occurred at EU level.
In addition, foreign regulatory authorities may change their approval policies and new regulations may be enacted. For instance, the EU
pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched
by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal
products (potentially reducing the duration of regulatory data protection, revising the eligibility for expedited pathways, etc.) was published on April 26,
2023. On June 4, 2025, after almost two years of negotiations among the EU Member States, the Council of the European Union adopted its position on the
proposed overhaul of the EU general pharmaceutical legislative framework, which is known as the new Pharma Package. Thereafter, on December 11,
2025, the European Parliament and Council reached a provisional political agreement on the legislation which is expected to be adopted by mid-2026. The
revisions may have a significant impact on the pharmaceutical industry and our business. They would, among other things, set a baseline period of eight
years of data exclusivity and one year of market exclusivity with possible extensions for new indications up to a maximum of 11 years total. There will
likely be a transition period of 24 months, with the changes taking effect in mid-2028.
We expect that we will be subject to additional risks in commercializing any of our product candidates that receive marketing approval outside the
United States, including tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular
foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling outside of the United
States; foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing
business in another country; and workforce uncertainty in countries where labor unrest is more common than in the United States.
We intend to conduct certain of our clinical trials globally . However, the FDA and other foreign equivalents may not accept data from such trials, in
which case our development plans will be delayed, which could materially harm our business.
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We have conducted and intend to continue conducting certain of our clinical trials globally. The acceptance by the FDA or other regulatory
authorities of study data from clinical trials conducted outside their jurisdiction may be subject to certain conditions or may not be accepted at all. In cases
where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not
approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials
were performed by clinical investigators of recognized competence and pursuant to good clinical practices, or GCP, regulations; and (iii) the data may be
considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate
the data through an on-site inspection or other appropriate means.
In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for
an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to
validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements.
In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no
assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable
jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which
could be costly and time-consuming, and which may result in current or future product candidates that we may develop not receiving approval for
commercialization in the applicable jurisdiction.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:
•
additional foreign regulatory requirements;
•
foreign exchange fluctuations;
•
compliance with foreign manufacturing, customs, shipment and storage requirements;
•
cultural differences in medical practice and clinical research;
•
diminished protection of intellectual property in some countries; and
•
interruptions or delays in our trials resulting from geopolitical events, such as war or terrorism.
We may seek certain designations for our product candidates, including Breakthrough Therapy, Fast Track and Priority Review in the United States,
and PRIME (priority medicines) in the European Union, but we might not receive such designations, and even if we do, such designations may not lead
to a faster development or regulatory review or approval process.
We may seek certain designations for one or more of our product candidates that could expedite review and approval by the FDA. A Breakthrough
Therapy product is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious condition, and
preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as Breakthrough
Therapies, early and frequent interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for
clinical development.
The FDA may also designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for
the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or
condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track
product’s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of data
submitted by the sponsor, that a Fast Track product may be effective.
We may also seek a priority review designation for one or more of our product candidates. If the FDA determines that a product candidate intended
to treat a serious condition and, if approved, offers a significant improvement in safety or effectiveness, the FDA may designate the product candidate for
priority review. A priority review designation shortens the goal for the FDA to review an application within six months, rather than the standard review
period of ten months.
These designations require a sponsor to submit an application for review and approval by the FDA. Accordingly, even if we believe that one of our
product candidates meets the criteria for these designations, the FDA may disagree and instead determine not to make such designation. Further, even if we
receive a designation, the receipt of such designation for a product candidate may not result in a faster development or regulatory review or approval
process compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition,
even if one or more of our product
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candidates qualifies for these designations, the FDA may later decide that the product candidates no longer meet the conditions for qualification or decide
that the time period for FDA review or approval will not be shortened.
Where appropriate, we plan to pursue approval from the FDA, EMA or comparable foreign regulatory authorities through the use of accelerated
registration pathways. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond
those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we receive
accelerated approval from the FDA, EMA or comparable regulatory authorities, if our confirmatory trials do not verify clinical benefit, or if we do not
comply with rigorous post-marketing requirements, the FDA, EMA or such other regulatory authorities may seek to withdraw accelerated approval.
Where appropriate, we plan to pursue accelerated development strategies in areas of medical need. We may seek an accelerated approval pathway
for one or more of our product candidates from the FDA, EMA or comparable foreign regulatory authorities. Under the accelerated approval provisions in
the Federal Food, Drug, and Cosmetic Act, and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product candidate
designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the
product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA
considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or
mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign,
or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical
endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible
morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over
available therapy may not be a direct therapeutic advantage but is a clinically important improvement from a patient and public health perspective. If
granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory
studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its
approval of the drug.
In addition, there can be no assurance that we will satisfy all FDA requirements, including new provisions, that govern accelerated approval. For
example, with passage of FDORA in December 2022, Congress modified certain provisions governing accelerated approval of drug and biologic products.
Specifically, the new legislation authorized the FDA to require a sponsor to have its confirmatory clinical trial underway before accelerated approval is
awarded and to submit progress reports on its post-approval studies to the FDA every six months until the study is completed. Moreover, FDORA
established expedited procedures authorizing FDA to withdraw an accelerated approval if certain conditions are met, including where a required
confirmatory study fails to verify and describe the predicted clinical benefit or where evidence demonstrates the product is not shown to be safe or effective
under the conditions of use. The FDA may also use such procedures to withdraw an accelerated approval if a sponsor fails to conduct any required post-
approval study of the product with due diligence, including with respect to “conditions specified by the Secretary.” The new procedures include the
provision of due notice and an explanation for a proposed withdrawal, and opportunities for a meeting with the Commissioner or the Commissioner’s
designee and a written appeal, among other things. We will need to fully comply with these and other requirements in connection with the development and
approval of any product candidate that qualifies for accelerated approval.
More recently, in March 2023, the FDA issued draft guidance that outlines its current thinking and approach to accelerated approval. The FDA
indicated that the accelerated approval pathway is commonly used for approval of oncology drugs due to the serious and life-threatening nature of cancer.
Although single-arm trials have been commonly used to support accelerated approval, a randomized controlled trial is the preferred approach as it provides
a more robust efficacy and safety assessment and allows for direct comparisons to an available therapy. To that end, the FDA outlined considerations for
designing, conducting, and analyzing data for trials intended to support accelerated approvals of oncology therapeutics. Subsequently, in December 2024
and January 2025, the FDA issued additional draft guidances relating to accelerated approval. These guidances describe FDA’s views on what it means to
conduct a confirmatory trial with due diligence and how the FDA plans to interpret whether such a study needs to be underway at the time of approval.
While these guidances are currently only in draft form and will ultimately not be legally binding even when finalized, we will need to consider the FDA’s
guidances if we seek accelerated approval for any of our products in the future.
Prior to seeking accelerated approval, we will seek feedback from the FDA, EMA or comparable foreign regulatory authorities and will otherwise
evaluate our ability to seek and receive such accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we
will decide to pursue or submit an NDA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be
no assurance that after subsequent feedback from the FDA, EMA or comparable foreign regulatory authorities, we will continue to pursue or apply for
accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to
submit an application for accelerated approval or under another expedited regulatory designation (i.e., Fast Track designation, Breakthrough Therapy
designation or orphan drug designation), there can be no assurance that such submission or application will be accepted or that any expedited development,
review or approval will be granted on a timely basis, or at all. The FDA, EMA or other comparable foreign regulatory authorities could also require us to
conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of
expedited development, review or approval for our product
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candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product
candidate and could harm our competitive position in the marketplace.
We, or our collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates and, even if we do,
that exclusivity may not prevent the FDA or the EMA from approving other competing products.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as
orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition,
which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. The FDA has granted orphan drug
designation to pegcetacoplan for the treatment of PNH and for the treatment of C3G. We, or our collaborators, may seek orphan drug designations for
pegcetacoplan for other indications and for other product candidates and may be unable to obtain such designations.
Even if we, or our collaborators, obtain orphan drug designation for a product candidate, such as is the case for pegcetacoplan for the treatment of
PNH and C3G, we, or they, may not be able to obtain orphan drug exclusivity for that product candidate. Generally, a product with orphan drug
designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation,
in which case the FDA or the EMA will be precluded from approving another marketing application for the same drug for that indication for the applicable
exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be
reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no
longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the
manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we, or our collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from
competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the
same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a
major contribution to patient care.
The FDA and Congress may further reevaluate the Orphan Drug Act and its regulations and policies. This may be particularly true in light of a
decision from the Court of Appeals for the 11th Circuit in September 2021 finding that, for the purpose of determining the scope of exclusivity, the term
“same disease or condition” means the designated “rare disease or condition” and could not be interpreted by the FDA to mean the “indication or use.”
Thus, the court concluded, orphan drug exclusivity applies to the entire designated disease or condition rather than the “indication or use.” Although there
have been legislative proposals to overrule this decision, they have not been enacted into law. On January 23, 2023, the FDA announced that, in matters
beyond the scope of that court order, the FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for
which the orphan drug was approved. In February 2025, a federal district court in Washington, D.C. fully embraced the reasoning in the Eleventh Circuit
decision in another court decision challenging the scope of orphan drug exclusivity. On April 17, 2025, the FDA appealed this decision to the U.S. Court of
Appeals for the D.C. Circuit. The implications of this decision, and its impact on the FDA’s implementation of the Orphan Drug Act, are unclear at this
point.
The FDA, EMA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become
subject to significant liability. The FDA, EMA and other regulatory authorities strictly regulate the promotional claims that may be made about prescription
products, such as our product candidates, if approved. In particular, a product may not be promoted in the United States for uses that are not approved by
the FDA as reflected in the product’s approved labelling, or in other jurisdictions for uses that differ from the labelling or uses approved by the applicable
regulatory authorities. While physicians may prescribe products for off-label uses, the FDA, EMA and other regulatory authorities actively enforce laws
and regulations that prohibit the promotion of off-label uses by companies, including promotional communications made by companies’ sales force with
respect to off-label uses that are not consistent with the approved labelling, and a company that is found to have improperly promoted off-label uses may be
subject to significant civil, criminal and administrative penalties.
For example, on September 9, 2025, President Trump issued a Memorandum directing HHS to “ensure transparency and accuracy in direct-to-
consumer prescription drug advertising, including by increasing the amount of information regarding any risks associated with the use of any such
prescription drug required to be provided in prescription drug advertisements.” To that end, the FDA announced that it is initiating a rulemaking process
“to eliminate the ‘adequate provision’ loophole that allows pharmaceutical advertisements to hide safety information by placing it in another format or
location.” In this context, the FDA declared that it will no longer tolerate what it characterized as “deceptive practices” in prescription drug advertising and
that the FDA would “aggressively deploy” its available enforcement tools, with “heightened scrutiny” of fair balance and disclosures in social media
promotions. The
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FDA also issued a generic “notice letter” directing companies to “remove any noncompliant advertising and bring all promotional communications into
compliance.”
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful,
non-misleading, and non-promotional scientific communications concerning their products in certain circumstances. For example, in October 2023, the
FDA published draft guidance outlining the FDA's non-binding policies governing the distribution of scientific information on unapproved uses to
healthcare providers. This draft guidance calls for such communications to be truthful, non-misleading, factual, and unbiased and include all information
necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the information about the unapproved use. In
addition, under some relatively recent guidance from the FDA and the Pre-Approval Information Exchange Act, or PIE Act, signed into law as part of the
Consolidated Appropriations Act of 2023, companies may also promote information that is consistent with the prescribing information and proactively
speak to formulary committee members of payors regarding data for an unapproved drug or unapproved uses of an approved drug. We may engage in these
discussions and communicate with healthcare providers, payors and other constituencies in compliance with all applicable laws, regulatory guidance and
industry best practices. We will need to carefully navigate the FDA’s various regulations, guidance and policies, along with recently enacted legislation, to
ensure compliance with restrictions governing promotion of our products.
We will also need to observe the FDA’s various regulations, guidance and policies, along with recently enacted legislation, to ensure compliance
with restrictions governing promotion of our products. In September 2021, the FDA published final regulations which describe the types of evidence that
the FDA will consider in determining the intended use of a drug or biologic. In addition, in January 2025, the FDA published final guidance outlining its
policies governing the distribution of scientific information to healthcare providers about unapproved uses of approved products. The final guidance calls
for such communications to be truthful, non-misleading and scientifically sound and to include all information necessary for healthcare providers to
interpret the strengths and weaknesses and validity and utility of the information about the unapproved use of the approved product. If a company engages
in such communications consistent with the guidance’s recommendations, the FDA indicated that it will not treat such communications as evidence of
unlawful promotion of a new intended use for the approved product.
If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil
and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label
promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is
changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant
liability, which would materially adversely affect our business and financial condition.
Even if we, or our collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products
may limit how we manufacture and market our products, which could impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive
regulation. We, and our collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product candidates
which we or they market. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and
must be consistent with the information in the product’s approved labeling. Thus, we and our collaborators will not be able to promote any products we
develop for indications or uses for which they are not approved. We are limited to promoting EMPAVELI and SYFOVRE in accordance with their
approved label in each jurisdiction and may not promote them for any indication other than as stated on the label. The label for Aspaveli in the European
Union is more limited than the label for EMPAVELI in the United States.
EMPAVELI, SYFOVRE, and any other product candidates for which we, or our collaborators, obtain marketing approval in the future could be
subject to post-marketing restrictions or withdrawal from the market and we, or our collaborators, may be subject to substantial penalties if we, or they,
fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
EMPAVELI, SYFOVRE, and any other product candidates for which we, or our collaborators, obtain marketing approval, as well as the
manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be
subject to ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other
post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. For
EMPAVELI, SYFOVRE, and any other product candidate that is granted marketing approval, the approval may be subject to limitations on the indicated
uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation
Strategy.
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In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements,
including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our
collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with
cGMPs.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a
product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of
products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the
approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our collaborators, do
not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject
to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the
promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws
and state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
•
restrictions on such products, manufacturers or manufacturing processes;
•
restrictions on the labeling or marketing of a product;
•
restrictions on product distribution or use;
•
requirements to conduct post-marketing studies or clinical trials;
•
warning letters or untitled letters;
•
withdrawal of the products from the market;
•
refusal to approve pending applications or supplements to approved applications that we submit;
•
recall of products;
•
restrictions on coverage by third-party payors;
•
fines, restitution or disgorgement of profits or revenues;
•
suspension or withdrawal of marketing approvals;
•
refusal to permit the import or export of products;
•
product seizure; or
•
injunctions or the imposition of civil or criminal penalties.
If we, and our collaborators, are not able to comply with post-approval regulatory requirements, we, and our collaborators, could have the marketing
approvals for our products withdrawn by regulatory authorities and our, or our collaborators’, ability to market any future products for which we receive
marketing approval could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-
approval regulations may have a negative effect on our operating results and financial condition.
There is substantial uncertainty as to how, if at all, the Trump administration will seek to modify or revise the requirements and policies of the FDA
and other regulatory agencies with jurisdiction over our product candidates. The impending uncertainty could present new challenges or potential
opportunities as we navigate the clinical development and approval process for our product candidates.
Disruptions at the FDA and other government agencies from funding cuts, personnel losses, regulatory reform, government shutdowns and other
developments could hinder our ability to obtain guidance from the FDA regarding our clinical development programs, progress development
efficiently, and secure approval of our product candidates in a timely manner, which would negatively impact our business.
The FDA and comparable regulatory agencies in foreign jurisdictions, such as the EMA and Committee for Medicinal Products for Human Use,
play an important role in the development of our product candidates by providing guidance on our clinical development programs and reviewing our
regulatory submissions, including INDs, requests for special designations and marketing
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applications. If these oversight and review activities are disrupted, then correspondingly our ability to develop and secure timely approval of our product
candidates could be impacted in a negative manner.
These actions and the resulting recent loss of FDA leadership and personnel could lead to disruptions and delays in FDA guidance, review and
approval of our product candidates. For example, on July 14, 2025, following litigation reaching the U.S. Supreme Court, the Trump Administration began
to carry out layoffs across HHS, including the FDA. In November 2025, a Congressional Continuing Resolution ended the government shutdown,
providing full-year funding for the FDA through September 30, 2026, at approximately $7.0 billion with a slight increase in user fees for drug and device
companies.
While the FDA’s review of marketing applications and other activities for new drugs and biologics is largely funded through the user fee program
established under the Prescription Drug User Fee Act, or PDUFA, it remains unclear how the Trump Administration’s efforts to reduce the workforce of
HHS and budget cuts will impact this program and the ability of the FDA to provide guidance and review our product candidates in a timely manner. For
example, while the reduction in workforce did not reportedly specifically target FDA reviewers, many operations, administrative and policy staff that help
support such reviews were affected and those losses could lead to delays in PDUFA reviews and related activities. In addition, while currently unclear,
there is a risk that the reduction in workforce and budget cutbacks could threaten the integrity of the PDUFA program itself. That is because, for the FDA
to obligate user fees collected under PDUFA in the first place, a certain amount of non-user fee appropriations must be spent on the process for the review
of applications plus certain other costs during the same fiscal year.
There is also substantial uncertainty as to how regulatory reform measures being implemented by the Trump Administration across the government
will impact the FDA and other federal agencies with jurisdiction over our activities. For example, since taking office, President Trump has issued a number
of Executive Orders that could have a significant impact on the manner in which the FDA conducts its operations and engages in regulatory and oversight
activities. If these or other orders or executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the
normal course, our business may be negatively impacted.
Similarly, actions by the U.S. government have significantly disrupted the operations of U.S. government agencies such as the National Institutes of
Health, the National Science Foundation, the Centers for Disease Control and Prevention, and the FDA, which have traditionally provided funding for basic
research, research and development, and clinical testing. These U.S. government actions have included, among other things, suspending, terminating and
withholding of disbursements of funds owed under ongoing contracts, grants, and other financial assistance agreements; declining to continue multi-year
research projects for additional annual budget periods; canceling or delaying solicitations for new contract, grant and other financial assistance awards;
canceling or delaying proposal evaluation processes and issuance of such new awards; substantially reducing federal agency staff responsible for managing
contract and financial assistance programs; eliminating agency information and resources for facilitating research activity; delaying or terminating federal
agency procedures for authorizing international transactions; initiating aggressive enforcement actions that may disrupt the operations of major research
universities that are significant contributors to life sciences research in the U.S., and threatening access to federal agency contracts and other funding
awards based on companies’ otherwise lawful corporate policies and choice of counsel. These U.S. government actions could, directly or indirectly,
significantly disrupt, delay, prevent, or increase the costs of our research and product commercialization programs, including our ability to develop new
product candidates, conduct clinical trials, implement research collaborations with other companies or institutions, and obtain approvals to market and sell
new products.
In addition, government funding of government agencies on which our operations may rely, including those that fund research and development
activities, is subject to the political process, which is inherently fluid and unpredictable. For example, the federal government shut down on October 1,
2025, and did not reopen for 43 days. With the shutdown, the FDA issued a public notice stating that FDA operations would continue to the extent
permitted by law, such as activities necessary to address imminent threats to the safety of human life and activities funded by carryover user fee funds. The
FDA declared that, during the shutdown period, it did not have legal authority to accept user fees assessed for FY 2026 until an FY 2026 appropriation or
Continuing Resolution for the FDA was enacted. As a result, the FDA was not able to accept any regulatory submissions for FY 2026 that required a fee
payment and that was submitted during the lapse period. In addition, the FDA indicated that some of its regulatory science research, crucial for advancing
product innovation, safety, and quality, would be curtailed during the lapse period.
At the same time, disruptions at the FDA and other government agencies may result from public health events similar to the COVID-19 pandemic.
For example, during the COVID-19 pandemic, a number of companies announced receipt of complete response letters due to the FDA’s inability to
complete required inspections for their applications. In the event of a similar public health emergency in the future, the FDA may not be able to continue its
current pace and review timelines could be extended. Regulatory authorities outside the United States facing similar circumstances may adopt similar
restrictions or other policy measures in response to a similar public health emergency and may also experience delays in their regulatory activities.
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Accordingly, if any of the foregoing developments and others impact the ability of the FDA to provide us with guidance regarding our clinical
development programs or delay the FDA’s review and processing of our regulatory submissions, including INDs and NDAs/BLAs, our business would be
negatively impacted. Further, any future government shutdown could impact our ability to access the public markets and obtain necessary capital in order
to properly capitalize and continue our operations.
Current and future legislation may increase the difficulty and cost for us and our collaborators to obtain reimbursement of and commercialize our
product candidates and affect the prices we, or they, may obtain.
In the United States and some foreign jurisdictions, there have been and continue to be a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate
post-approval activities and affect our ability, or the ability of our collaborators, to profitably sell EMPAVELI, SYFOVRE, or any other products for which
we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may
result in more rigorous coverage criteria and in additional downward pressure on the price that we, or our collaborators, may receive for any approved
products. If reimbursement of our products is unavailable or limited in scope, our business could be materially harmed.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been U.S.
congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to
pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under
Medicare and Medicaid.
In August 2022, the IRA, was signed into law by President Biden. The new legislation has implications for Medicare Part D, which is a program
available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for
outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare
(beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price
increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in
2025). The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and
biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for
ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or
Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least nine years and biologics that have been
licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. With passage of the One
Big Beautiful Bill Act, or OBBBA, on July 3, 2025, which was signed into law on July 4, 2025, Congress extended this exemption to drugs and biologics
with multiple orphan drug designations.
Nonetheless, since CMS may establish a maximum price for these products in price negotiations, we would be fully at risk of government action if
our products are the subject of Medicare price negotiations. Moreover, given the risk that could be the case, these provisions of the IRA may also further
heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products if prices
are set after such products have been on the market for nine years.
The first cycle of negotiations for the Medicare Drug Price Negotiation Program commenced in the summer of 2023 with the negotiated prices for
ten selected drug products becoming effective on January 1, 2026. The second cycle of negotiations with participating drug companies occurred during
2025, and the negotiated prices for this second set of 15 drugs will become effective on January 1, 2027. On January 27, 2026, CMS published the list of 15
drugs selected for the third cycle of negotiations. These negotiated prices will become effective on January 1, 2028.
Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by
offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The
legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare
out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year. On August 15, 2024, HHS published the
results of the first Medicare drug price negotiations for ten selected drugs. On January 17, 2025, CMS announced its selection of 15 additional drugs
covered by Part D for the second cycle of negotiations.
On June 6, 2023, Merck & Co. filed a lawsuit against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program
for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution.
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Subsequently, a number of other parties also filed lawsuits in various courts with similar constitutional. HHS has generally won the substantive disputes in
these cases or succeeded in getting claims dismissed for lack of standing or on the merits. For example, on May 8, 2025, the U.S. Court of Appeals for the
Third Circuit rejected AstraZeneca’s challenge to the Medicare price negotiation program, finding that the program did not violate the company’s due
process rights under the U.S. Constitution. Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain
results.
On April 15, 2025, President Trump issued an Executive Order which directs the HHS to take steps to reduce the prices of pharmaceutical products.
The new Executive Order repeats many of the proposals advanced during the first Trump Administration, including directing the FDA to streamline and
improve its existing drug importation program to make it easier for states to obtain approval without sacrificing the safety or quality of drug products.
Other provisions of the Executive Order relate to the 340B program. Specifically, one provision calls on the Secretary of HHS to determine the hospital
acquisition cost for covered outpatient drugs at hospital outpatient departments and to consider and propose any appropriate adjustments for Medicare
payment. The other provision directs HHS to condition grant funding to certain health centers on those centers passing through the 340B discounts they
receive on insulin and injectable epinephrine products to patients who meet certain requirements. With respect to the IRA’s Medicare drug pricing
program, the Executive Order, among other things, calls for alignment in “the treatment of small molecule prescription drugs with that of biological
products, ending the distortion that undermines relative investment in small molecule prescription drugs, coupled with other reforms to prevent any
increase in overall costs to Medicare and its beneficiaries.”
Further, on May 12, 2025, President Trump issued an additional Executive Order calling on pharmaceutical manufacturers to voluntarily reduce the
prices of medicines in the United States. The Executive Order directs the Secretary of HHS to communicate most-favored-nation, or MFN, price targets to
pharmaceutical manufacturers to bring prices in line with comparably developed nations. The Executive Order further provides that if such actions do not
lower the costs of pharmaceuticals, the Secretary of HHS would pursue other actions, including proposing a rulemaking that imposes MFN pricing in the
United States. Subsequently, on May 20, 2025, the HHS indicated that the proposed MFN pricing will apply only to brand products without generic or
biosimilar competition and the reference foreign countries will include only those in which the branded product similarly does not have generic or
biosimilar competition. Second, the HHS indicated that the MFN target price will be the lowest price in a country that is a member of the Organization for
Economic Co-operation and Development, or OECD, with a gross domestic product, or GDP, per capita of at least 60% of the U.S. GDP per capita. Based
on previous estimates, there are likely at least 22 OECD countries that would satisfy this criterion.
More recently, on July 31, 2025, President Trump issued letters to 17 pharmaceutical companies reiterating the requirements of the May 12, 2025,
Executive Order and demanding that such companies extend MFN pricing to Medicaid patients, guarantee MFN pricing for newly-launched drug products,
return increased revenues abroad to U.S. patients and provide for direct purchasing at MFN pricing. The letters also urged these companies to stipulate that
they will not offer other developed nations better prices for new drugs than the prices offered for such products in the United States. The letters called for
engagement with the FDA and CMS within 60 days to implement these changes and threatened to use “every tool in our arsenal” to address what the letter
characterized as “abusive drug pricing practices.” Virtually all of these pharmaceutical companies have entered into agreements with the Trump
Administration to provide for lower prices on certain pharmaceuticals. On February 5, 2026, President Trump launched TrumpRx.gov, a website that
directs individuals to pharmaceutical manufacturer websites that are offering price discounts based on the Trump Administration’s pricing agreements with
pharmaceutical manufacturers.
Separately, on December 23, 2025, CMS, through its Center for Medicare and Medicaid Innovation proposed two five-year pilot programs to
implement a “reference pricing” regime for drugs paid for under Medicare for 25% of covered beneficiaries. The programs are referred to as the Global
Benchmark for Efficient Drug Pricing Model for Medicare Part B drugs, or GLOBE, and the Guarding U.S. Medicare Against Rising Drug Costs for
Medicare Part D drugs, or GUARD. Under the proposed pilot programs, a manufacturer would owe rebates to Medicare if prices for their drugs exceeded
the prices paid by other economically comparable reference countries, defined in the proposed regulations as OECD countries with a GDP of $400 billion
and a per capita GDP that is at least 60% of the US per capita GDP (an initial list of 19 reference countries is included in the proposed rule). These pilot
programs are proposed to go into effect beginning October 1, 2026. The implications and consequences of these actions and the actions by the Trump
Administration to compel an MFN regulatory pricing requirement in the United States and otherwise advance drug pricing policy continue to remain
unclear and uncertain, which could ultimately result in litigation, affect the jurisdictions in which we decide to pursue opportunities to sell our products and
adversely affect our business.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
This is increasingly true with respect to products approved pursuant to the accelerated approval pathway. State Medicaid programs and other payors are
developing strategies and implementing significant coverage barriers, or refusing to cover these products outright, arguing that accelerated approval drugs
have insufficient or limited
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evidence despite meeting the FDA’s standards for accelerated approval. In addition, regional health care organizations and individual hospitals are
increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other
health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We
expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing
pressures.
In addition, in some countries, including member states of the European Union, the pricing of prescription pharmaceuticals is subject to
governmental control. In these countries, pricing negotiations with governmental authorities can take a significant amount of time after receipt of marketing
approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels,
including as part of cost containment measures. Political, economic, and regulatory developments may further complicate pricing negotiations, and pricing
negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states and parallel distribution, or
arbitrage between low-priced and high-priced member states, can further reduce prices, and in certain instances render commercialization in certain
markets infeasible or disadvantageous from a financial perspective. In some countries, we or our collaborators may be required to conduct a clinical trial or
other studies that compare the cost-effectiveness of our product and/or our product candidates to other available products in order to obtain or maintain
reimbursement or pricing approval. Publication of discounts by third-party payors or government authorities may lead to further pressure on the prices or
reimbursement levels. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the
commercial launch of our product and/or product candidates could be delayed, possibly for lengthy periods of time, we or our collaborators may not launch
at all in a particular country, we may not be able to recoup our investment in one or more product candidates, and there could be a material adverse effect
on our business.
Our relationships with customers and third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputational
harm, fines, disgorgement, exclusion from participation in government healthcare programs, curtailment or restricting of our operations, and
diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for which
we obtain marketing approval. Our current and future arrangements with healthcare providers, and third-party payors and customers, if any, will subject us
to broadly applicable fraud and abuse and other healthcare laws and regulations. The laws and regulations may constrain the business or financial
arrangements and relationships through which we conduct clinical research, market, sell and distribute any products for which we obtain marketing
approval. These include the following:
Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully
soliciting, offering, receiving or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or
reward, or in return for, either the referral of an individual for, or the purchase, lease or order of a good, facility, item or service for which payment may be
made under a federal healthcare program such as Medicare and Medicaid;
False Claims Laws. The federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, impose criminal and
civil penalties, including through civil whistleblower or qui tam actions against individuals or entities for, among other things, knowingly presenting or
causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of
a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory
treble damages and significant per-claim penalties;
HIPAA. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other
things, executing a scheme, or making materially false statements in connection with the delivery of or payment for health care benefits, items, or services.
Additionally, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also
imposes obligations on covered entities and their business associates that perform certain functions or activities that involve the use or disclosure of
protected health information on their behalf, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy,
security and transmission of individually identifiable health information;
Transparency Requirements. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical
supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report
annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or transfers of value made to certain healthcare
providers and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family
members;
Analogous State and Foreign Laws. Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims
laws, can apply to sales or marketing arrangements, and claims involving healthcare items or services reimbursed by non-governmental third-party payors,
and are generally broad and are enforced by many different federal and state agencies as well as through private actions. Some state laws require
pharmaceutical companies to comply with the pharmaceutical
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industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers
to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Additionally,
some state and local laws require the registration of pharmaceutical sales representatives in the jurisdiction. State and foreign laws also govern the privacy
and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by
HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our
business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the laws described
above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our
operations, any of which could adversely affect our business, financial condition, results of operations and prospects.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply,
order or use of medicinal products is prohibited in the European Union. The provision of benefits or advantages to physicians is also governed by the
national anti-bribery laws of European Union Member States, such as the U.K. Bribery Act 2010. Violation of these laws could result in substantial fines
and imprisonment.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often
must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory
authorities of the individual European Union Member States.
These requirements are provided in the national laws, industry codes or professional codes of conduct applicable in the European Union Member
States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Efforts to ensure that our business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and
regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate
integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion of products from government funded
healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, and the curtailment or restructuring of our
operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore,
even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the
physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Liabilities they incur pursuant to
these laws could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition,
results of operations and prospects.
With the passage of the CREATES Act, we are exposed to possible litigation and damages by competitors who may claim that we are not providing
sufficient quantities of our approved products on commercially reasonable, market-based terms for testing in support of their ANDAs and 505(b)(2)
applications.
In December 2019, President Trump signed legislation intended to facilitate the development of generic and biosimilar products. The bill, previously
known as the CREATES Act, authorizes sponsors of abbreviated new drug applications, or ANDAs, and 505(b)(2) applications to file lawsuits against
companies holding NDAs that decline to provide sufficient quantities of an approved reference drug on commercially reasonable, market-based terms.
Drug products on FDA’s drug shortage list are exempt from these new provisions unless the product has been on the list for more than six continuous
months, or the FDA determines that the supply of the product will help alleviate or prevent a shortage.
To bring an action under the statute, an ANDA or 505(b)(2) sponsor must take certain steps to request the reference product, which, in the case of
products covered by a Risk Evaluation and Mitigation Strategy with elements to assure safe use, include obtaining authorization from the FDA for the
acquisition of the reference product. If the sponsor does bring an action for failure to provide a reference product, there are certain affirmative defenses
available to the NDA holder, which must be shown by a preponderance of evidence. If the sponsor prevails in litigation, it is entitled to a court order
directing the NDA holder to provide, without delay, sufficient quantities of the applicable product on commercially reasonable, market-based terms, plus
reasonable attorney fees and costs.
Additionally, the new statutory provisions authorize a federal court to award the product developer an amount “sufficient to deter” the NDA holder
from refusing to provide sufficient product quantities on commercially reasonable, market-based terms if the
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court finds, by a preponderance of the evidence, that the NDA holder did not have a legitimate business justification to delay providing the product or
failed to comply with the court’s order. For the purposes of the statute, the term “commercially reasonable, market-based terms” is defined as (1) the
nondiscriminatory price at or below the most recent wholesale acquisition cost for the product, (2) a delivery schedule that meets the statutorily defined
timetable, and (3) no additional conditions on the sale.
Although we intend to comply fully with the terms of these new statutory provisions, we are still exposed to potential litigation and damages by
competitors who may claim that we are not providing sufficient quantities of our approved products on commercially reasonable, market-based terms for
testing in support of ANDAs and 505(b)(2) applications. Such litigation would subject us to additional litigation costs, damages and reputational harm,
which could lead to lower revenues. The CREATES Act may enable generic competition with EMPAVELI, SYFOVRE, and any of our product candidates,
if approved, which could impact our ability to maximize product revenue.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and
process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material
adverse effect on our business, financial condition or results of operations.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-
identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information,
including comprehensive regulatory systems in the United States, European Union and United Kingdom The legislative and regulatory landscape for
privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues
with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including
fines, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our
business, financial condition, results of operations or prospects.
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. In particular, regulations
promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or
protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected
health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected
health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to
changing interpretation. These obligations may be applicable to some or all of our business activities now or in the future.
If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts.
Further, if we fail to comply with applicable privacy laws, including applicable HIPAA privacy and security standards, we could face civil and criminal
penalties. HHS enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume
significant internal resources. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to
violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to our operations. In
addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and
regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.
Similar to the laws in the United States, there are significant privacy and data security laws that apply in Europe and other countries. The collection,
use, disclosure, transfer, or other processing of personal data, including personal health data, regarding individuals who are located in the EEA, and the
processing of personal data that takes place in the EEA, is regulated by the GDPR, which went into effect in May 2018 and which imposes obligations on
companies that operate in our industry with respect to the processing of personal data and the cross-border transfer of such data. The GDPR imposes
onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies. If our or our
partners’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory
investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total
worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity,
reputational harm and a potential loss of business and goodwill.
The GDPR places restrictions on the cross-border transfer of personal data from the European Union to countries that have not been found by the
EC to offer adequate data protection legislation, such as the United States. There are ongoing concerns about the ability of companies to transfer personal
data from the EU to other countries. In July 2020, the Court of Justice of the European Union, or the CJEU, invalidated the EU-U.S. Privacy Shield, one of
the mechanisms used to legitimize the transfer of personal data from the EEA to the U.S. The CJEU decision also drew into question the long-term viability
of an alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the U.S. While we were not self-
certified under the Privacy Shield, this CJEU decision may lead to increased scrutiny on data transfers from the EEA to the U.S. generally and increase our
costs of compliance with data privacy legislation as well as our costs of negotiating appropriate privacy and security agreements with our vendors and
business partners.
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Following the July 2020 Court of Justice of the European Union judgement invalidating the so-called EU-U.S. Privacy Shield, the European
Commission adopted an adequacy decision for the EU-U.S. Data Privacy Framework in July 2023. This adequacy decision permits U.S. companies who
self-certify under the EU-U.S. Data Privacy Framework to rely on it as a valid data transfer mechanism for data transfers from the European Union to the
United States. However, some privacy advocacy groups have already suggested that they will be challenging the EU-U.S. Data Privacy Framework, and
there is currently one pending litigation against the EU-U.S. Data Privacy Framework before the Court of Justice of the European Union (CJEU), C-703/25
P – Latombe v Commission. If these challenges are successful, they may not only impact the EU-U.S. Data Privacy Framework, but also further limit the
viability of the so-called standard contractual clauses and other data transfer mechanisms.
Beyond GDPR, there are privacy and data security laws in a growing number of countries around the world. While many loosely follow GDPR as a
model, other laws contain different or conflicting provisions. These laws will impact our ability to conduct our business activities, including both our
clinical trials and the sale and distribution of commercial products, through increased compliance costs, costs associated with contracting and potential
enforcement actions.
While we continue to address the implications of the recent changes to data privacy regulations, data privacy remains an evolving landscape at both
the domestic and international level, with new regulations coming into effect and continued legal challenges, and our efforts to comply with the evolving
data protection rules may be unsuccessful. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices.
We must devote significant resources to understanding and complying with this changing landscape. Failure to comply with laws regarding data protection
would expose us to risk of enforcement actions taken by data protection authorities in the EEA and elsewhere and carries with it the potential for significant
penalties if we are found to be non-compliant. Similarly, failure to comply with federal and state laws in the U.S. regarding privacy and security of personal
information could expose us to penalties under such laws. Any such failure to comply with data protection and privacy laws could result in government-
imposed fines or orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action,
litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws,
government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our
business, financial condition, results of operations or prospects.
A variety of risks associated with international operations could materially adversely affect our business.
As we engage in significant cross-border and international activities, we will be subject to risks related to international operations, including:
•
different regulatory requirements for initiating clinical trials and maintaining approval of drugs in foreign countries;
•
reduced protection for intellectual property rights in certain countries;
•
unexpected changes in tariffs, trade barriers and regulatory requirements;
•
economic weakness, including inflation, political instability or open conflict in particular foreign economies and markets;
•
differing and multiple payor reimbursement regimes, government payors or patient self-pay systems;
•
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
•
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations of doing
business in another country;
•
workforce uncertainty in countries where labor unrest is more common than in North America;
•
controlled substance legislation differs between countries and legislation in certain countries may restrict, limit, or delay our ability to
manufacture and/or transport our product candidates;
•
likelihood of potential or actual violations of domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act
and the U.K. Bribery Act, or of U.S. and international import, export and re-export control and sanctions laws and regulations, which
likelihood may increase with an increase of operations in foreign jurisdictions, directly or indirectly through third parties (whose corrupt or
other illegal conduct may subject us to liability), which may involve interactions with government agencies or government-affiliated
hospitals, universities and other organizations, such as conducting clinical trials, selling our products, and obtaining necessary permits,
licenses, patent registrations, and other regulatory approvals
•
tighter restrictions on privacy and data protection, and more burdensome obligations associated with the collection, use and retention of data,
including clinical data and genetic material, may apply in jurisdictions outside of North America;
•
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
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•
business interruptions resulting from geopolitical actions, including war, terrorism, and civil and political unrest (such as the ongoing
conflicts in the Middle East and between Russia and Ukraine), or natural disasters including earthquakes, typhoons, floods and fires; and
•
supply and other disruptions resulting from the impact of public health epidemics, including the COVID-19 pandemic, on our strategic
partners, third-party manufacturers, suppliers and other third parties upon which we rely.
Laws and regulations governing our international operations may preclude us from developing, manufacturing, and selling certain products outside of
the United States and require us to develop and implement costly compliance programs.
As we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in
each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering,
authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of
influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates
companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that
accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations. The FCPA is enforced by the Department of Justice and the SEC.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA
presents particular challenges in the pharmaceutical industry, because, in many countries, hospital clinics, universities and similar institutions are operated
by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical
trials, regulatory approvals, sales and marketing and other work have been deemed to be improper payments to government officials and have led to FCPA
enforcement actions. Because the FCPA applies to indirect payments, the use of third parties and other collaborators can increase potential FCPA risk, as
we could be held liable for the acts of third parties that do not comply with the FCPA’s requirements.
The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment
from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to
suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in
long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of
our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability
to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s
accounting provisions.
Like the FCPA, the UK Bribery Act and other anti-corruption laws throughout the world similarly prohibit offers and payments made to obtain
improper business advantages, including offers or payments to healthcare professionals and other government and non-government officials. These other
anti-corruption laws also can result in substantial financial penalties and other collateral consequences.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-
U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. As we
expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude
us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential
and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or
debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s
accounting provisions.
We are subject to governmental export and import controls that could impair our or our collaborators' ability to compete in international markets due
to licensing requirements and subject us or them to liability if we or they are not in compliance with applicable laws.
Our products are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs
regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls.
Exports of our products outside of the United States must be made in compliance with these laws and regulations. If we or our collaborators fail to comply
with these laws and regulations, we or they and certain of our or their employees could be subject to substantial civil or criminal penalties, including the
possible loss of export or import privileges; fines, which may be imposed on us or our collaborators and the respective responsible employees or managers;
and, in extreme cases, the incarceration of responsible employees or managers.
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We have conducted, and continue to conduct, clinical trials in various jurisdictions, including Russia and other Eastern European countries. In
response to the conflict between Russia and Ukraine, the United States, the European Union, and other jurisdictions have imposed economic sanctions and
other restrictions against certain officials, individuals, entities, regions, and industries in Russia, Ukraine, and Belarus. Such sanctions, and any further
restrictions that may be promulgated, could adversely impact our ability to conduct our clinical program in certain jurisdictions. We will continue to closely
monitor the geopolitical situation in Ukraine and its impact on our clinical trial operations.
In addition, changes in our products or changes in applicable export or import laws and regulations may create delays in the introduction, provision,
or sale of our products in international markets, prevent customers from using our products or, in some cases, prevent the export or import of our products
to certain countries, governments or persons altogether. Any limitation on our ability to export, provide, or sell our products could adversely affect our
business, financial condition and results of operations.
Changes in U.S. and international trade policies may adversely impact our business and operating results.
The U.S. government has recently made statements and taken, or has contemplated taking, certain actions that may lead to potential changes to U.S.
and international trade policies, including imposing tariffs, sanctions and export control restrictions affecting products manufactured outside the United
States. Some of our manufacturers and suppliers are located outside the United States. Any unfavorable government policies on international trade, such as
export controls, sanctions capital controls or tariffs, may increase the cost of manufacturing our product candidates and platform materials, affect the
demand for our drug products (if and once approved), the competitive position of our product candidates, and import or export of raw materials and
finished product candidate used in our and our collaborators’ preclinical studies and clinical trials, sanctions particularly with respect to any product
candidates and materials that we import. If any new tariffs, export controls, legislation and/or regulations are implemented, or if existing trade agreements
are renegotiated or, in particular, if either the U.S. or any foreign government takes retaliatory trade actions, such changes could have an adverse effect on
our business, financial condition and results of operations.
Moreover, trade tensions and conflicts between the United States and China in particular have been escalating in recent years and, as such, we are
exposed to the possibility of product supply disruption and increased costs and expenses in the event of changes to the laws, rules, regulations and policies
of the governments of the U.S. or China, or due to geopolitical unrest and unstable economic conditions. Certain Chinese biotechnology companies are, or
may become, subject to trade restrictions, sanctions, other regulatory requirements or proposed legislation by the U.S. government, which could restrict or
even prohibit our ability to work with such entities, thereby potentially disrupting their supply of material to us.
In December 2025, the so-called Biosecure Act became law as part of the National Defense Authorization Act for Fiscal Year 2026. As enacted,
the new law will, upon taking effect after a regulatory implementation period, prohibit U.S. federal government contract, grant and loan funds from being
used for contracts to acquire biotechnology equipment or services produced or provided by certain designated foreign providers, or that will use such
equipment or services in the performance of such contracts. Although the law is generally considered to target the Chinese biotechnology industry, it does
not expressly identify the targeted foreign providers. Rather, the prohibited providers are those entities that are separately designated as Chinese Military
Companies on the so-called 1260H List maintained by the U.S. Department of Defense, as well as additional entities in China or other countries of concern
that might be separately designated in the future as biotechnology companies of concern. As of the date of enactment, the targeted providers include three
subsidiaries of BGI Tech Solutions Co., Ltd., or BGI Group: BGI Tech Solutions (Hongkong) Co., Ltd., BGI Research, and Forensic Genomics
International; and MGI Tech Co., Ltd., but not certain other major Chinese biotechnology companies. However, other biotechnology equipment or service
providers may be added in the future as 1260H List designees or as separately designated biotechnology companies of concern.
By constraining the use of federal government funding for equipment and services produced or provided by certain providers of biotechnology
equipment and services, the law may deter companies from purchasing services or products from, or otherwise collaborating with the designated entities.
Future restrictions on foreign suppliers and service providers, whether through the 1260H designation or other mechanisms, may necessitate significant and
potentially abrupt changes to our network of suppliers and service providers, which could be costly and may delay or otherwise disrupt our research and
commercialization of new products, with adverse effects on the development of our product candidates and our business operations. It is possible some of
our contractual counterparties could be adversely impacted by these or similar supply chain restrictions.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of
hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract
with third parties for the disposal of these materials and waste
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products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury
resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our
resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the
use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current
or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws
and regulations may result in substantial fines, penalties or other sanctions.
Our employees or consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and
requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar
regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply
with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established
and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us.
Employee or consultant misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. This could include violations of HIPAA, other U.S. federal and state law, and requirements of non-
U.S. jurisdictions, including the European Union Data Protection Directive. It is not always possible to identify and deter employee or consultant
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards,
regulations, guidance or codes of conduct. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other
sanctions.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain our executive team and to attract, retain and motivate qualified personnel.
We are highly dependent on the pharmaceutical research and development and business development expertise of our executive team, including
Cedric Francois, M.D., Ph.D., our President and Chief Executive Officer. The members of our executive team are employed “at will,” meaning any of them
may terminate his or her employment with us at any time with or without notice and for any reason or no reason. In the future, we may be dependent on
other members of our management, scientific and development team.
Our ability to compete in the biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified
managerial, scientific and medical personnel. Our industry has experienced a high rate of turnover of management personnel in recent years. If we lose one
or more of our executive officers or other key employees, our ability to implement our business strategy successfully could be seriously harmed.
Furthermore, replacing executive officers or other key employees may be difficult and may take an extended period of time because of the limited number
of individuals in our industry with the breadth of skills and experience required to develop, gain marketing approval of and commercialize products
successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees
on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions.
We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and
commercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory
contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to
develop and commercialize our product candidates will be limited.
Our employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or other improper
activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our
reputation.
We are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations may engage
in fraud or other misconduct, including intentional failures to comply with FDA regulations or similar
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regulations of comparable non-U.S. regulatory authorities, to provide accurate information to the FDA or comparable non-U.S. regulatory authorities, to
comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations and similar
laws and regulations established and enforced by comparable non-U.S. regulatory authorities, to report financial information or data accurately or to
disclose unauthorized activities to us. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which
could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, and the precautions we
take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. These risks may be
particularly acute given the rapid growth in the size of our company. If any such actions are instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of
significant criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion
from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we
become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm, and we
may be required to curtail or restructure our operations.
We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.
In the future, we may enter into transactions to acquire other businesses, products or technologies. Because we have not made any acquisitions to
date, our ability to do so successfully is unproven. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms,
or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by customers or
investors. We may decide to incur debt in connection with an acquisition or issue our common stock or other equity securities to the stockholders of the
acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered
liabilities of the acquired business that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to
successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner.
Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations
and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating
results.
Risks Related to Ownership of Our Common Stock
An active trading market for our common stock may not be sustainable. If an active trading market is not sustained, our ability to raise capital in the
future may be impaired.
Our shares began trading on the Nasdaq Global Select Market on November 9, 2017. There is a risk that an active trading market for our shares may
not be sustained, which could put downward pressure on the market price of our common stock and thereby affect the ability of stockholders to sell their
shares. An inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares
and impair our ability to acquire other companies or technologies by using our shares as consideration.
The trading price of our common stock is highly volatile, which could result in substantial losses for our stockholders.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response
to various factors, some of which are beyond our control. The stock market in general and the market for smaller pharmaceutical and biotechnology
companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result
of this volatility, our stockholders may not be able to sell their common stock at or above the price they paid for their common stock. The market price for
our common stock may be influenced by many factors, including:
•
our success in commercializing EMPAVELI and SYFOVRE and obtaining regulatory approval of EMPAVELI in additional indications
and jurisdictions and SYFOVRE in additional jurisdictions;
•
the timing and results of clinical trials of systemic pegcetacoplan and any other product candidates;
•
the success of existing or new competitive products or technologies;
•
results of discussions with regulatory authorities and regulatory actions with respect to our product candidates or our competitors’
products and product candidates;
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•
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital
commitments;
•
commencement or termination of collaborations for our development programs;
•
failure or discontinuation of any of our product candidates or development programs;
•
results of clinical trials of product candidates of our competitors;
•
regulatory or legal developments in the United States and other countries;
•
developments or disputes concerning patent applications, issued patents or other proprietary rights;
•
the recruitment or departure of key personnel;
•
the level of expenses related to any of our product candidates or clinical development programs;
•
the results of our efforts to develop additional product candidates or products;
•
actual or anticipated changes in estimates as to financial results or development timelines;
•
announcement or expectation of additional financing efforts;
•
sales of our common stock by us, our insiders or other stockholders;
•
variations in our financial results or those of companies that are perceived to be similar to us;
•
short positions, hedging or other transactions in our securities in connection with our Convertible Notes;
•
changes in estimates or recommendations by securities analysts, if any, that cover our stock;
•
changes in the structure of healthcare payment systems;
•
market conditions in the pharmaceutical and biotechnology sectors;
•
general economic, industry and market conditions; and
•
the other factors described in this “Risk Factors” section.
For example, the trading price of our common stock experienced significant volatility in 2025. On January 7, 2025, the closing price of our common
stock on the Nasdaq Global Select Market was $34.63 and on May 15, 2025, the closing price of our common stock on the Nasdaq Global Select Market
was $16.36. Following periods of volatility in the market price of a company’s stock, securities class-action litigation has often been instituted against that
company. We and certain of our current and former executive officers have been named as defendants in purported class action lawsuits following our
announcement of the initial, top-line results.
We and our chief executive officer have been named as defendants in lawsuits that could result in substantial costs and divert management’s attention.
We, our chief executive officer, and our directors have been named as defendants in a purported class action lawsuit initiated in 2023 that alleges,
among other things, that the defendants violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by
misrepresenting and/or omitting certain material facts related to the design of SYFOVRE’s clinical trials and the risks associated with SYFOVRE’s
commercial adoption. The plaintiffs seek, among other relief, compensatory damages and equitable relief in favor of the alleged class of plaintiffs against
all defendants, including interest, and reasonable costs and expenses incurred by plaintiffs, including attorneys’ and expert fees. We, our chief executive
officer, and our directors have also been named as defendants in a purported stockholder derivative lawsuit initiated in 2024 that alleges, among other
things that the defendants breached fiduciary duties, were unjustly enriched, committed corporate waste, and violated Section 14(a) of the Exchange Act
based on the same facts. The plaintiffs seek, among other relief, monetary and punitive damages, and costs, including attorneys’ fees. The outcome of the
matter described above cannot be predicted with certainty. However, we intend to vigorously defend against the litigation. We are unable, however, to
predict the outcome of these matters at this time. Moreover, any conclusion of these matters in a manner adverse to us and for which we incur substantial
costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on our financial condition and
business. In addition, the litigation could adversely impact our reputation and divert management attention and resources from other priorities, including
the execution of business plans and strategies that are important to our ability to grow our business, any of which could have a material adverse effect on
our business. Additional similar lawsuits might be filed. See “Part II, Item 1-Legal Proceedings”.
We have broad discretion in the use of our funds and may not use them effectively.
Our management will have broad discretion in the application of our cash and cash equivalents and could spend our funds in ways that do not
improve our results of operations or enhance the value of our common stock. The failure by our management to apply
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these funds effectively could result in financial losses that could harm our business, cause the price of our common stock to decline and delay the
development of our product candidates. Pending their use, we may invest our funds in a manner that does not produce income or that loses value.
If we identify a material weakness in our internal control over financial reporting, it could have an adverse effect on our business and financial results
and our ability to meet our reporting obligations could be negatively affected, each of which could negatively affect the trading price of our common
stock.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a
material weakness increases the risk that the financial information we report contains material errors.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are
required under the Sarbanes-Oxley Act of 2002 to report annually on our internal control over financial reporting. Our system of internal controls, however
well-designed and operated, is based in part on certain assumptions and includes elements that rely on information from third parties. Our system can
provide only reasonable, not absolute, assurances that the objectives of the system are met. If we, or our independent registered public accounting firm,
determine that our internal controls over financial reporting are not effective, or we discover areas that need improvement in the future, these shortcomings
could have an adverse effect on our business and financial results, and the price of our common stock could be negatively affected.
If we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered public accounting firm is
unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the
reliability of our financial statements, which could lead to a decline in our stock price. Failure to comply with reporting requirements could also subject us
to sanctions and/or investigations by the SEC, The Nasdaq Stock Market or other regulatory authorities.
A sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline significantly, even if our
business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock.
We have registered all shares of common stock that we may issue under our equity compensation plans. As of December 31, 2025, we had options
to purchase an aggregate of 9,063,360 shares of our common stock outstanding, of which options to purchase 5,919,329 shares were vested, and 5,992,358
outstanding unvested restricted stock units, inclusive of 1,259,419 market- and performance-based restricted stock units, that upon vesting at target would
result in the issuance of 5,992,358 shares of our common stock. We also have pre-funded warrants to purchase 80,956 shares of our common stock
outstanding. The shares issuable upon exercise or vesting can be freely sold in the public market upon issuance, subject to volume limitations applicable to
affiliates. Moreover, holders of an aggregate of 10,778,303 shares of our common stock have rights, subject to conditions, to require us to file registration
statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If these additional
shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
Changes in tax laws or in their implementation or interpretation could adversely affect our business and financial condition.
Income, sales, use or other tax laws, statutes, rules, or regulations could be enacted or amended at any time, which could affect our business or
financial condition, including causing potentially adverse impacts to our effective tax rate, tax liabilities, and cash tax obligations. For example, the IRA,
was signed into law in August 2022, and the OBBBA was signed into law in July 2025. The IRA introduced new tax provisions, including a one percent
excise tax imposed on certain stock repurchases by publicly traded companies. The one percent excise tax generally applies to any acquisition of stock by
the publicly traded company (or certain of its affiliates) from a stockholder of the company in exchange for money or other property (other than stock of the
company itself), subject to certain exceptions. Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases. The
OBBBA contains numerous tax provisions which may significantly affect our business or financial condition. The recent changes under the OBBBA
include tax rate extensions and changes to the business interest deduction limitation, the expensing of domestic research and
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development expenditures (in contrast to the continued capitalization and amortization of foreign research and development expenditures), the bonus
depreciation deduction rules, and the international tax framework.
Regulatory guidance under the IRA, the OBBBA, and additional tax-related legislation is and continues to be forthcoming, and such guidance could
ultimately increase or lessen the impact of these laws on our business and financial condition. In addition, it is uncertain if and to what extent various states
will conform to changes to federal tax legislation.
The enactment of some or all of the recommendations set forth or that may be forthcoming in the Organization for Economic Cooperation and
Development’s, or OECD, project on “Base Erosion and Profit Shifting” by tax authorities in the countries in which we operate, could unfavorably impact
our effective tax rate. These initiatives focus on common international principles for the entitlement to tax global corporate profits and enactment of
minimum global tax rate of 15%. Many countries have or are in the process of enacting legislation intended to implement the OECD Global Anti-Base
Erosion, or GloBE, Model Rules. The impact on us will depend on the timing of implementation, the exact nature of each country’s GloBE legislation,
guidance, and regulations thereon and their application by the tax authorities either prospectively or retrospectively.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.
As of December 31, 2025, we had both federal and state net operating loss carryforwards of $427.1 million and $858.7 million, respectively, and
federal and state research and development tax credit carryforwards of $102.1 million and $27.9 million, respectively. Federal net operating loss
carryforward generated post-2017 in the amount of $425.6 million may be carried forward indefinitely. These net operating loss and tax credit
carryforwards could expire unused and be unavailable to offset future income tax liabilities. Federal net operating losses incurred in 2018 and in future
years may be carried forward indefinitely, but the deductibility of such federal net operating losses in 2021 and future years is limited. Certain states have
also enacted temporary suspension or limitation of the utilization of net operating loss carryforwards. In addition, under Section 382 of the Code, and
corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by
value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change
tax attributes to offset its post-change income may be limited. We experienced a Section 382 ownership change in September 2015, which imposes annual
limitations on our use of pre-change net operating loss carryforwards and other pre-change tax attributes. In addition, we may experience ownership
changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. We have determined that our
research and development credit carryforwards are also limited. These limitations upon our historical net operating loss and tax credit carryforwards may
harm our future operating results by effectively increasing our future tax obligations. Refer to Note 12, Income Taxes, of the consolidated financial
statements included in this Annual Report on Form 10-K for additional information related to our accounting for income taxes.
Taxing authorities could challenge our historical and future tax positions or our allocation of taxable income among our subsidiaries, and tax laws to
which we are subject could change in a manner adverse to us.
We operate through various subsidiaries in a number of countries throughout the world. Consequently, we are subject to tax laws, treaties, and
regulations in the countries in which we operate, and these laws and treaties are subject to interpretation. We have taken, and will continue to take, tax
positions based on our interpretation of such tax laws. Our transfer pricing arrangements are not generally binding on applicable tax authorities. The price
charged for products, services, or the royalty rates and other amounts paid for intellectual property rights, could be challenged by the various tax
authorities, resulting in additional tax liability, interest, and/or penalties. There can be no assurance that a taxing authority will not have a different
interpretation of applicable law and assess us with additional taxes. If we are assessed with additional taxes, this may result in a material adverse effect on
our results of operations and/or financial condition.
Any changes to existing accounting pronouncements or taxation rules or practices may cause adverse fluctuations in our reported results of operations
or affect how we conduct our business.
A change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may affect our
reporting of transactions completed before the change is effective. New accounting pronouncements, taxation rules and varying interpretations of
accounting pronouncements or taxation rules have occurred in the past and may occur in the future. The change to existing rules, future changes, if any, or
the need for us to modify a current tax or accounting position may adversely affect our reported financial results or the way we conduct our business.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely on capital
appreciation, if any, for any return on their investment.
We never declared nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance the
operation, development and growth of our business. In addition, the terms of the Sixth Street Financing Agreement
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precludes us from paying dividends, and any future debt or credit agreements may also preclude us from paying dividends. As a result, capital appreciation,
if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
Concentration of ownership of our common stock among our executive officers and directors, entities associated with our executive officers and
directors and our largest stockholders may allow these stockholders to significantly influence matters submitted to our stockholders for approval, as
well as our management and affairs.
As of February 24, 2026, our executive officers and directors, and entities associated or affiliated with our executive officers and directors, in the
aggregate, beneficially owned shares representing approximately 16.2% of our outstanding common stock, including one of our largest stockholders,
Morningside Venture Investments Ltd., which beneficially owned approximately 10.1% of our outstanding common stock. As a result, if these
stockholders were to choose to act together, they may have the ability to significantly influence all matters submitted to our stockholders for approval, as
well as our management and affairs. For example, these persons, if they choose to act together, could substantially influence the election of directors and
approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership may:
•
delay, defer or prevent a change in control;
•
entrench our management or the board of directors; or
•
impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
Some of these persons or entities may have interests different than those of our other investors. For example, because many of these stockholders
purchased their shares at prices substantially below the price at which other investors purchased shares and have held their shares for a longer period, they
may be more interested in selling our company to an acquirer than other investors or they may want us to pursue strategies that deviate from the interests of
other stockholders.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our
management or hinder efforts to acquire a controlling interest in us.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These
provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price
of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace
members of our board of directors. Among other things, these provisions:
•
establish a classified board of directors such that all members of the board are not elected at one time;
•
allow the authorized number of our directors to be changed only by resolution of our board of directors;
•
limit the manner in which stockholders can remove directors from the board;
•
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at
stockholder meetings;
•
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written
consent;
•
limit who may call a special meeting of stockholders;
•
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that
would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by
our board of directors; and
•
require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain
provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State
of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or
beneficial to, our stockholders. This could also have the effect of discouraging others from making tender offers for our common stock, including
transactions that may be in the best interests of our stockholders. These provisions may also prevent changes in our management or limit the price that
investors are willing to pay for our stock.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading
volume could decline.
The trading market for our common stock will likely depend in part on the research and reports that securities or industry analysts publish about us
or our business. We do not have any control over these analysts. There can be no assurance that analysts will continue to cover us or provide favorable
coverage. Securities or industry analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may
negatively impact the market price of our common stock. In the event we do have analyst coverage, if one or more analysts downgrade our stock or change
their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Our restated certificate of incorporation designates the state courts in the State of Delaware or, if no state court located within the State of Delaware
has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be
initiated by our stockholders, which could discourage lawsuits against our company and our directors, officers and employees.
Our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of
the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and
exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of
our directors, officers or employees to our company or our stockholders, any action asserting a claim against us arising pursuant to any provision of the
General Corporation Law of the State of Delaware or our certificate of incorporation or bylaws, or any action asserting a claim against us governed by the
internal affairs doctrine. This exclusive forum provision will not apply to actions arising under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such
stockholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors,
officers and employees.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
We have certain processes for assessing, identifying and managing cybersecurity risks, which are built into our information technology function and
are designed to help protect our information assets and operations from internal and external cyber threats and employee, health care professionals, or
HCPs, and patient information from unauthorized access or attack, as well as secure our networks and systems. Such processes include physical, procedural
and technical safeguards, response plans, regular tests on our systems, incident simulations and routine review of our policies and procedures to identify
risks and improve our practices. We engage certain external parties, including consultants, independent privacy assessors, and computer security firms to
enhance our cybersecurity oversight. We consider the internal risk oversight programs of third-party service providers before engaging them in order to
help protect us from any related vulnerabilities.
We do not believe that there are currently any known risks from cybersecurity threats that are reasonably likely to materially affect us or our
business strategy, results of operations or financial condition.
The Audit Committee of the Board of Directors provides direct oversight over cybersecurity risk. The Audit Committee receives quarterly updates
from management regarding cybersecurity matters, and is notified between such updates regarding significant new cybersecurity threats or incidents.
Our Head of Information Technology leads the operational oversight of company-wide cybersecurity strategy, policy, standards and processes and
works across relevant departments to assess and help prepare us and our employees and third-party service providers to address cybersecurity risks. The
Head of Information Technology has over 12 years of experience within the life sciences industry building and maintaining cybersecurity programs. Our
cybersecurity function, led by the Head of Information Technology, brings security credentials and expertise, with broad global cybersecurity and
compliance experience in life science, healthcare, and federal government. In addition to our cybersecurity team, a managed security service provider
provides us with additional coverage to monitor, detect and respond to threats and vulnerabilities.
In an effort to deter and detect cyber threats, we provide all employees, including part-time and temporary employees, with cybersecurity
information and training, which covers timely and relevant topics, including social engineering, phishing, password protection, confidential data protection,
asset use and mobile security, and educates employees on the importance of reporting all incidents immediately. Our third-party risk management program
is integrated with global sourcing and procurement, and requires
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vendor risk assessments, incident reporting, and data protection controls. We also use technology-based tools to mitigate cybersecurity risks and to bolster
our employee-based cybersecurity programs.
Item 2. Properties.
Details of our principal properties as of December 31, 2025, are provided in the table below. We believe that our facilities are sufficient to meet
our current needs and that suitable additional space will be available to us as and when needed.
Location
Function
Size
Property
Interest
Waltham, MA, USA
Corporate Headquarters
77,818 sq. ft. Leased
San Francisco, CA, USA
Office space
5,044 sq. ft. Leased
Zug, Switzerland
Office space
938 sq. m. Leased
Munich, Germany
Office space
1,363 sq. m. Subleased
Watertown, MA, USA
Lab space
9,704 sq. ft. Leased
Item 3. Legal Proceedings.
In March 2025, the United States District Court for the District Court of Massachusetts dismissed, without prejudice and without leave to amend, a
putative class action complaint that was filed in August 2023 against the Company and certain current and former executive officers of the Company,
which alleged, among other things, that the defendants violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder
by misrepresenting and/or omitting certain material facts related to the design of SYFOVRE’s clinical trials and the risks associated with SYFOVRE’s
commercial adoption, and sought, among other relief, compensatory damages and equitable relief in favor of the alleged class against all defendants,
including interest, and reasonable costs and expenses incurred by plaintiffs, including attorneys’ and expert fees. In April 2025, the plaintiffs filed an appeal
to the United States Court of Appeals for the First Circuit, which conducted a hearing in January 2026.
In December 2024, purported stockholders filed putative stockholder derivative lawsuits in the United States District Court for the District of
Massachusetts on behalf of the Company against the Company’s directors for breach of fiduciary duty, unjust enrichment, waste, and alleged violation of
Section 14(a) of the Exchange Act related to the design of SYFOVRE’s clinical trials and the risks associated with SYFOVRE’s commercial adoption, and
sought monetary and punitive damages, and costs, including attorneys’ fees. These cases were consolidated under the caption In re Apellis
Pharmaceuticals, Inc. Derivative Litigation, No. 1:24-cv-13128-JEK in January 2025 and are stayed pending the outcome of the appeal in the United States
Court of Appeals for the First Circuit of the dismissal of the securities class action.
The Company’s businesses may also be subject at any time to commercial disputes, product liability claims, personal injury claims, third-party
subpoenas or various other lawsuits arising in the ordinary course of business, including intellectual property infringement, employment or investor
matters, and the Company expects that this will continue to be the case in the future.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been listed on the Nasdaq Global Select Market under the symbol “APLS” since November 9, 2017. Prior to that date, there
was no public trading market for our common stock.
Holders of Record
As of February 17, 2026, we had 2 holders of record of our common stock. The actual number of stockholders is greater than this number of record
holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of
holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. In addition, the Sixth Street Financing Agreement contains restrictive covenants
that prohibit us, subject to certain exceptions, from paying dividends on our common stock, and future debt securities or other financing arrangements
could contain similar or more restrictive negative covenants. We intend to retain all available funds and any future earnings, if any, to fund the
development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related
to dividend policy will be made at the discretion of our board of directors.
Securities Authorized for Issuance under Equity Compensation Plans
Information about our equity compensation plans is incorporated by reference herein to Item 12 of Part III of this Annual Report on Form 10-K.
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Stock Performance Graph
The following performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be
incorporated by reference into any of our future filings under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act, except to
the extent that we specifically incorporate it by reference into such filing.
The graph below compares the cumulative total stockholder return on our common stock between December 31, 2018 and December 31, 2025, with
the cumulative total return of (a) the Nasdaq Composite Index and (b) the Nasdaq Biotechnology Index over the same period. The graph assumes the
investment of $100 after the market close on December 31, 2018 in our common stock and each of the other indices described above. The comparisons are
not intended to forecast or be indicative of future performance of our common stock. All amounts shown are based on the closing price of our common
stock. Data for the Nasdaq Composite Index and Nasdaq Biotechnology Index assume reinvestment of dividends.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result
of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ
materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
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. We believe this approach has the potential to effectively control diseases with high unmet need that are driven by excessive complement activation.
We currently have two marketed drugs that target C3, the central protein in the complement cascade: SYFOVRE (pegcetacoplan injection), approved by
the U.S. Food and Drug Administration, or FDA, in February 2023 for the treatment of geographic atrophy secondary to age-related macular degeneration,
or GA; and EMPAVELI (pegcetacoplan), approved by the FDA in May 2021 for the treatment of paroxysmal nocturnal hemoglobinuria, or PNH, and
approved by the FDA in July 2025 for the treatment of C3 glomerulopathy, or C3G, and primary immune complex membranoproliferative
glomerulonephritis, or primary IC-MPGN.
We believe SYFOVRE has the potential to be the standard of care for patients with GA, a disease that affects an estimated 1.5 million people in the
United States. While we have exclusive, worldwide commercialization rights for SYFOVRE, we intend to focus our commercialization efforts for
SYFOVRE in the U.S. and explore international expansion in select markets, including Australia, where we received marketing approval in January 2025.
We launched SYFOVRE in the United States in March 2023. For the years ended December 31, 2025 and 2024, we generated $586.9 million and $611.9
million, respectively, in U.S. net product revenue from sales of SYFOVRE. We are developing a next-generation therapy by combining SYFOVRE
treatment with APL-3007, which is a small interfering RNA, or siRNA, aimed at comprehensively blocking complement activity in the retina and the
choroid. We initiated a Phase 2 multi-dose clinical trial of this combination in patients with GA in June 2025.
We believe that EMPAVELI has the potential to be a best-in-class treatment for a range of indications with high unmet needs. We have exclusive
U.S. commercialization rights for EMPAVELI, and our collaboration partner, Swedish Orphan Biovitrum AB (Publ), or Sobi, has exclusive ex-U.S.
commercialization rights for systemic pegcetacoplan. For the years ended December 31, 2025 and 2024, we generated $102.4 million and $98.1 million,
respectively, in U.S. net product revenue from sales of EMPAVELI and received $13.2 million and $18.4 million, respectively, in royalties from Sobi.
We initiated two pivotal clinical trials with EMPAVELI in the fourth quarter of 2025, one for the treatment of primary focal segmental
glomerulosclerosis, or FSGS, and one for delayed graft function, or DGF. FSGS and DGF are both rare, severe nephrology conditions in which
complement overactivation plays a significant role.
On July 1, 2025, we entered into a Royalty Buy-Down Agreement, or the Royalty Agreement, with our collaboration partner, Sobi, under which
Sobi paid us an upfront payment of $275.0 million, and agreed to pay up to an aggregate of $25.0 million upon the European Medicines Agency, or EMA,
approval of Aspaveli for C3G and primary IC-MPGN, and we agreed to reduce Sobi’s royalty payment obligations under our Collaboration and License
Agreement with Sobi, or the Sobi Collaboration Agreement, by 90%, subject to defined caps tied to Aspaveli’s performance, including an initial cap of
1.45x of the amounts paid by Sobi to us under the Royalty Agreement. If a cap is met, Sobi’s royalty payment obligations under the Sobi Collaboration
Agreement will revert to 100%.
In January 2026, Sobi received EMA approval of Aspaveli for C3G and primary IC-MPGN. Sobi paid us our $25.0 million milestone in February
2026.
Finally, we are developing new product candidates to further advance our pipeline. Through our collaboration with Beam Therapeutics, Inc., or
Beam, we have commenced preclinical studies for APL-9099, a treatment targeting the neonatal Fc receptor, or FcRn, which has the potential to be a first-
in-class gene editing treatment for future target indications with one-time dosing. We are also developing other programs with our proprietary in-house
capabilities and under our Beam collaboration.
To date, we have financed our operations primarily through cumulative $2.6 billion in net proceeds from public offerings of our common stock and
pre-funded warrants to purchase common stock, $414.7 million in payments and royalties from Sobi pursuant to our collaboration agreement, $300.0
million from the Royalty Agreement, $532.5 million under various credit arrangements, including with Sixth Street Lending Partners, or Sixth Street, and
SFJ Pharmaceuticals Group, or SFJ, and $98.8 million relating to the unwinding of certain capped call transactions in March 2024, as well as from the
proceeds of our operations. To date, we have exchanged $425.4 million and converted $0.7 million of aggregate principal amount of our Convertible Notes
for shares of our common stock.
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Excluding the revenue generated from the Royalty Agreement with Sobi for the year ended December 31, 2025, we have incurred significant net
operating losses in each year since inception and, while we anticipate achieving net operating income based on our current operating plan, we may not
sustain profitability and could incur losses in the future. Our net income was $22.4 million, and our net losses were $197.9 million, and $528.6 million for
the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had an accumulated deficit of $3.0 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 PNH, C3G and primary IC-MPGN and the commercialization of SYFOVRE for the treatment of GA. In addition,
we expect to continue to incur significant expenses if and as we continue to develop and conduct our ongoing and planned clinical trials of systemic
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.
Financing Agreement and Credit Facility
On May 13, 2024, we entered into a financing agreement, or the Sixth Street Financing Agreement, with certain of our material subsidiaries as
guarantors party thereto, the lenders party thereto, or the Lenders, and Sixth Street Lending Partners, as the administrative agent and collateral agent for the
Lenders.
The Sixth Street Financing Agreement provides for a senior secured term loan facility of up to $475.0 million, or the Credit Facility, consisting of an
initial draw of $375.0 million at closing and a potential additional $100.0 million draw at our option upon satisfaction of a $50.0 million minimum cash
requirement and a requirement that our trailing three-month sales of SYFOVRE is at least $180.0 million prior to the $100.0 million draw. We did not draw
down the additional $100.0 million and the option expired on September 30, 2025.
The Credit Facility matures on May 13, 2030 (the “Maturity Date”) and bears interest at an annual rate equal to 3-month Term SOFR (subject to
1.00% floor), plus 5.75%. Certain additional commitment and undrawn amount fees are also payable in connection with the Credit Facility
The net proceeds from the initial draw of the Credit Facility were approximately $358.2 million, net of $16.8 million of issuance costs. We used the
majority of the proceeds of the draw at closing to buy out our remaining obligations to SFJ, in the amount of approximately $326.5 million.
The Credit Facility does not provide for scheduled amortization payments during the term. All principal will be due on the Maturity Date. We have
the right to prepay loans under the Credit Facility at any time. We are required to repay loans under the Credit Facility with proceeds from certain asset
sales, condemnation events and extraordinary receipts, subject, in some cases, to reinvestment rights. Repayments are subject to a prepayment premium.
Repayments may be made after the first year of the loan and are subject to a prepayment premium up to 3% depending on timing.
On July 1, 2025, the lenders and Sixth Street Financing consented to the Royalty Agreement with Sobi, or the Sixth Street Consent, and, in
connection with that the Sixth Street Consent, we agreed to extend by one year from the effective date of the Consent the periods in which certain
prepayment premiums would be owed under the Sixth Street Financing Agreement. This effectively extended the period the prepayment premium would be
owed from one year after the date of the initial draw, or May 13, 2024, to one year after the effective date of the Sixth Street Consent, or July 1, 2025.
All obligations under the Sixth Street Financing Agreement are secured on a first-priority basis, subject to certain exceptions, by security interests in
substantially all of our assets and assets of our material subsidiaries, including our intellectual property, and are guaranteed by our material subsidiaries,
including foreign subsidiaries, subject to certain exceptions.
The Sixth Street Financing Agreement contains customary covenants, including, without limitation, a financial covenant to maintain liquidity of at
least $50.0 million if our market capitalization is below $3.0 billion, and negative covenants that, subject to certain exceptions, restrict indebtedness, liens,
investments (including acquisitions), fundamental changes, asset sales and licensing transactions, dividends, modifications to material agreements, payment
of subordinated indebtedness, and other matters customarily
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restricted in such agreements. For the year ended December 31, 2025, for the months in which our market capitalization did not meet the $3.0 billion
covenant threshold, we maintained liquidity of at least $50.0 million. Among other permissions, we are permitted, on terms and conditions set forth on the
Sixth Street Financing Agreement, to enter into a separate asset-based financing arrangement with a third-party in an amount of up to $100.0 million,
which amount is increased to $200.0 million upon certain sales or market capitalization thresholds, and to have outstanding convertible unsecured notes in
an amount equal to the greater of $400.0 million and 10% of our market capitalization, but not to exceed $600.0 million. We are subject to restrictions on
sales and licensing transactions with respect to our core intellectual property, defined to include SYFOVRE, EMPAVELI, and other pegcetacoplan product
assets, subject to certain exceptions, including certain transactions related to areas outside the United States and Europe.
The Sixth Street Financing Agreement also contains certain events of default after which loans under the Credit Facility may be due and payable
immediately, including payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings,
cross-defaults to certain other agreements, judgments against us and our subsidiaries, and change of control.
On May 13, 2024, we used proceeds from the Sixth Street Financing Agreement to buy out our remaining obligations owed to SFJ, in the amount of
approximately $326.5 million. The buyout of the SFJ development liability eliminated the remaining $366.0 million in payments to SFJ, including a total
of approximately $200.0 million payable in 2024 and 2025.
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. The Convertible Notes will mature on September 15, 2026, unless
converted earlier, redeemed or repurchased in accordance with their terms.
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 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:
•
during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive)
during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price on each applicable trading day;
•
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of
the Convertible Notes for each such trading day was less than 98% of the product of the last reported sale price of our common stock and the
conversion rate on each such trading day;
•
if we call any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day
immediately preceding the redemption date; or
•
upon the occurrence of corporate events specified in the Indenture.
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
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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.
During 2021 and 2022, holders of our 2019 and 2020 Convertible Notes converted approximately $425.4 million in aggregate principal amount into
a total of 12,926,104 shares of our common stock. We accounted for these exchanges as induced conversions, resulting in the expensing of the fair value of
shares issued in excess of the number of shares that would have been issued upon conversion pursuant to the original terms of the Convertible Notes.
None of the circumstances outlined above were achieved during the years ended December 31, 2025 and 2024, and as such, the conditional
conversion feature of the Convertible Notes was not triggered as of December 31, 2025 and 2024.
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 of any of the Convertible Notes as of December 31, 2025.
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.
As of December 31, 2025 and 2024, we held in treasury Convertible Notes in principal amount of $425.4 million which have not been cancelled.
As the Convertible Notes mature on September 15, 2026, we have classified the Convertible Note as current liabilities as of December 31, 2025 and
non-current liabilities as of December 31, 2024 on our consolidated balance sheets.
Capped Call Transactions
In September 2019 and May 2020, concurrently with the pricing of the 2019 Convertible Notes and 2020 Convertible Notes, respectively, we
entered into capped call transactions with two counterparties. The capped call transactions are expected generally to reduce the potential dilution to our
common stock upon any conversion of Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of
converted Convertible Notes, as the case may be, in the event that the market price per share of our common stock, as measured under the terms of the
capped call transactions, is greater than the strike price of the capped call transactions, which is initially $39.4625, the conversion price of the Convertible
Notes, and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of such Convertible Notes. If, however, the
market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds $63.14, the cap price of the capped call
transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such
market price exceeds the cap price of the capped call transactions.
On February 27, 2024, we unwound a portion of the capped call transactions with the capped call counterparties, which resulted in cash proceeds to
us of $98.8 million. The unwind transactions were settled at a volume-weighted average price per share of $64.11 on March 8, 2024.
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. 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 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 for agreed-upon indications (further described in Note 10 of the consolidated financial statements to this Annual
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Report on Form 10-K). Since contract inception, we have recognized $65.0 million in contra-research and development expenses and waived the remaining
$15.0 million in connection with the decision to discontinue the CAD program.
The European Commission 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.
Through June 30, 2025, we were 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. On July 1, 2025, we and certain of our
subsidiaries entered into the Royalty Agreement, under which we agreed to reduce Sobi’s royalty payment obligations under the Collaboration Agreement
by 90%, effective as of July 1, 2025, subject to defined caps tied to Aspaveli’s performance, including an initial cap of 1.45x of the amounts paid by Sobi
to us under the Royalty Agreement. If a cap is met, Sobi’s royalty payment obligations under the Sobi Collaboration Agreement will revert to 100%. We
remain responsible for our license fee obligations (including royalty obligations) to the Trustees of the University of Pennsylvania, or Penn, as a licensor of
ours.
Financial Operations Overview
Revenue
Our revenues consist of product sales of EMPAVELI and SYFOVRE, and revenues derived from the Sobi Collaboration Agreement.
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, primarily recognized 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, product supplied to Sobi, and 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:
•
employee-related expenses including salaries, bonuses, benefits and share-based compensation expense related to individuals performing
research and development activities;
•
expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct clinical trials and
research and development activities on our behalf, and contract manufacturing organizations that manufacture quantities of drug supplies for
both our preclinical studies and clinical trials;
•
the cost of consultants, including share-based compensation expense; and
•
various other expenses incident to the management of our preclinical studies and clinical trials.
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 related goods are delivered or the
services are performed. We have not provided program costs since inception
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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:
•
establishing an appropriate safety profile in preclinical studies;
•
successful enrollment in, and completion of clinical trials;
•
receipt of marketing approvals from applicable regulatory authorities;
•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•
launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; and
•
an acceptable safety profile of the products following approval.
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 continue to progress and
expand. 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 costs associated with medical affairs, drug safety and pharmacovigilance, quality and regulatory
costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and
consulting services. Marketing and advertising costs include marketing literature, promotional activities, conferences and seminars, branding and
sponsorships.
We expect our selling, general and administrative expenses will increase in the future to support continued research and 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 reporting periods. On an ongoing basis, we evaluate our estimates and judgments,
including those described in greater detail below. 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 more detail in Note 2 of the consolidated financial statements to this Annual Report on Form 10-
K. We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and
results of operations.
Product Revenues
We recognize revenue from product sales at the net sales price which includes estimates of variable consideration for which reserves are established
and reflects each of these as a reduction to the revenue. Overall, these reserves reflect our best estimates of the amount of consideration to which we are
entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained. Actual
amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from estimates, we may need to adjust
estimates, which would affect net revenue in the period of adjustment. The following are the variable considerations with critical accounting estimates:
Returns: Consistent with industry practice, we offer specialty pharmacies, or SPs, and specialty distributors, or SDs limited product return rights for
product damaged in shipping or shipped in error, short-dated, expired, recalled, or discontinued products; provided that the return is within a specified
period around the product expiration date as set forth in the applicable individual distribution agreement. We do not allow product returns for product that
has been dispensed to a patient. As we receive inventory reports from SPs and SDs and have visibility into the inventory distribution channel, we are able
to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from SPs and
SDs. In arriving at our estimate for product returns, we also consider historical product returns and the underlying product demand.
GPO Rebates: Commercial rebates are based on (i) our estimates of end-user purchases through a group purchasing organization, or GPO, (ii) the
corresponding contractual rebate percentage tier we expect each GPO to achieve, and (iii) our estimates of the impact of any prospective rebate program
changes made by us.
Credit Card Fees: SDs will sell downstream to customers who may pay for product via credit card. We will reimburse its SDs for the credit card
fees incurred as a result of SDs accepting credit cards as a form of payment from the downstream customers. Credit card fees are recorded as an offset to
revenue based on the average aggregate credit card rate as a percentage of SD sales at the time revenue from the sale is recognized.
Inventory
Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventory costs include third-
party contract manufacturing, third-party packaging services, labor, overhead, and freight. We perform an assessment of the recoverability of capitalized
inventory during each reporting period, and write down any excess and obsolete inventories to their estimated realizable value. Expenses incurred related to
excess and obsolete inventories are recorded within cost of sales. The determination of whether inventory costs will be realizable requires estimates by
management. Provisions for potentially obsolete or slow-moving inventory are made based on our analysis of product dating, inventory levels, historical
obsolescence and future sales forecasts. If actual market conditions are less favorable than projected by management, additional write-downs of inventory
may be required which would be recorded as cost of sales in the consolidated statements of operations and comprehensive income/(loss).
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing
quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost
incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us
monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet
date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the
service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs
incurred for services performed by CROs and contract manufacturing organizations, or CMOs, in connection with research and development activities for
which we have not yet been invoiced.
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We base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotes and contracts
with CROs and CMOs. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment
flows. There may be instances in which payments made to our CROs and CMOs will exceed the level of services provided and result in a prepayment of
the research and development expense. In accruing service fees, we estimate the time-period over which services will be performed and the level of effort
to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or
prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the
status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting expense amounts that
are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts
actually incurred.
Results of Operations
Comparison of Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations for the years ended December 31, 2025 and 2024, together with the dollar increase or
decrease and percentage change in those items:
Year Ended December 31,
Change
Change
(in thousands)
2025
2024
$
%
Revenue:
Product revenue, net
$
689,383 $
709,954 $
(20,571)
(3%)
Licensing and other revenue
314,399
71,413
242,986
340%
Total revenue:
1,003,782
781,367
222,415
28%
Operating expenses:
Cost of sales
102,236
117,723
(15,487)
(13%)
Research and development
295,854
327,570
(31,716)
(10%)
Selling, general and administrative
550,265
501,053
49,212
10%
Total operating expenses
948,355
946,346
2,009
—%
Net operating income/(loss)
55,427
(164,979)
220,406
(134%)
Loss on extinguishment of development liability
—
(1,949)
1,949
(100%)
Interest income
13,143
12,773
370
3%
Interest expense
(44,327)
(40,391)
(3,936)
10%
Other expense, net
(133)
(2,170)
2,037
(94%)
Net income/(loss) before taxes
24,110
(196,716)
220,826
(112%)
Income tax expense
1,722
1,162
560
48%
Net income/(loss)
$
22,388 $
(197,878) $
220,266
(111%)
Product Revenue, Net
Our product revenue, net is derived from sales of EMPAVELI and SYFOVRE in the United States. The net product revenue of $689.4 million for
the year ended December 31, 2025, consists of $102.4 million in net product revenue from sales of EMPAVELI and $586.9 million in net product revenue
from sales of SYFOVRE. The net product revenue of $710.0 million for the year ended December 31, 2024, consists of $98.1 million in net product
revenue from sales of EMPAVELI and $611.9 million in net product revenue from sales of SYFOVRE. The decrease of $20.6 million primarily relates to
increased rebates, which were partially offset by an increase in volume.
Licensing and Other Revenue
Licensing and other revenue of $314.4 million for the year ended December 31, 2025 consisted of $26.2 million in revenue from product supplied to
Sobi, $13.2 million in royalty revenue from Sobi and $275.0 million from the Royalty Agreement. Licensing and other revenue of $71.4 million for the
year ended December 31, 2024 consisted of $53.0 million in revenue from product supplied to Sobi, and $18.4 million in royalty revenue from Sobi. The
increase in licensing and other revenue is primarily driven by the $275.0 million upfront payment related to the Royalty Agreement, partially offset by a
$5.2 million decrease in royalties received due to a decrease in the royalty rate pursuant the Royalty Agreement effective July 1, 2025 and a decrease of
$26.8 million in product supply to Sobi.
Cost of Sales
Cost of sales decreased by $15.5 million, primarily driven by a $15.8 million decrease due to lower volume of product supplied to Sobi, a decrease
of $5.2 million in costs incurred in connection with the cancellation of purchase commitments, and a decrease of $3.1 million in expenses incurred related
to excess, obsolete or scrapped inventory. The decreases were partially offset by an increase
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of $8.1 million due to higher volumes from commercial sales and product provided under our patient assistance programs and an increase of $0.5 million in
royalty expense.
In addition, prior to receiving FDA approval for EMPAVELI and SYFOVRE, the costs associated with the manufacture of EMPAVELI and
SYFOVRE inventory were expensed as incurred as research and development expense. This resulted in inventory being sold during the years ended
December 31, 2025 and 2024 for which a portion of the costs had been previously expensed prior to FDA approval. This did not materially impact cost of
sales for the year ended December 31, 2025 and 2024, respectively. We expect this to continue to impact cost of sales and research and development
expense as we continue to sell to customers or use the remaining pre-FDA approved inventory in preclinical or clinical studies. As of December 31, 2025
and 2024, respectively, the remaining pre-FDA approved inventory was $17.8 million and $19.5 million, which primarily consisted of raw materials and
semi-finished goods.
Research and Development Expenses
The following table summarizes our research and development expenses incurred during the years ended December 31, 2025 and 2024, together
with the dollar increase or decrease and percentage change in those items:
(In thousands)
Year Ended December 31,
Change
Change
2025
2024
$
%
Program-specific external costs:
PNH
$
10,535 $
17,879 $
(7,344)
(41%)
C3G & IC-MPGN
22,968
34,507
(11,539)
(33%)
HSCT-TMA
1,622
2,612
(990)
(38%)
GA
62,911
59,134
3,777
6%
Other development and discovery programs (1)
65,949
73,324
(7,375)
(10%)
Total program-specific costs
163,985
187,456
(23,471)
(13%)
Unallocated external costs
Non-program specific external costs
3,582
6,966
(3,384)
(49%)
Total unallocated external costs
3,582
6,966
(3,384)
(49%)
Unallocated internal costs
Compensation and related personnel costs
122,946
128,029
(5,083)
(4%)
Other expenses
5,341
5,119
222
4%
Total unallocated internal costs
128,287
133,148
(4,861)
(4%)
Total research and development costs
$
295,854 $
327,570 $
(31,716)
(10%)
(1) Includes discontinued clinical activities related to the ALS and CAD programs, amounting to $0.9 million and $21.9 million for the year ended
December 31, 2025 and 2024, respectively.
Research and development expenses decreased by $31.7 million for the year ended December 31, 2025 compared to the year ended December 31,
2024. The decrease was primarily attributable to a $23.5 million decrease in program specific external costs, a $5.1 million decrease in compensation and
related personnel costs and a $3.4 million decrease in non-program specific external costs.
The decrease in our program-specific external costs of $23.5 million was driven by a $7.3 million decrease in PNH costs due to lower costs incurred
given reduced clinical activities, an $11.5 million decrease in C3G and primary IC-MPGN costs due to lower costs related to the VALIANT study as the
Phase 3 trial was completed in 2024. Other development and discovery programs decreased by $20.1 million related to the discontinuation of the CAD
program previously announced in 2024, partially offset by an increase of $12.7 million in costs primarily attributable to our efforts on the Beam FcRn
collaboration (APL-9099), and an increase of $3.8 million in GA costs associated with the continued product lifecycle development.
The decrease in compensation and related personnel costs of $5.1 million was driven by the decrease in share-based compensation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $49.2 million for the year ended December 31, 2025 compared to the year ended
December 31, 2024. The increase was primarily attributable to $34.0 million in total contributions to patient assistance organizations, of which $21.5
million was paid in the fourth quarter of 2025 for support in 2026. The remaining $15.7 million increase as compared to the prior year was primarily due to
an increase of $7.6 million in personnel related costs, an increase of $5.9 million in professional and consulting fees, and an increase of $3.6 million in
other general and administrative expenses, including office costs, travel, and accounts receivable factoring fees, partially offset by a decrease of $1.4
million in general commercial activities.
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Loss on extinguishment of development liability
We paid our remaining obligations under our agreement with SFJ in full in May 2024. We concluded that the development liability was
extinguished as of the payoff date. The difference of $1.9 million between the reacquisition price of $326.5 million and the net carrying value of the
development liability of $324.6 million was recorded as a loss on the extinguishment of the development liability as of December 31, 2024.
Interest Income
Interest income increased by $0.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase in
interest income was primarily attributable to an increase in money market funds during the year ended December 31, 2025.
Interest Expense
Interest expense increased by $3.9 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase is
primarily due to the interest incurred under the Credit Facility, which we entered into in May 2024.
Other Expense, Net
Other expense decreased by $2.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease was
primarily due to favorable foreign exchange rate fluctuations.
Income Tax Expense
Income tax expense increased by $0.6 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase
is primarily due to an increase in state taxes.
Comparison of the Years Ended December 31, 2024 and 2023
A discussion of changes in our results of operations during the year ended December 31, 2024 compared to the year ended December 31, 2023 has
been omitted from this Annual Report on Form 10-K but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025, and
incorporated by reference into this Annual Report on Form 10-K.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through cumulative $2.6 billion in net proceeds from public offerings of our common stock and
pre-funded warrants to purchase common stock, $414.7 million in payments and royalties from Sobi pursuant to our collaboration agreement, $300.0
million from the Royalty Agreement, $532.5 million under various credit arrangements, including with Sixth Street and SFJ, and $98.8 million relating to
the unwinding of certain capped call transactions in March 2024, as well as from the proceeds of our operations. To date, we have exchanged $425.4
million and converted $0.7 million of aggregate principal amount of our Convertible Notes for shares of our common stock.
In May 2024, we entered into the Sixth Street Financing Agreement, which provides for the Credit Facility, consisting of an initial draw of $375.0
million at closing and a potential additional $100.0 million draw at our option upon satisfaction of a $50.0 million minimum cash requirement and a
requirement that our trailing three-month sales of SYFOVRE is at least $180.0 million prior to the $100.0 million draw by September 30, 2025. We did not
draw down the additional $100.0 million and the option expired September 30, 2025.
In August 2024, we entered into an agreement, or the Factoring Agreement to sell certain accounts receivable to a third-party financial institution at
a discount to the face value of the accounts receivable. Under the Factoring Agreement, the maximum amount of outstanding accounts receivables sold at
any time is $100.0 million. The accounts receivable sold that remained outstanding as of December 31, 2024 was $86.1 million. There were no accounts
receivable sold as of December 31, 2025.
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 year ended December 31, 2025.
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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. For the period ended December 31, 2024, 2,299,991
shares of common stock were issued upon the exercise of pre-funded warrants. As of December 31, 2025, pre-funded warrants to purchase 80,956 shares of
our common stock were still outstanding.
In February 2024, we entered into agreements with the capped call counterparties to unwind a portion of the capped call transactions. 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, 2024 or have been previously converted. The unwind transactions were settled at volume-weighted
average price per share of $64.11, which resulted in cash proceeds to us of $98.8 million. As of December 31, 2025, the remaining capped call transactions
had a notional amount corresponding to $93.9 million principal amount of Convertible Notes, which expires in September 2026.
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31, 2025 and 2024:
(in thousands)
Year Ended December 31,
2025
2024
Net cash provided by/(used in) operating activities
$
45,327 $
(87,866)
Net cash used in investing activities
(313)
(403)
Net cash provided by financing activities
8,884
149,241
Effect of exchange rate changes on cash, cash equivalents and restricted
cash
1,250
(659)
Net increase in cash, cash equivalents and restricted cash
$
55,148 $
60,313
Net Cash Provided by/(Used in) Operating Activities
Net cash provided by operating activities was $45.3 million for the year ended December 31, 2025, and consisted primarily of a net income of $22.4
million, adjusted for $108.1 million of non-cash items, including share-based compensation expense of $104.0 million, depreciation expense of $1.6
million, and amortization of discounts for the Credit Facility and Convertible Notes of $2.5 million. Further, it included a net increase in operating assets
and liabilities of $85.2 million, which was driven by an increase in accounts receivable of $101.3 million, given we did not factor any accounts receivable
in the second half of 2025, an increase in inventory of $15.3 million, primarily due to timing of inventory receipts in December 2025, an increase in
prepaid and other current assets of $8.1 million, an increase in other assets of $4.1 million, an increase in accounts payable of $18.2 million, and an
increase in accrued expenses and other liabilities of $25.4 million.
Net cash used in operating activities was $87.9 million for the year ended December 31, 2024 and consisted primarily of a net loss of $197.9
million, adjusted for $128.4 million of non-cash items, including share-based compensation expense of $114.1 million, depreciation expense of $1.8
million, loss on extinguishment of development liability of $1.9 million and accretion of discount to the development liability of $8.9 million. Further, it
included a net increase in operating assets and liabilities of $18.4 million, which was driven by an increases in accounts receivable of $58.5 million, an
increase in inventory of $10.8 million, a decrease in prepaid and other current assets of $31.2 million, an increase in accounts payable of $1.1 million, and
an increase in accrued expenses and other liabilities of $18.2 million. The change in accounts receivable was primarily driven by the derecognition of
certain accounts receivable under our Factoring Agreement.
Net Cash Used in Investing Activities
Net cash used in investing activities during the year ended December 31, 2025 and 2024 was related to purchases of fixed assets.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $8.9 million during the year ended December 31, 2025, and consisted primarily of $5.5 million of
proceeds from the exercise of stock options and $3.4 million of proceeds from the issuance of our common stock under the employee stock purchase plan.
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107
Net cash provided by financing activities was $149.2 million during the year ended December 31, 2024 and consisted primarily of net proceeds from
the initial draw of the Credit Facility of $358.2 million, the settlement of capped call unwind transactions of $98.8 million, $14.3 million of proceeds from
the exercise of stock options and $4.5 million of proceeds from the issuance of our common stock under the employee stock purchase plan, partially offset
by repayment of $326.5 million for the development liability.
Funding Requirements
We expect to continue to incur expenses to support our ongoing commercial activities related to product manufacturing, marketing, sales and
distribution of EMPAVELI for PNH, C3G and primary IC-MPGN, 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 December 31, 2025, together with the cash that we anticipate will be generated from sales of
EMPAVELI and SYFOVRE, we expect that our current cash and cash equivalents 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 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 commercialization of SYFOVRE for GA and EMPAVELI for the treatment of PNH, C3G and primary
IC-MPGN. We are also devoting substantial resources to our pivotal clinical trials of EMPAVELI for the treatment of FSGS and DGF, and the
development of our product candidates. Because of the numerous risks and uncertainties associated with the commercialization of EMPAVELI and
SYFOVRE and the development of our 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:
•
our ability to successfully commercialize and sell EMPAVELI in the United State and SYFOVRE in the United States, Australia and select
other jurisdiction;
•
the cost of and our ability to obtain regulatory approvals of SYFOVRE outside of the United States;
•
the cost of and our ability to effectively establish and maintain, the commercial infrastructure and manufacturing capabilities required to
support the commercialization of EMPAVELI, C3G and primary IC-MPGN, systemic pegcetacoplan and SYFOVRE and any other products
for which we receive marketing approval including product sales, medical affairs, marketing, manufacturing and distribution;
•
the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for systemic pegcetacoplan,
SYFOVRE and our other product candidates;
•
our ability to maintain a productive collaborative relationship with Sobi with respect to systemic pegcetacoplan, including our ability to
achieve milestone payments under our agreement with Sobi;
•
our ability to identify additional collaborators for any of our product candidates and the terms and timing of any collaboration agreement that
we may establish for the development and any commercialization of such product candidates;
•
the number and characteristics of product candidates that we pursue and their development requirements;
•
the outcome, timing and costs of clinical trials and of seeking regulatory approvals of pegcetacoplan in other jurisdictions and indications and
other product candidates we may pursue;
•
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the
responsibility of any collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing
capabilities;
•
subject to receipt of marketing approval, revenue, if any, received from commercial sales of pegcetacoplan in other jurisdictions and
indications and our other product candidates;
•
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending
against intellectual property related claims;
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108
•
the effect of competing technological and market developments;
•
the effect of public health crises, including pandemics and epidemics, on the healthcare system and the economy generally and on our clinical
trials and other operations specifically; and
•
our ability to obtain adequate reimbursement for EMPAVELI and SYFOVRE or any other product we commercialize;
If our cash and cash equivalents, and the 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 sources 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.
Contractual Obligations
The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2025:
Payments Due by Period
(In thousands)
Less than
Total
1 Year
1-3 Years
3-5 Years
Credit Facility (1)
$
553,676 $
42,102 $
84,090 $
427,484
Convertible notes (2)
96,225
96,225
—
—
Non-cancellable purchase commitments (3)
75,775
69,102
6,673
—
Operating leases (4)
21,026
7,940
9,389
3,697
Total
$
746,702 $
215,369 $
100,152 $
431,181
(1)
Amounts include interest on the credit facility outstanding as of December 31, 2025, applying contractual interest rate and assuming scheduled
payments are paid as contractually required through maturity.
(2)
Amounts include interest on debt obligations under the debt outstanding as of December 31, 2025, applying contractual fixed interest rate and
assuming scheduled payments are paid as contractually required through maturity.
(3)
Amounts include our obligations under supply agreements with Bachem and NOF as of December 31, 2025 and obligations under supply
agreements with other vendors.
(4)
Represents future minimum lease payments under our non-cancelable operating leases. The minimum lease payments above do not include any
related common area maintenance charges or real estate taxes.
We have entered into contracts to conduct research and development activities with third parties which commit us to pay future milestone payments
or to pay royalty fees if any of the research results in regulatory approval or commercial revenue for a product. The scope of the services under the research
and development contracts can be modified and the contracts cancelled by us upon written notice. In some instances, the contracts may be cancelled by the
third-party upon written notice. If we were to cancel these contracts, we would be required only to pay for activities incurred through termination date.
We are a party to a license agreement with Penn for an exclusive, worldwide license to specified patent rights. We are required to make milestone
payments aggregating up to $3.2 million based upon the achievement of specified development and regulatory milestones and up to $5.0 million based
upon the achievement of specified annual sales milestones with respect to each licensed product, and to pay low single-digit royalties based on net sales of
each licensed product and with minimum quarterly royalty thresholds. In addition, we are obligated to pay a specified portion of income we receive from
sublicensees. From April 2023 through December 2025, we paid $7.3 million related to regulatory and sales milestones for SYFOVRE.
For the years ended December 31, 2025, 2024 and 2023 respectively, we have incurred royalty expense of $19.1 million, $19.8 million and $8.9
million on sales of SYFOVRE, which is included in cost of sales on the consolidated statements of operations and comprehensive income/(loss).
In addition, we are a party to a license agreement with Penn for an exclusive, worldwide license to specified patent rights for the development and
commercialization of products in fields of use, as defined therein. We are required to make milestone payments aggregating up to $1.7 million, based upon
the achievement of development and regulatory approval milestones, and up to $2.5 million, based upon the achievement of annual sales milestones with
respect to each of the first two licensed products. The license agreement also requires us to pay low single-digit royalties based on net sales of each licensed
product, subject to minimum quarterly royalty thresholds. In addition, we are obligated to pay a specified portion of income we receive from sublicensees.
From January 2021 through December 2025, we have made sublicense payments to Penn totaling $30.5 million. From January
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109
2021 through December 2025, we have paid $3.5 million in development and sales milestones.
For the years ended December 31, 2025, 2023, 2024 and 2023, we have incurred royalty expense of $7.3 million, $6.4 million and $4.8 million,
respectively, on sales of EMPAVELI and Aspaveli, which is included in cost of sales on the consolidated statements of operations and comprehensive
income/(loss).
We enter into agreements in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for
preclinical research studies and other services and products for operating purposes. We have not included these payments in the table of contractual
obligations above since either the contracts are cancelable at any time by us, generally upon 30 days prior written notice to the CRO, or the non-cancelable
minimum purchase commitments under such contracts have already been satisfied.
We have certain non-cancelable purchase obligations related to the manufacturing of drug substance and drug product. We have agreed to purchase
from Bachem Americas, Inc. a significant portion of its requirements for the pegcetacoplan drug substance. Under a commercial supply agreement with
NOF Corporation, or NOF, we have agreed to purchase activated polyethylene glycol derivative, or PEG, which is a component of pegcetacoplan. Under
these agreements, as of December 31, 2025 we are obligated to pay up to an aggregate of $69.1 million to these vendors over the next three years. In
September 2024, we terminated the minimum purchase obligation with NOF for 2025. As a result of this termination, we incurred an expense of $6.4
million, which is included in cost of sales on the consolidated statements of operations and comprehensive income/(loss). As the amount was due in
January 2026, it is included in current liabilities on the consolidated balance sheet as of December 31, 2025.
In addition, we have other non-cancelable purchase agreements as of December 31, 2025, under which it is obligated to pay up to an aggregate of
$6.7 million to vendors over the next three years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk related to changes in interest rates. As of December 31, 2025, we had cash and cash equivalents of $466.2 million,
consisting primarily of money market funds and U.S. treasury securities. 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.
Item 8. Financial Statements and Supplementary Data.
TABLE OF CONTENTS FOR FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
110
Consolidated Financial Statements as of and for the years ended December 31, 2025 and 2024 and for each of the three years in the period ended
December 31, 2025:
Consolidated Balance Sheets as of December 31, 2025 and 2024
112
Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended December 31, 2025, 2024 and 2023
113
Consolidated Statements of Changes in Stockholders’ Equity for the period from January 1, 2023 to December 31, 2025
114
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
115
Notes to Consolidated Financial Statements
117
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110
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Apellis Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apellis Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31,
2025 and 2024, the related consolidated statements of operations and comprehensive income/(loss), changes in stockholders’ equity, and cash flows, for
each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2026, expressed an unqualified opinion on
the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Inventory Valuation – Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company performs an assessment of the recoverability of capitalized inventory during
each reporting period and writes down any excess or obsolete inventories to their estimated realizable value. The determination of whether inventory costs
will be realizable requires estimates by management. Provisions for slow-moving, excess or obsolete inventories are made based on the Company’s
analysis of product dating, inventory levels, historical obsolescence and future sales forecasts.
We identified the valuation of inventory as a critical audit matter due to the significant estimates and assumptions used by management to determine excess
and obsolescence write downs, including the determination of expected future sales. This required a high degree of auditor judgment and an increased
extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to valuation of inventory included the following, among others:
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111
•
We evaluated the Company’s estimate for excess and obsolete inventory by performing the following:
o
We evaluated the reasonableness of management’s methods, assumptions, and judgments used in developing their estimate, which
included consideration of expected future sales, product dating and historical obsolescence experience, and information obtained from
supply chain personnel regarding inventory at risk for excess and obsolescence.
o
We tested the calculation of the excess and obsolete provision pursuant to the Company’s policy, on a sample basis, including the
accuracy and completeness of the underlying data used in the Company’s calculation.
o
We performed a retrospective review by comparing management’s prior year estimates of product revenues with actual product
revenues in the current year to identify any potential bias.
o
We held discussions with financial and operational management to determine whether any strategic, regulatory, or operational changes
in the business were consistent with the projections of future demand that were utilized in estimating the provision recorded.
•
We tested the effectiveness of controls over inventory valuation, including those over the estimation of reserves for excess quantities and
obsolete inventory.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 24, 2026
We have served as the Company’s auditor since 2019.
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112
APELLIS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
December 31,
2025
2024
Assets
Current assets:
Cash and cash equivalents
$
466,233
$
411,290
Accounts receivable
366,221
264,926
Inventory
142,556
81,404
Prepaid and other current assets
38,303
30,012
Restricted cash
1,527
1,322
Total current assets
1,014,840
788,954
Non-current assets:
Right-of-use assets
18,195
16,083
Property and equipment, net
1,708
2,952
Long-term inventory
34,959
75,713
Other assets
5,555
1,349
Total assets
$
1,075,257
$
885,051
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
56,798
$
38,572
Accrued expenses
166,049
140,184
Convertible senior notes
93,662
—
Current portion of lease liabilities
7,087
6,753
Total current liabilities
323,596
185,509
Long-term liabilities:
Long-term credit facility
361,664
359,489
Convertible senior notes
—
93,341
Lease liabilities
11,947
10,201
Other liabilities
7,903
7,972
Total liabilities
705,110
656,512
Commitments and contingencies (Note 13)
—
—
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized and
zero shares issued and outstanding at December 31, 2025 and 2024
—
—
Common stock, $0.0001 par value; 200,000 shares authorized at
December 31, 2025 and 2024; 126,621 and 124,495 shares issued
and outstanding at December 31, 2025 and 2024, respectively
12
12
Additional paid-in capital
3,385,216
3,267,201
Accumulated other comprehensive loss
(2,103)
(3,308)
Accumulated deficit
(3,012,978)
(3,035,366)
Total stockholders’ equity
370,147
228,539
Total liabilities and stockholders’ equity
$
1,075,257
$
885,051
See accompanying notes to consolidated financial statements.
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113
APELLIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(Amounts in thousands, except per share amounts)
Year Ended December 31,
2025
2024
2023
Revenue:
Product revenue, net
$
689,383 $
709,954 $
366,281
Licensing and other revenue
314,399
71,413
30,310
Total revenue:
1,003,782
781,367
396,591
Operating expenses:
Cost of sales
102,236
117,723
58,510
Research and development
295,854
327,570
354,387
Selling, general and administrative
550,265
501,053
500,815
Total operating expenses:
948,355
946,346
913,712
Net operating income/(loss)
55,427
(164,979)
(517,121)
Loss on extinguishment of development liability
—
(1,949)
—
Interest income
13,143
12,773
20,933
Interest expense
(44,327)
(40,391)
(29,581)
Other expense, net
(133)
(2,170)
(727)
Net income/(loss) before taxes
24,110
(196,716)
(526,496)
Income tax expense
1,722
1,162
2,132
Net income/(loss)
$
22,388 $
(197,878) $
(528,628)
Other comprehensive income/(loss):
Unrealized gain/(loss) on pension plans
107
591
(2,618)
Foreign currency translation
1,098
(357)
(49)
Total other comprehensive income/(loss)
1,205
234
(2,667)
Comprehensive income/(loss), net of tax
$
23,593 $
(197,644) $
(531,295)
Net income/(loss) per share
Basic earnings per share
$
0.18 $
(1.60) $
(4.45)
Diluted earnings per share
$
0.20 $
(1.60) $
(4.45)
Weighted-average shares used in calculating:
Basic earnings per share
126,145
123,905
118,678
Diluted earnings per share
129,855
123,905
118,678
See accompanying notes to consolidated financial statements.
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APELLIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands)
Accumulated
Common Stock
Additional
Other
Total
Outstanding
Paid-In
Comprehensive
Accumulated Stockholders’
Shares
Amount
Capital
Loss
Deficit
Equity
Balance at January 1, 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
3,858
—
71,274
—
—
71,274
Vesting of restricted stock units
806
—
(11,040)
—
—
(11,040)
Share-based compensation expense
—
—
105,945
—
—
105,945
Issuance of common stock to employee stock purchase plan
112
—
5,378
—
—
5,378
Unrealized loss on pension benefit plan
—
—
—
(2,618)
—
(2,618)
Net loss
—
—
—
—
(528,628)
(528,628)
Foreign currency translation
—
—
—
(49)
—
(49)
Balance at December 31, 2023
119,556
12
3,035,539
(3,542)
(2,837,488)
194,521
Exercise of pre-funded warrants
2,300
—
—
—
—
—
Proceeds from settlement of capped call
—
—
98,763
—
—
98,763
Issuance of common stock upon exercise of stock options
1,080
—
14,316
—
—
14,316
Vesting of restricted stock units
1,417
—
(57)
—
—
(57)
Share-based compensation expense
—
—
114,128
—
—
114,128
Issuance of common stock to employee stock purchase plan
142
—
4,512
—
—
4,512
Unrealized gain on pension benefit plan
—
—
—
591
—
591
Net loss
—
—
—
—
(197,878)
(197,878)
Foreign currency translation
—
—
—
(357)
—
(357)
Balance at December 31, 2024
124,495 $
12
3,267,201
(3,308)
(3,035,366)
228,539
Issuance of common stock upon exercise of stock options
438
—
5,545
—
—
5,545
Vesting of restricted stock units
1,486
—
(11)
—
—
(11)
Share-based compensation expense
—
—
109,131
—
—
109,131
Issuance of common stock to employee stock purchase plan
202
—
3,350
—
—
3,350
Unrealized gain on pension benefits
—
—
—
107
—
107
Net income
—
—
—
— $
22,388
22,388
Foreign currency translation
—
—
— $
1,098
—
1,098
Balance at December 31, 2025
126,621 $
12 $
3,385,216 $
(2,103) $
(3,012,978) $
370,147
See accompanying notes to consolidated financial statements.
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APELLIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share amounts)
Year Ended December 31,
2025
2024
2023
Operating Activities
Net income/(loss)
$
22,388 $
(197,878) $
(528,628)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Share-based compensation expense
104,003
114,128
105,945
Loss on extinguishment of development liability
—
1,949
—
Loss on disposal of fixed assets
—
—
120
Depreciation expense
1,558
1,797
1,784
Amortization of discounts for credit facility and convertible notes
2,496
1,559
297
Accretion of discount to development liability
—
8,936
25,996
Changes in operating assets and liabilities:
Accounts receivable
(101,279)
(58,484)
(198,715)
Inventory
(15,267)
(10,755)
(60,647)
Prepaid and other current assets
(8,087)
31,213
12,373
Other assets
(4,061)
705
11,700
Right-of-use assets and lease liabilities
(34)
(277)
(80)
Accounts payable
18,223
1,089
170
Accrued expenses and other liabilities
25,387
18,152
34,950
Net cash provided by/(used in) operating activities
45,327
(87,866)
(594,735)
Investing Activities
Purchase of property and equipment
(313)
(403)
(773)
Proceeds from sale of fixed assets
—
—
99
Net cash used in investing activities
(313)
(403)
(674)
Financing Activities
Proceeds from credit facility
—
365,454
—
Payment of issuance cost for credit facility
—
(7,214)
—
Payment of development liability
—
(326,533)
(55,500)
Proceeds from settlement of capped call
—
98,763
Proceeds from issuance of common stock, pre-funded warrant offering,
net of issuance costs
—
—
384,387
Proceeds from exercise of stock options
5,545
14,316
71,274
Proceeds from issuance of common stock under employee share purchase plan
3,350
4,512
5,378
Payments of employee tax withholding related to equity-based compensation
(11)
(57)
(11,040)
Net cash provided by financing activities
8,884
149,241
394,499
Effect of exchange rate changes on cash, cash equivalents and restricted cash
1,250
(659)
135
Net increase (decrease) in cash, cash equivalents and restricted cash
55,148
60,313
(200,775)
Cash, cash equivalents and restricted cash at beginning of period
412,612
352,299
553,074
Cash, cash equivalents and restricted cash at end of period
$
467,760 $
412,612 $
352,299
See accompanying notes to consolidated financial statements.
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116
APELLIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share amounts)
(Cont’d)
Year Ended December 31,
2025
2024
2023
Reconciliation of cash, cash equivalents and restricted cash to the
consolidated balance sheets:
Cash and cash equivalents
$
466,233 $
411,290 $
351,185
Restricted cash
1,527
1,322
1,114
Total cash, cash equivalents, and restricted cash
$
467,760 $
412,612 $
352,299
Supplemental disclosure of cash flow information:
Cash paid for interest
$
41,233 $
29,368 $
3,286
See accompanying notes to consolidated financial statements..
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117
APELLIS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Organization and Operations
Apellis Pharmaceuticals, Inc. (the “Company”) is a commercial-stage biopharmaceutical company focused on the discovery, development and
commercialization of novel therapeutic compounds to treat diseases with high unmet needs through the inhibition of the complement system, which is an
integral component of the immune system, at the level of C3, the central protein in the complement cascade.
The Company was incorporated in September 2009 under the laws of the State of Delaware. The Company’s principal executive offices are located
in Waltham, Massachusetts.
The Company’s operations since inception have included organizing and staffing the Company, acquiring rights to product candidates, business
planning, raising capital, developing its product candidates, commercializing EMPAVELI (pegcetacoplan) for the treatment of paroxysmal nocturnal
hemoglobinuria (“PNH”), C3 glomerulopathy (“C3G”) and primary immune complex membranoproliferative glomerulonephritis (“primary IC-MPGN”),
and commercializing SYFOVRE (pegcetacoplan injection) for the treatment of geographic atrophy secondary to age-related macular degeneration (“GA”).
The Company is subject to risks common in the biotechnology industry including, but not limited to, raising additional capital, development by its
competitors of new technological innovations, its ability to successfully complete preclinical and clinical development of product candidates and receive
timely regulatory approval of products, market acceptance of the Company’s products, protection of proprietary technology, healthcare cost containment
initiatives, and compliance with governmental regulations, including those of the U.S. Food and Drug Administration (“FDA”).
Follow-on Public Offerings
On February 22, 2023, the Company issued and sold 4,007,936 shares of common stock and, in lieu of common stock to investors who so chose,
pre-funded warrants to purchase 2,380,956 shares of 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. The Company received total net proceeds of
$384.4 million, after deducting underwriting discounts and commissions of $18.8 million and offering costs of $0.3 million. For the period ended
December 31 2024, 2,299,991 shares of common stock were issued from the exercise of pre-funded warrants. As of December 31, 2025, pre-funded
warrants to purchase 80,956 shares of the Company's common stock were still outstanding.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. From
inception to December 31, 2025, the Company has incurred cash outflows from operations, losses from operations, and had an accumulated deficit of $3.0
billion, primarily as a result of expenses incurred through a combination of research and development activities related to the Company’s various product
candidates and expenses incurred in connection with product launches and commercialization costs.
The Company believes that its cash and cash equivalents of $466.2 million at December 31, 2025 combined with cash anticipated to be generated
from sales of EMPAVELI and from SYFOVRE will be sufficient to fund its operations and capital expenditure requirements for at least twelve months
from the date of issuance of these consolidated financial statements.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”).
Revenue Recognition
The Company’s revenues consist of product sales of EMPAVELI and SYFOVRE and revenue derived from its collaboration arrangement with Sobi.
See Note 10, License and Collaboration Agreements for further discussion related to the Sobi Collaboration Agreement.
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The Company accounts for contracts with its customers in accordance with ASC Topic 606, Revenue from Contracts with Customers, (“ASC 606”).
Pursuant to ASC 606, for arrangements or transactions between participants determined to be within the scope of the contracts with customers guidance,
the Company performs the following five steps to determine the appropriate amount of revenue to be recognized as the Company fulfills its obligations: (i)
identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations
including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when
(or as) the Company satisfies each performance obligation.
Revenue is recognized when, or as, the Company satisfies 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, the Company recognizes
revenue using an input or output measure of progress that best depicts the satisfaction of the relevant performance obligation.
Product Revenue
The Company’s revenue from net product sales related to EMPAVELI and SYFOVRE are primarily recognized in the United States. The Company
sells EMPAVELI and SYFOVRE principally through arrangements with specialty pharmacies (“SPs”) and specialty distributors (“SDs”), who are the
Company’s customers. The customers subsequently resell the product to patients and health care providers. The Company applies the ASC 606 five step
process discussed above to the contracts with SPs and SDs. Product revenues are recognized when the customers take control of the product, which
typically occurs upon delivery to the customers.
The Company recognizes revenue from product sales at the net sales price which includes estimates of variable consideration for which reserves are
established and reflects each of these as a reduction to revenue. Overall, these reserves reflect the Company’s best estimates of the amount of consideration
to which the Company is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be
constrained. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from
estimates, the Company may need to adjust its estimates, which would affect net revenue in the period of adjustment. The following are the Company’s
significant categories of variable consideration:
Fees and Patient Assistance
Fees
Distribution Fees: Distribution fees include distribution service fees paid to SDs based on a contractually fixed percentage of the wholesale
acquisition cost (WAC). These fees are directly related to the storage, handling and distribution of product to customers, and are therefore inseparable from
the product. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.
Credit Card Fees: SDs will sell downstream to customers who may pay for product via credit card. The Company will reimburse its SDs for the credit
card fees incurred as a result of SDs accepting credit cards as a form of payment from the downstream customers. Credit card fees are recorded as an offset
to revenue based on the average aggregate credit card rate as a percentage of SD sales at the time revenue from the sale is recognized.
Patient Assistance
Copay: Other incentives include voluntary patient assistance programs, such as the Company’s co-pay assistance program, which are intended to
provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The adjustments are
recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Government, Other Rebates and Chargebacks
Rebates
Government Rebates: The Company’s products are subject to pricing limits under certain federal government programs. Qualifying entities (i.e., end-
users) purchase products from the Company’s customers at their qualifying discounted price. The chargeback amount the Company incurs represents the
difference between the Company’s contractual sales price to the customer, and the end-user’s applicable discounted purchase price under the government
program.
Manufacturer Discount Program: The Company also participates in the Manufacturer Discount program, a federal program where the Company is
required to provide discounts on drugs dispensed to eligible Medicare Part D patients. The adjustments are recorded in the same period the related revenue
is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Other Rebates and Chargebacks: The Company contracts with certain organizations, primarily group purchasing organizations ("GPOs") and
pharmacy benefit managers, for the payment of rebates with respect to purchase of the Company's products by the end
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users. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of
product revenue and the establishment of a current liability.
GPOs purchase from SDs at a discounted price. SDs charge back to the Company the difference between the price initially paid by SDs and the
discounted price paid to SDs by the GPOs. The Company issues credit notes for the chargeback which are applied against amounts due from the SD.
Returns
Consistent with industry practice, the Company offers SPs and SDs limited product return rights for product damaged in shipping or shipped in error,
short-dated, expired, recalled, or discontinued products; provided that the return is within a specified period around the product expiration date as set forth
in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the
Company receives inventory reports from SPs and SDs and has visibility into the inventory distribution channel, it is able to make a reasonable estimate of
future potential product returns based on this on-hand channel inventory data and sell-through data obtained from SPs and SDs. In arriving at its estimate
for product returns, the Company also considers historical product returns and the underlying product demand.
Licensing and Other Revenue
The Company analyzes license and collaboration arrangements pursuant to FASB ASC Topic 808, Collaborative Arrangement Guidance and
Considerations, (“ASC 808”) to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities
performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of
such activities or are more akin to a vendor-customer relationship. In making this evaluation, the Company considers whether the activities of the
collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance or if they are more reflective of a
vendor-customer relationship and, therefore, within the scope of ASC 606. This assessment is performed throughout the life of the arrangement based on
changes in the responsibilities of all parties in the arrangement.
For elements of collaboration arrangements that are not accounted for pursuant to guidance in ASC 606, an appropriate recognition method is
determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance. Amounts related to transactions with a
counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and in a separate line item from revenue
recognized from contracts with customers, if any, in the consolidated statements of operations.
Pursuant to ASC 606, for arrangements or transactions between arrangement participants determined to be within the scope of the contracts with
customers guidance, the Company performs the five-step process discussed above to determine the appropriate amount of revenue to be recognized as the
Company fulfills its obligations.
The Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the
customer and determine whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that
meet these criteria are considered distinct performance obligations. The Company estimates the transaction price based on the amount expected to be
received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the
inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential transaction price and the likelihood that
the transaction price will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount
expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in
the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount
of the cumulative revenue recognized will not occur in a future period. Arrangements that include rights to additional goods or services that are exercisable
at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and, if so, these
options are considered performance obligations. The Company has not currently identified any such material rights.
Revenue is recognized when, or as, the Company satisfies 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, the Company recognizes
revenue using an input or output measure of progress that best depicts the satisfaction of the relevant performance obligation.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any
change in the overall transaction price is allocated to the performance obligations on the same methodology as at contract inception.
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Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief
operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker (“CODM”)
is the chief executive officer (“CEO”). The Company manages its operations as a single operating segment. See Note 16, Segment Information, for
additional information.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and the
accompanying notes. These estimates are based on historical experience and various other assumptions believed to be reasonable under the circumstances.
Such estimates are used in the following areas, among others: accrued research and development expenses, reserves for variable consideration and reserves
for excess or obsolete inventories. Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company is required to disclose information on the fair value of financial instruments and inputs that enable an assessment of the fair value.
The three levels of the fair value hierarchy prioritize valuation inputs based upon the observable nature of those inputs as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly;
Level 3 – Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset
or liability.
The Company’s financial instruments, in addition to those presented in Note 7, Long-term Debt, and Note 9, Fair Value Measurements, include cash
and cash equivalents, accounts payable and accrued liabilities. Management believes that the carrying amounts of cash and cash equivalents, accounts
payable and accrued expenses approximate the fair value due to the short-term nature of those instruments.
Cash and Cash Equivalents
The Company considers highly-liquid investments with original maturities of three months or less to be cash equivalents. The Company holds cash
in highly-liquid bank accounts and invests excess cash in money market funds.
Accounts Receivable
The Company’s accounts receivable are inclusive of receivables from its product sales to customers. They are generally stated at the invoiced
amount and do not bear interest. The accounts receivable from product sales represent receivables due from the Company’s SPs or SDs. Payment terms are
generally 30-65 days for EMPAVELI and 60-150 days for SYFOVRE. The Company monitors the financial performance and creditworthiness of its
customers and provides reserves against trade receivables for expected credit losses that may result from a customer’s inability to pay. Amounts determined
to be uncollectible are written-off against the established reserve. As of December 31, 2025 and 2024, the Company did not have an allowance for credit
losses. The Company has had no historical write-offs of its accounts receivable as of December 31, 2025 and 2024.
The Company has an agreement (the “Factoring Agreement”) to sell certain trade accounts receivable to a third-party financial institution at a
discount to the invoiced amount. Under the Factoring Agreement, the maximum amount of outstanding accounts receivables sold at any time is $100.0
million. The Company accounts for the transfer of trade accounts receivable under the Factoring Agreement as a sale in accordance with ASC 860,
Transfers and Servicing, because effective control and risk associated with the transferred accounts receivable is passed to the third-party. Accordingly, the
Company derecognizes the sold trade accounts receivable from the consolidated balance sheets. Cash proceeds related to the accounts receivable sold are
included in cash from operating activities in the consolidated statements of cash flows. Any discounts or fees incurred in connection with the sales are
recorded within “Selling, general and administrative expenses" in the consolidated statements of operations and comprehensive income/(loss). Pursuant to
the Factoring Agreement, the Company performs certain collection and administrative functions for the receivable sold. The fair value of these
administrative services is not material and therefore, the Company has not recorded any servicing assets or liabilities associated with the Factoring
Agreement. See Note 3, Product Revenues, Accounts Receivable, and Reserves for Product Sales for additional information.
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Inventory
Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventory costs include third-
party contract manufacturing, third-party packaging services, labor, overhead and freight. The Company performs an assessment of the recoverability of
capitalized inventory during each reporting period, and writes down any excess and obsolete inventories to their estimated realizable value. Expenses
incurred related to excess and obsolete inventories are recorded within cost of sales. The determination of whether inventory costs will be realizable
requires estimates by management. Provisions for potentially obsolete or slow-moving inventory are made based on the Company’s analysis of product
dating, inventory levels, historical obsolescence and future sales forecasts. If actual market conditions are less favorable than projected by management,
additional write-downs of inventory may be required which would be recorded as a cost of sales in the consolidated statements of operations and
comprehensive income/(loss).
Inventory not expected to be sold within the Company’s normal operating cycle is classified as long-term inventory on the consolidated balance
sheets.
Prior to regulatory approval of its product candidates, the Company expenses costs associated with the manufacturing of its product candidates to
research and development expense unless the Company is reasonably certain such costs have future commercial use and net realizable value. When the
Company believes regulatory approval and subsequent commercialization of its product candidates is probable, and the Company also expects future
economic benefit from the sales of the product candidates to be realized, the Company will then capitalize the costs of production as inventory. Inventory
that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a
clinical manufacturing campaign.
Shipping and handling costs for product shipments are recorded as incurred in cost of sales along with costs associated with manufacturing the
product and any inventory write-downs.
Foreign Currency
The functional currency of each of the Company’s subsidiaries is its local currency, except for the wholly owned subsidiaries Apellis Europe B.V.
and Apellis International GmbH where the functional currency is the U.S. dollar. Revenues and expenses of the subsidiaries have been translated into U.S.
dollars at average exchange rates prevailing during the respective periods. Assets and liabilities have been translated at the rates of exchange on the balance
sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity.
Research and Development
Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses include (i)
employee-related expenses, including salaries, benefits, travel and share-based compensation expense; (ii) external research and development expenses
incurred under arrangements with third parties, such as contract research and contract manufacturing organizations, investigational sites and consultants,
including share-based compensation expense for consultants; (iii) the cost of acquiring, developing and manufacturing clinical study materials; and (iv)
costs associated with preclinical and clinical activities and regulatory operations.
The Company enters into consulting, research and other agreements with commercial entities, researchers, universities and others for the provision
of goods and services. Such arrangements are generally cancellable upon reasonable notice and payment of costs incurred. Costs are considered incurred
based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided by the Company’s clinical
sites and vendors. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform
certain research on behalf of the Company.
Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these
costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and
experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.
Under the Sobi Collaboration Agreement, the Company may receive reimbursements from Sobi for certain agreed upon developmental activities.
The Company presents such reimbursements as contra-research and development expense based on an evaluation of the nature and contractual terms of the
arrangement and the nature of the Company’s business operations.
Selling, General and Administrative
Costs incurred in connection with selling, general and administrative activities are expensed as incurred. 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 the Company’s sales efforts. General and administrative expenses include corporate support functions such as executive management,
finance and accounting, business
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development, legal, human resources, information technology, and associated external costs to support those functions. Other significant costs include costs
associated with medical affairs, drug safety and pharmacovigilance, quality and regulatory costs not otherwise included in research and development
expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services. Marketing and advertising costs include
marketing literature, promotional activities, conferences and seminars, branding and sponsorships.
For the years ended December 31, 2025, 2024 and 2023, the Company incurred advertising costs of $91.8 million, $83.3 million, and $86.5 million,
respectively.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions using a more likely than not threshold for recognizing and resolving uncertain tax positions. The
determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as
consideration of the available facts and circumstances. As of December 31, 2025 and 2024, the Company did not have any significant uncertain tax
positions
Share-Based Compensation
The Company’s share-based compensation program allows for grants of stock options and restricted stock units.
The Company measures share-based compensation cost at the grant date based on the fair value of the option and restricted stock units, and
recognizes the expense related to awards on a straight-line basis over the requisite service period, which is typically the vesting period. Expense for awards
with performance conditions is estimated and adjusted on a quarterly basis based upon the assessment of the probability that the performance condition will
be met, and is expensed using an accelerated method over the term of the award. Forfeitures are recognized as they occur.
The Company estimates the fair value of each option using the Black-Scholes option pricing model that considers the fair value of its common
stock, the exercise price, the expected life of the option, the expected volatility of its common stock, expected dividends on its common stock, and the risk-
free interest rate over the expected life of the option. The Company uses the simplified method described in the SEC’s Staff Accounting Bulletin No. 107,
Share-Based Payment, to determine the expected life of the option grants. The estimate of expected volatility is based on the Company’s historical
volatility over a period commensurate with the expected term of the option. The Company has never declared or paid any cash dividends on its common
stock and does not expect to do so in the foreseeable future. Accordingly, it uses an expected dividend yield of zero. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant valuation for a period commensurate with expected term of the option. Additionally, the
Company uses a Monte Carlo simulation model to calculate the estimated fair value on the date of grant related to awards with market-based conditions.
For awards with performance conditions, the Company assesses the probability of achievement at each reporting date to determine recognition of
compensation expense.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents and accounts
receivable.
The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and the issuers of its cash equivalents. The
Company maintains its cash and cash equivalents with highly-rated financial institutions. At times, such amounts may exceed federally-insured limits. The
Company has not experienced any losses on its deposits since inception, and management believes that minimal credit risk exists with respect to these
financial institutions.
Billings to large specialty pharmacies and specialty distributors account for the majority of the Company’s accounts receivable, and collateral is
generally not required from these customers. To mitigate credit risk, the Company monitors the financial performance and credit-worthiness of its
customers. See Note 3, Product Revenues, Accounts Receivable, and Reserves for Product Sales for additional information.
Net Income/(Loss) per Share
Basic net income/(loss) per share is calculated by dividing the net income or loss by the weighted-average number of shares of common stock
outstanding during the period, without consideration for potentially dilutive securities. Diluted net income/(loss) per share is computed by dividing the net
income or loss by the weighted-average number of shares of common stock, plus potentially
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dilutive securities outstanding for the period, as determined in accordance with the treasury stock, if-converted, or contingently issuable accounting
methods, depending on the nature of the security. For purposes of the diluted net income/(loss) per share calculation, stock options, restricted stock units
(“RSUs”), shares potentially issuable in connection with the Company’s employee stock purchase plan (“ESPP”) and convertible notes are considered
potentially dilutive securities and included to the extent that their addition is not antidilutive.
Recent Accounting Pronouncements issued not yet adopted
In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025‑12, Codification
Improvements, which includes targeted amendments to clarify, correct, and improve various aspects of the FASB Accounting Standards Codification. The
ASU is effective for annual periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is
permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025‑11, Interim Reporting (Topic 270): Improvements to Interim Disclosure Requirements, which
clarifies disclosure requirements for interim financial statements. The ASU is effective for interim reporting periods beginning after December 15, 2027,
with early adoption permitted. The Company is currently evaluating the impact of this guidance on its interim financial statement disclosures.
In September 2025, the “FASB issued “ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):
Improvements to Capitalization of Software Development Costs, which updates the accounting guidance for internal-use software costs and removes
references to prescriptive project stages. The ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those
annual reporting periods. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the new guidance on
the consolidated financial statements and related disclosures.
In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a
practical expedient to measure credit losses on accounts receivable and contract assets. The ASU is effective for annual periods beginning after December
15, 2025, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the timing of the
adoption and the impact of the new guidance on the consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
(Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires additional disclosure of the nature of expenses included in the income
statement. The standard requires disclosures about specific types of expenses included in the expense captions presented in the income. This ASU is
effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The
requirements should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the impact that the
adoption of this guidance will have on its disclosures.
Recently adopted accounting pronouncements
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This standard is an amendment to the accounting
guidance on income taxes which establishes incremental disaggregation of income tax disclosure pertaining to the effective tax rate reconciliation and
income taxes paid. The amendments in this update are required to be applied on a prospective basis with the option to apply it retrospectively. The
guidance is effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 for the year ended December 31, 2025,
and applied the new disclosure requirements retrospectively to the current annual period. The adoption of this standard did not have a material impact on
the Company's consolidated financial position or results of operation. Refer to Note 12, Income Taxes in the accompanying notes to the consolidated
financial statements for further details.
3. Product Revenues, Accounts Receivable, and Reserves for Product Sales
The table reflects net product revenue by major source for the following periods (in thousands):
Year Ended December 31,
Therapeutic Area
Key Indications
2025
2024
2023
Products:
EMPAVELI
Rare Disease
PNH, C3G (1), IC-MPGN (1)
$
102,449 $
98,091 $
91,033
SYFOVRE
Ophthalmology
GA
586,934
611,863
275,248
Total product revenue, net
$
689,383 $
709,954 $
366,281
(1) The FDA approved EMPAVELI for the treatment of C3G and primary IC-MPGN on July 28, 2025.
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The Company’s product sales reserves totaled $58.6 million and $45.1 million as of December 31, 2025 and 2024, respectively.
The following table summarizes activity in each of the product revenue allowance and reserve categories as of December 31, 2025 (in thousands)::
Fees and patient
assistance
Government, Other
Rebates, and Chargebacks
(1)
Returns
Total
Ending balance at December 31, 2022
$
164
$
1,936
$
251 $
2,351
Provision related to sales in the current year
17,690
26,661
4,698
49,050
Adjustments related to prior period sales
(112)
(1,223)
(2,481)
(3,817)
Credits and payments made
(12,068)
(18,476)
(415)
(30,960)
Ending balance at December 31, 2023
$
5,674
$
8,898
$
2,053
$
16,625
Provision related to sales in the current year
46,506
89,094
3,936
139,536
Adjustments related to prior period sales
1,461
(19)
(96)
1,346
Credits and payments made
(42,052)
(66,440)
(3,870)
(112,362)
Ending balance at December 31, 2024
$
11,589
$
31,533
$
2,023
$
45,145
Provision related to sales in the current year
49,594
140,065
5,652
195,311
Adjustments related to prior period sales
298
(13)
(382)
(97)
Credits and payments made
(48,707)
(128,658)
(4,380)
(181,745)
Ending balance at December 31, 2025
$
12,774
$
42,927
$
2,913
$
58,614
(1) As of December 31, 2025, GPO chargebacks of $5.4 million are presented in the consolidated financial statements as reductions to accounts
receivable, net. The GPO chargebacks as of December 31, 2024, and 2023 were immaterial. All other gross-to-net adjustments are presented in the
consolidated financial statements as accrued expenses.
Significant customers - Gross product revenues and product sales receivable from the Company’s customers who individually accounted for 10% of
more of total gross product revenues and/or 10% or more of total product sales receivable consisted of the following:
Percent of Total Gross Product Revenues
Year Ended December 31,
2025
2024
2023
Customer A
13%
13%
24%
Customer C
19%
19%
16%
Customer D
58%
59%
54%
Percent of Product Sales Receivable
As of December 31,
2025
2024
Customer C
22%
29%
Customer D
66%
55%
Factoring of accounts receivable and associated fees for the years ended December 31, 2025, and 2024 were as follows (in thousands):
December 31,
December 31,
2025
2024
Accounts receivable sold
$
199,447
$
142,698
Less: factoring fees
(2,434)
(1,700)
Net cash proceeds
$
197,013
$
140,998
The accounts receivable sold that remained outstanding as of December 31, 2025 and 2024 was zero and $86.1 million, respectively.
4. Inventory
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The Company’s inventory of EMPAVELI and SYFOVRE consisted of the following as of December 31, 2025 and 2024 (in thousands):
December 31,
2025
2024
Raw materials
$
43,290
$
54,385
Semi-finished goods
121,207
92,872
Finished goods
13,018
9,860
Total inventories
$
177,515
$
157,117
The Company’s long-term inventory balance consists of raw materials and semi-finished goods that are not expected to be sold within the
Company’s normal operating cycle.
Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons are charged to cost of sales. For the years
ended December 31, 2025 and 2024, the Company’s reserve for excess and obsolete inventory was $20.5 million and $19.0 million, respectively.
5. Prepaid and Other Current Assets
Prepaid and other current assets consisted of the following as of December 31, 2025 and 2024 (in thousands):
December 31,
2025
2024
Down payments for inventory
$
2,201 $
1,080
Prepaid research and development
22,096
7,780
Other prepaid assets
9,515
9,508
Royalties receivable
496
4,525
Receivable from collaboration agreement
2,442
2,272
Deposits and other current assets
1,553
4,847
Total prepaid and other current assets
$
38,303 $
30,012
6. Accrued Expenses
Accrued expenses consisted of the following as of December 31, 2025 and 2024 (in thousands):
December 31,
2025
2024
Accrued research and development
$
16,995 $
22,782
Accrued royalties
7,409
7,147
Accrued payroll liabilities
38,503
40,888
Accrued goods received not invoiced
21,248
638
Product revenue reserves
53,247
45,145
Commercial costs
25,907
20,610
Other
2,740
2,974
Total accrued expenses
$
166,049 $
140,184
7. Long-term Debt
Convertible Senior Notes
On September 16, 2019, the Company completed a private offering of convertible notes the 2019 Convertible Notes with an aggregate principal
amount of $220.0 million issued pursuant to an indenture (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 paid by the Company. The Company
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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, the Company issued convertible notes (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. The Company used $43.1 million of the net proceeds from the sale of the 2020 Convertible Notes 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 senior
unsecured obligations of the Company and bear interest at a rate of 3.5% per year, payable semi-annually 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 the Company’s common stock at an initial conversion rate of 25.3405 shares per $1,000
principal amount of Convertible 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 the Company deliver a
notice of redemption, the Company 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:
•
during any calendar quarter, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not
consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•
during the five-business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the
Convertible Notes for each such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and
the conversion rate on each such trading day;
•
if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second scheduled
trading day immediately preceding the redemption date; or
•
upon the occurrence of corporate events specified in the Indenture.
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. Upon conversion of the Convertible Notes, the Company will pay or deliver, as
the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election.
During 2021 and 2022, holders of the 2019 Convertible Notes and the 2020 Convertible Notes converted approximately $425.4 million in aggregate
principal amount into a total of 12,926,104 shares of the Company’s common stock. The Company accounted for these exchanges as induced conversions,
resulting in the expensing of the fair value of shares issued in excess of the original terms of the Convertible Notes.
None of the circumstances outlined above were achieved during the years ended December 31, 2025 and 2024, and as such, the conditional
conversion feature of the Convertible Notes was not triggered as of December 31, 2025 and 2024.
After September 20, 2023, the Company may redeem for cash all or a portion of the Convertible Notes, at its option, if the last
reported sale price of the Company’s 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 the Company provides a
notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding
the date on which the Company provides 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 the Company calls
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
The Company has not called for redemption or redeemed any of the Convertible Notes as of
December 31, 2025.
If the Company undergoes a “fundamental change,” as defined in the Indenture, prior to maturity, subject to certain conditions,
holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change
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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.
As of December 31, 2025 and 2024, the Company held in treasury Convertible Notes in principal amount of $425.4 million which have not been
cancelled.
As the Convertible Notes mature on September 15, 2026, the Company classified the Convertible Note as current liabilities as of December 31,
2025 and non-current liabilities as of December 31, 2024 on the Company’s consolidated balance sheets.
The outstanding balance of the Convertible Notes as of December 31, 2025 and 2024 consisted of the following (in thousands):
December 31,
2025
2024
Principal
$
93,897
$
93,897
Less: debt discount and issuance costs, net
(235)
(556)
Net carrying amount
$
93,662
$
93,341
The following table sets forth total interest expense recognized related to the Convertible Notes during the years ended December 31, 2025, 2024
and 2023 (in thousands):
Year Ended December 31,
2025
2024
2023
Amortization of debt issuance costs
$
321
$
309
$
297
Contractual interest expense
3,286
3,286
3,286
Total interest expense
$
3,607
$
3,595
$
3,583
Capped Call Transactions
On September 11, 2019 and May 6, 2020, concurrently with the pricings of the Convertible Notes, the Company entered into capped call
transactions with two counterparties. The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock
upon any conversion of Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of
converted Convertible Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms
of the capped call transactions, is greater than the strike price of the capped call transactions, which is initially $39.4625 (the conversion price of the
Convertible Notes) and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of such Convertible Notes. If,
however, the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, exceeds the cap price of
the capped call transactions, which is initially $63.14 per share, there would nevertheless be dilution and/or there would not be an offset of such potential
cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
On February 27, 2024, the Company unwound a portion of the capped call transactions with the capped call counterparties, which resulted in cash
proceeds to the Company of $98.8 million. The unwind transactions were settled at a volume-weighted average price per share of $64.11 on March 8, 2024.
As of December 31, 2025, the Company holds remaining capped call transactions in a notional amount corresponding to $93.9 million principal
amount of Convertible Notes.
Financing Agreement and Credit Facility
On May 13, 2024, the Company and certain of its subsidiaries entered into a financing agreement (the “Sixth Street Financing Agreement”) with the
lenders party thereto (the “Lenders”), and Sixth Street Lending Partners (“Sixth Street”), as the administrative agent and collateral agent for the Lenders.
The Sixth Street Financing Agreement provides for a senior secured term loan facility of up to $475.0 million (the “Credit Facility”), consisting of
an initial draw of $375.0 million at closing and a potential additional $100.0 million draw at the Company’s option upon satisfaction of a $50.0 million
minimum cash requirement and a requirement that the Company’s trailing three-month sales of SYFOVRE is at least $180.0 million prior to the $100.0
million draw by September 30, 2025. The Company did not draw down the additional $100.0 million and the option expired September 30, 2025.
The Credit Facility matures on May 13, 2030 (the “Maturity Date”) and bears interest at (i) in the case of SOFR Loans, an annual rate equal to 3-
month Term SOFR (subject to 1.00% floor), plus (ii) 5.75%. Certain additional commitment and undrawn amount fees are also payable in connection with
the Credit Facility.
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The net proceeds from the initial draw of the Credit Facility were approximately $358.2 million, net of $16.8 million of issuance costs. The
Company used $326.5 million of the proceeds from the initial draw of the Credit Facility to buy out its remaining obligations to SFJ Pharmaceuticals
Group.
The Credit Facility does not provide for scheduled amortization payments during the term. All principal will be due on the Maturity Date. The
Company will have the right to prepay loans under the Credit Facility at any time. The Company is required to repay loans under the Credit Facility with
proceeds from certain asset sales, condemnation events and extraordinary receipts, subject, in some cases, to reinvestment rights. Repayments are subject to
a prepayment premium. Repayments may be made after the first year of the loan and are subject to a prepayment premium up to 3%, depending on timing.
On July 1, 2025, the Lenders and Sixth Street consented to the Royalty Agreement as further described in Note 10 (the “Six Street Consent”). In
connection with the Sixth Street Consent, the Company agreed to extend by one year from the effective date of the Consent the periods in which certain
prepayment premiums would be owed under the Sixth Street Financing Agreement. This effectively extended the period the prepayment premium would be
owed from one year after the date of the initial draw, or May 13, 2024, to one year after the effective date of the Sixth Street Consent, or July 1, 2025.
All obligations under the Sixth Street Financing Agreement are secured on a first-priority basis, subject to certain exceptions, by security interests in
substantially all assets of the Company and certain subsidiaries of the Company, including its intellectual property, and are guaranteed by certain
subsidiaries of the Company, including foreign subsidiaries, subject to certain exceptions.
The Sixth Street Financing Agreement contains customary covenants, including, without limitation, a financial covenant to maintain liquidity of at
least $50.0 million if the Company’s market capitalization is below $3.0 billion, and negative covenants that, subject to certain exceptions, restrict
indebtedness, liens, investments (including acquisitions), fundamental changes, asset sales and licensing transactions, dividends, modifications to material
agreements, payment of subordinated indebtedness, and other matters customarily restricted in such agreements. Among other permissions, the Company is
permitted, on terms and conditions set forth on the Sixth Street Financing Agreement, to enter into a separate asset-based financing arrangement with a
third-party in an amount of up to $100.0 million, which amount is increased to $200.0 million upon certain sales or market capitalization thresholds, and to
have outstanding convertible unsecured notes in an amount equal to the greater of $400.0 million and 10% of the Company’s market capitalization, but not
to exceed $600.0 million. The Company is subject to restrictions on sales and licensing transactions with respect to its core intellectual property, defined to
include SYFOVRE, EMPAVELI, and other pegcetacoplan product assets, subject to certain exceptions, including certain transactions related to areas
outside the United States and Europe.
The outstanding balance of the Credit Facility as of December 31, 2025 and 2024 consisted of the following (in thousands):
December 31,
December 31,
2025
2024
Principal
$
375,000
$
375,000
Less: debt discount and issuance costs
(13,336)
(15,511)
Net carrying amount
$
361,664
$
359,489
The following table sets forth total interest expense recognized related to the Credit Facility as of December 31, 2025 and 2024 (in thousands):
December 31,
2025
2024
Amortization of debt issuance costs
$
2,175
$
1,250
Contractual interest expense
37,947
26,082
Total interest expense
$
40,122
$
27,332
No interest expense incurred for the year ended December 31, 2023 as the Credit Facility commenced in 2024.
8. Leases
The underlying assets of the Company’s leases primarily relate to office space leases and certain equipment leases. The Company determines if an
arrangement qualifies as a lease at its inception.
As of December 31, 2025 and 2024, all leases were classified as operating leases. Additional information related to the operating leases is as follows
(in thousands):
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129
December 31,
2025
2024
Right-of-use assets
$
18,195
$
16,083
Operating lease liabilities
$
19,034
$
16,954
Weighted average remaining term in years
3.31
2.73
Weighted average discount rate used to measure
outstanding lease liabilities
6.52%
6.20%
For the years ended December 31, 2025, 2024, and 2023, the total lease cost for operating leases was approximately $10.5 million, $10.2 million,
and $7.0 million, respectively.
Supplemental cash flow information related to operating leases for the years ended December 31, 2025, 2024 and 2023 is as follows (in thousands):
2025
2024
2023
Operating cash flows from operating leases
$
10,471 $
9,263 $
7,939
Operating lease assets obtained in exchange for lease
obligations
$
6,457 $
— $
2,700
The maturity of the Company’s operating lease liabilities as of December 31, 2025 are as follows (in thousands):
2026
$
7,940
2027
5,808
2028
3,581
2029
3,324
2030 and thereafter
373
Total future minimum lease payments
21,026
Less imputed interest
(1,992)
Total operating lease liabilities
$
19,034
9. Fair Value Measurements
The following table presents the fair value of the Company’s financial instruments that are measured at fair value on a recurring basis as of
December 31, 2025 and 2024 (in thousands):
December 31, 2025
Balance Sheet Classification:
Type of Instrument
Level 1
Level 2
Level 3
Total
Financial Assets:
Cash and cash equivalents:
Money market funds
$
349,615 $
— $
— $
349,615
Total Financial Assets
$
349,615 $
— $
— $
349,615
December 31, 2024
Balance Sheet Classification:
Type of Instrument
Level 1
Level 2
Level 3
Total
Financial Assets:
Cash and cash equivalents:
Money market funds
$
276,868 $
— $
— $
276,868
Total Financial Assets
$
276,868 $
— $
— $
276,868
The Convertible Notes are financial instruments that are reported in the consolidated financial statements at historical cost. The Convertible Notes
are Level 1 within the fair value level hierarchy as of December 31, 2025 and 2024. The fair value of the Convertible Notes was $97.5 million as of
December 31, 2025 and $102.3 million as of December 31, 2024. The Convertible Notes accrue a semi-annual coupon at an annual rate of 3.5%, which
was included in accrued expenses in the consolidated balance sheets as of December 31, 2025 and 2024.
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10. License and Collaboration Agreements
Sobi License and Collaboration Agreement
In October 2020, the Company and its subsidiaries, Apellis International GmbH (f/k/a Apellis Switzerland GmbH) and APL DEL Holdings, LLC,
entered into a Collaboration and License Agreement (the “Sobi Collaboration Agreement”) with Sobi, 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”).
Under the Sobi Collaboration Agreement, the Company granted Sobi an exclusive (subject to certain retained rights of the Company), sublicensable
license of certain patent rights and know-how to develop and commercialize Licensed Products in all countries outside of the United States.
The Company retains 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, the Company and Sobi agreed to collaborate to develop Licensed Products for certain indications,
including PNH, C3G, primary IC-MPGN and HSCT-TMA (collectively the “Initial Indications”), and any other indications subsequently agreed upon by
the parties, for commercialization by or on behalf of the Company in the United States and by or on behalf of Sobi outside of the United States. If the
parties do not agree to jointly pursue any development activities for the Licensed Products (whether for an Initial Indication or otherwise), the party
proposing to pursue such activities may conduct such activities at its sole expense (with the non-proposing party having the right to obtain rights to the data
generated by such development activities by paying a specified percentage of that expense), subject to agreed-upon exceptions that limit each party’s
unilateral development rights. In July 2025, the Company and Sobi decided to discontinue development of systemic pegcetacoplan for Transplant-
associated Thrombotic Microangiopathy (TA-TMA) (inclusive of HSCT-TMA), following completion of the Phase 2 study and a strategic assessment of
the TA-TMA market landscape.
The initial development plan sets forth the initial development activities to be conducted by each of the Company and Sobi, with the Company
bearing all costs incurred in conducting the activities set forth in such initial development plan, as well as certain specified additional costs that are not
included in the initial development plan that may be incurred by the parties in developing Licensed Products for PNH in the European Union and the
United Kingdom. The Company and Sobi formed several governance committees to oversee the development and manufacture, and to review and discuss
the commercialization, of Licensed Products.
The Company shall supply Licensed Products to Sobi for development and for commercialization outside of the United States in accordance with a
supply agreement between the parties. The Sobi Collaboration Agreement grants Sobi the right to perform drug product manufacturing of Licensed
Products for development and for commercialization outside the United States and to manufacture drug substance under certain circumstances. For the
years ended December 31, 2025 and 2024, the Company recognized revenue of $26.2 million and $53.0 million, respectively, for the supply of Licensed
Products to Sobi, which is included in Licensing and other revenue on the consolidated statements of operations and comprehensive income/(loss).
Sobi paid the Company an upfront payment of $250.0 million in November 2020 and has agreed to pay up to an aggregate of $915.0 million upon
the achievement of specified one-time regulatory and commercial milestone events, of which the Company received $50.0 million in April 2022 for the
achievement of a regulatory development milestone in Europe. Sobi also agreed to reimburse the Company for up to $80.0 million in development costs for
the Initial Indications (defined above), of which the Company received $65.0 million and waived the remaining payment of $15.0 million. The Company
will also be 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. Under the Sobi Collaboration Agreement, the Company remains
responsible for its license fee obligations (including royalty obligations) to the Trustees of the University of Pennsylvania (“Penn”), as a licensor of the
Company.
On July 1, 2025 (the “Closing Date”), Apellis Pharmaceuticals, Inc. and its subsidiaries Apellis International GmbH and APL DEL Holdings, LLC
entered into a Royalty Buy-Down Agreement (the “Royalty Agreement”) with Sobi.
Under the Royalty Agreement, Sobi paid the Company an upfront payment of $275.0 million and agreed to pay up to an aggregate of $25.0 million
upon the European Medicines Agency (“EMA”) approval of Aspaveli for C3G and primary IC-MPGN (collectively, the “purchase price”), and the
Company agreed to reduce Sobi’s royalty payment obligations under the Sobi Collaboration Agreement by 90%, effective July 1, 2025. The royalty
reduction is subject to defined caps tied to Aspaveli’s performance, including an initial cap of 1.45x of the purchase price.
The royalty reduction subject to the cap is calculated as an amount equal to (A) the royalty payments that would have been payable by Sobi under
the Sobi Collaboration Agreement with respect to aggregate net sales of Aspaveli outside the United States
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during the period beginning on July 1, 2025 and ending on the hard cap achievement date if the 90% reduction not been applied, minus (B) the royalty
payments that are payable to the Company with the 90% reduction in effect. At any time on or after October 1, 2030, the Company may elect to pay Sobi a
one-time payment amount, which shall be counted in determining if a cap is met. If a cap is met, Sobi’s royalty payment obligations under the Sobi
Collaboration Agreement will revert to 100%.
The Company has evaluated the terms of the Royalty Agreement and concluded, in accordance with ASC 606, the Royalty Agreement is a
modification to, and should be accounted for as if it were part of, the existing Sobi Collaboration Agreement. Therefore, the effect of the modification on
the transaction price, being the addition of the $275.0 million upfront payment, was recognized as an adjustment to revenue on the date of the modification.
This amount is reflected in licensing and other revenue on the consolidated statement of operations and comprehensive income/(loss) for the year ended
December 31, 2025. The royalty revenues from the sales of Aspaveli will continue to be recorded as licensing and other revenue on the consolidated
statement of operations and comprehensive income/(loss) as the sales are made by Sobi outside of the United States.
In January 2026, Sobi received EMA approval of Aspaveli for C3G and primary IC-MPGN. Pursuant to the Royalty Agreement, Sobi owed us an
additional $25.0 million, which was paid in February 2026. This $25.0 million will be recorded as licensing and other revenue on the consolidated
statement of operations and comprehensive income/(loss) in the first quarter of 2026.
Under the Sobi Collaboration Agreement, as of December 31, 2025, 2024 and 2023, the Company recognized $13.2 million, $18.4 million, and
$10.0 million, respectively, of royalty revenue from sales of Aspaveli, which was sold by Sobi outside of the United States.
As of December 31, 2025 and 2024, the Company recognized $10.6 million and $9.9 million, respectively, of contra-research and development
expense related to reimbursements from Sobi for certain agreed upon development activities. Additionally, as it relates to the $80.0 million reimbursement
commitment from Sobi, the Company recognized $65.0 million as contra-research and development expense between 2020 and 2023, and waived the
remaining $15.0 million reimbursement in 2024 in connection with the decision to discontinue the CAD program.
University of Pennsylvania License Agreement
Patent License Agreement with Penn (Non-ophthalmic Fields of Use)
The Company is party to a license agreement with Penn for an exclusive, worldwide license to specified patent rights for the development and
commercialization of products in fields of use, as defined therein. The Company is required to make milestone payments aggregating up to $1.7 million,
based upon the achievement of development and regulatory approval milestones, and up to $2.5 million, based upon the achievement of annual sales
milestones with respect to each of the first two licensed products. The license agreement also requires the Company to pay low single-digit royalties based
on net sales of each licensed product, subject to minimum quarterly royalty thresholds. In addition, the Company is obligated to pay a specified portion of
income it receives from sublicensees.
From January 2021 through December 2025, the Company has made sublicense payments to Penn totaling $30.5 million. From January 2021
through December 2025, the Company has paid $3.5 million in development and sales milestones.
As of December 31, 2025, 2024 and 2023, the Company has incurred royalty expense of $7.3 million, $6.4 million and $4.8 million, respectively,
on sales of EMPAVELI and Aspaveli, which is included in cost of sales on the consolidated statements of operations and comprehensive income/(loss).
Amended and Restated Patent License Agreement with Penn (Ophthalmic Field of Use)
The Company is also party to a license agreement with Penn for an exclusive, worldwide license to specified patent rights. The Company is required
to make milestone payments aggregating up to $3.2 million based upon the achievement of specified development and regulatory milestones and up to $5.0
million based upon the achievement of specified annual sales milestones with respect to each licensed product, and to pay low single-digit royalties based
on net sales of each licensed product and with minimum quarterly royalty thresholds. In addition, the Company is obligated to pay a specified portion of
income it receives from sublicensees.
From April 2023 through December 2025, the Company paid $7.3 million related to regulatory and sales milestones for SYFOVRE.
As of December 31, 2025, 2024 and 2023 respectively, the Company has incurred royalty expense of $19.1 million, $19.8 million and $8.9 million
on sales of SYFOVRE, which is included in cost of sales on the consolidated statements of operations and comprehensive income/(loss).
Beam Research Collaboration
In June 2021, the Company entered into an exclusive five-year research collaboration (the “Beam Collaboration Agreement”) with Beam
Therapeutics, Inc. (“Beam”) focused on the use of Beam’s proprietary base editing technology to discover new treatments for complement-driven diseases.
The Company and Beam agreed to collaborate on up to six research programs focused on C3 and other complement targets in the eye, liver and brain.
Under the terms of the Beam Collaboration Agreement, the Company is
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responsible for selecting specific genes within the complement system in various organs including the eye, liver and brain (the “Target List”) and providing
analytical support while Beam will apply its base editing technology and conduct preclinical research on up to six base editing programs for the Target List.
During the first five years of the Beam Collaboration Agreement, Beam is prohibited from developing on its own or with a third-party any base editing
therapies associated with the items on the Target List but does not prevent Beam from licensing its intellectual property to a third-party for another purpose
outside of the Target List. The Company will have exclusive rights to license each of the six programs and will assume responsibility for subsequent
development and commercialization. Beam may elect to enter a 50-50 co-development and U.S. co-commercialization agreement with the Company with
respect to any one program licensed under the Beam Collaboration Agreement and upon such election any license agreement in place at that time, would be
terminated.
As part of the Beam Collaboration Agreement, the Company made upfront payments of $50.0 million and $25.0 million in 2021 and 2022,
respectively. The Company and Beam are each responsible for their own costs during the research collaboration. If and after the opt-in license rights are
exercised for each of the up to six programs, Beam will be eligible to receive development, regulatory and sales milestones from the Company, as well as
royalty payments on sales. The Beam Collaboration Agreement has an initial term of five years and may be extended up to two years on a per year
program-by-program basis.
Further, in August 2025, the Company opted into and entered into a license agreement with Beam to collaborate on the neonatal Fc receptor
("FcRn") in the liver, which triggered an upfront milestone payment of $3.8 million, paid in September 2025. Under this agreement, the Company may pay
Beam up to $168.8 million in regulatory and development milestones, up to $215.0 million in sales-based milestones, and may owe low single-digit
royalties on annual net sales within the licensed territory.
11. Employee Retirement Plans
The Company adopted an employee profit-sharing plan (the “401(k) Plan”), qualified under Section 401(k) of the Internal Revenue Code (the
“IRC”). All of the Company’s full-time employees who have attained the age of 21 are eligible to participate in the 401(k) Plan immediately upon
employment. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and
have the amount of the reduction contributed to the 401(k) Plan. For the years ended December 31, 2025, 2024 and 2023, the Company recorded $5.7
million, $5.1 million, and $5.7 million respectively, for employer contributions made to the 401(k) Plan.
The Company maintains a pension plan covering employees of its Swiss subsidiary, Apellis International GmbH (the “Swiss Plan”). The Swiss Plan
is a legally-mandated retirement fund that provides employees with a minimum benefit. Employer and employee contributions are made to the Swiss Plan
based on various percentages of salary and wages that vary according to employee age and other factors. As is customary with Swiss pension plans, the
assets of the Swiss Plan are invested in a collective fund, which are held and invested by a Swiss insurance company. The investment strategy of the Swiss
Plan is managed by an independent asset manager with the objective of achieving a consistent long-term return which will provide sufficient funding for
future pension obligations while limiting risk.
As of December 31, 2025, the Swiss Plan was underfunded by $0.2 million as the fair value of the plan assets of $11.3 million was less than the
projected benefit obligation of $11.5 million. The accumulated benefit obligation at December 31, 2025 was $0.1 million. The Company’s net periodic
benefit cost for the year ended December 31, 2025 was $0.7 million. The contributions to the Swiss Plan for the year ended December 31, 2025 were not
material.
As of December 31, 2024, the Swiss Plan was underfunded by $1.6 million as the fair value of the plan assets of $16.7 million was less than the
projected benefit obligation of $18.3 million. The accumulated benefit obligation at December 31, 2024 was $0.6 million. The Company’s net periodic
benefit cost for the year ended December 31, 2024 was $1.2 million. The contributions to the Swiss Plan for the year ended December 31, 2024 were not
material.
12. Income Taxes
The components of net income/(loss) from continuing operations before provision for income taxes are as follows (in thousands):
Year Ended December 31,
2025
2024
2023
United States
$
(120,516) $
(22,701) $
(48,495)
Foreign
144,626
(174,015)
(478,001)
Total
$
24,110 $
(196,716) $
(526,496)
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Provision for income taxes for the years ended December 31, 2025, 2024, and 2023 are as follows (in thousands):
Year Ended
December 31,
2025
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Current income tax expense:
U.S. Federal
$
— $
— $
—
U.S. State and Local
1,550
474
1,869
Foreign
172
688
263
Total current income tax expense
1,722
1,162
2,132
Deferred income tax expense:
U.S. Federal
—
—
—
U.S. State and Local
—
—
—
Foreign
—
—
—
Total deferred income tax expense
—
—
—
Total tax expense
$
1,722 $
1,162 $
2,132
The Company has elected to retrospectively adopt the guidance in ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes
Disclosures, or ASU 2023-09. A reconciliation between the U.S. federal statutory tax rate and the Company's effective tax rate, in accordance with the
guidance in ASU 2023-09, is summarized as follows (in thousands):
Year Ended December 31,
2025
2024
2023
Rate Reconciliation
Amount
Percent
Amount
Percent
Amount
Percent
Net income/(loss) before taxes
$
24,110
$
(196,716)
$
(526,496)
US federal statutory income tax rate
5,063
21.0%
(41,310)
21.0%
(110,564)
21.0%
Domestic federal reconciling items
Tax credits
Research credits
5,720
23.7%
(22,100)
11.2%
(11,566)
2.2%
Nontaxable and nondeductible items
Stock-based compensation
10,938
45.4%
(8,688)
4.4%
(26,881)
5.1%
162M
1,634
6.8%
2,720
(1.4%)
1,588
(0.3%)
Other
609
2.5%
374
(0.2%)
(1,382)
0.3%
Cross-border tax laws
GILTI
638
2.6%
59,627
(30.3%)
—
—%
Valuation allowance
5,770
23.9%
(32,130)
16.3%
46,030
(8.7%)
Prior year taxes
—
—%
4,965
(2.5%)
2,396
(0.5%)
Domestic state and local income taxes, net of
federal benefit
1,550
6.4%
474
(0.2%)
1,869
(0.4%)
Foreign tax effected
Switzerland
Statutory income tax rate differential
(19,725)
(81.8%)
20,443
(10.4%)
62,293
(11.8%)
Valuation allowance
(11,325)
(47.0%)
11,372
(5.8%)
37,044
(7.0%)
Other
(394)
(1.6%)
798
(0.4%)
(2)
—%
Bermuda
Statutory income tax rate differential
3
—%
3,150
(1.6%)
6
—%
Australia
Statutory income tax rate differential
(434)
(1.8%)
(505)
0.3%
(561)
0.1%
Valuation Allowance
1,503
6.2%
1,451
(0.7%)
1,595
(0.3%)
Other
(57)
(0.2%)
231
(0.1%)
275
(0.1%)
Other foreign jurisdictions
229
1.0%
290
(0.2%)
(8)
—%
Total
$
1,722
7.1% $
1,162
(0.6%) $
2,132
(0.4%)
The Company’s effective income tax rate for the year ended December 31, 2025 compared to the year ended December 31, 2024 increased primarily
as a result of operations in state jurisdictions.
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The following table presents the principal components of the Company’s deferred tax assets and liabilities (in thousands):
December 31,
2025
2024
Deferred tax assets:
Intangible assets
$
178,715 $
177,244
Research and development capitalization
13,831
21,474
Contribution carryforward
8,782
—
Share-based compensation
43,966
38,494
Net operating loss carryforwards
306,448
312,672
Research and development credits
81,832
81,340
Orphan drug credits
43,129
48,015
Convertible debt
467
1,021
Fixed assets
370
194
Lease liability
3,972
3,026
Accruals
10,966
7,668
Deferred interest expense
4,234
1,974
Inventory reserves
42,051
31,476
UNICAP
(84)
1,806
Total deferred tax assets
738,679
726,404
Deferred tax liabilities:
Right-of-use asset
(3,863)
(2,821)
Total deferred tax liabilities
(3,863)
(2,821)
Net deferred tax assets before allowance:
734,816
723,583
Less valuation allowance
(734,816)
(723,583)
Net deferred tax assets
$
— $
—
Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is
more likely than not that the Company will not recognize the benefits of its net federal, foreign and state deferred tax assets, and as a result, a valuation
allowance of $734.8 million and $723.6 million has been established at December 31, 2025 and 2024, respectively.
On July 4, 2025, the U.S. signed into law the H.R.1 legislation commonly referred to as the OBBBA. The OBBBA contains significant tax
provisions, such as permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of favorable tax treatment for
certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027.
The OBBBA did not result in any material adjustments to the Company’s total income tax provision for the year ended December 31, 2025, and the
Company have adjusted our deferred tax balances to reflect the impacts of the OBBBA enactment. However, given the complexity of tax laws, related
regulations and interpretations, the Company’s current estimates may require revision as additional information becomes available regarding the
application of the OBBBA provisions.
On December 31, 2025, the Company had approximately $427.1 million, $858.7 million and $1,443.6 million of federal, state and foreign net
operating loss carryforward, respectively. On December 31, 2024, the Company had approximately $422.5 million, $621.8 million and $1,515.7 million of
federal, state and foreign net operating loss carryforward, respectively. The Company also had federal and state research and development tax credit
carryforwards, $102.1 million and $27.9 million, respectively as of December 31, 2025. Federal net operating loss carryforward in the amount of $425.6
million may be carried forward indefinitely. The remaining federal and state net operating loss, research and development tax credit carryforwards began to
expire in 2025. The Company’s foreign net operating loss carryforwards will begin to expire in 2027.
Under the provisions of the Internal Revenue Code (“IRC”), the net operating loss (“NOL”), and tax credit carryforwards are subject to review
and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual
limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as
defined under Sections 382 and 383 of the IRC, respectively, as well as similar state provisions. The amount of the annual limitation is determined based
on the value of the Company immediately prior to the ownership change. The Company experienced a Section 382 ownership change in September 2015,
which imposes annual limitations on the Company's use of pre-change net operating loss carryforwards and other pre-change tax attributes.
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The Company does not have any unrecognized tax benefits during any periods presented and does not expect this to significantly change in the next
twelve months. There were no interest and penalties recorded in the statement of operations during any period and no amounts accrued for interest and
penalties on December 31, 2025 or 2024.
The following table presents income taxes paid (net of refunds received), in accordance with the guidance in ASU 2023-09, is summarized as
follows (in thousands):
Year Ended December 31,
2025
2024
2023
U.S. Federal
$
—
$
—
$
(2,500)
U.S. State and Local
Tennessee
806
730
94
Pennsylvania
266
*
471
Kentucky
*
540
*
Massachusetts
*
(284)
206
North Dakota
*
*
(90)
Other
260
(48)
13
Total U.S. State and Local
$
1,332
$
938
$
694
Foreign
Germany
126
*
*
United Kingdom
*
111
*
Canada
*
337
*
Italy
*
99
*
Other
173
164
47
Total Foreign
299
711
47
Total
$
1,631
$
1,649
$
(1,759)
* The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.
The Company and its subsidiaries file income tax returns in the United States, as well as various state and foreign jurisdictions. Generally, tax years
2022 through 2024 remain open and subject to examination by the major taxing jurisdictions to which the Company is subject. To the extent the Company
has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service,
or state or foreign tax authorities, to the extent utilized in a future period.
13. Commitments and Contingencies
The Company has certain non-cancelable purchase obligations related to the manufacturing of drug substance. The Company has agreed to purchase
from Bachem Americas, Inc. a significant portion of its requirements for the pegcetacoplan drug substance. Under a commercial supply agreement with
NOF Corporation (“NOF”), the Company has agreed to purchase activated polyethylene glycol derivative, or PEG, which is a component of pegcetacoplan.
Under these agreements, as of December 31, 2025, the Company is obligated to pay up to an aggregate of $69.1 million to these vendors over the next three
years. In September 2024, the Company terminated the minimum purchase obligation with NOF for 2025. As a result of this termination, the Company
incurred an expense of $6.4 million, which is included in cost of sales on the consolidated statements of operations and comprehensive income/(loss). As
the amount was not due until January 2026, it is included in current liabilities on the consolidated balance sheet as of December 31, 2025, and in other
liabilities on the consolidated balance sheet as of December 31, 2024. The $6.4 million obligation was subsequently paid by the Company in the first
quarter of 2026
In addition, the Company has other non-cancelable purchase agreements as of December 31, 2025, under which it is obligated to pay up to an
aggregate of $6.7 million to vendors over the next three years.
The Company is a party to a master lease agreement under which the Company leases vehicles with initial terms of 36 months from the date of
delivery. If the Company were unable to take delivery of a previously ordered vehicle, the Company may incur nominal fees.
Indemnifications—In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to
such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party.
Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of
the agreement. The maximum potential amount of future
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136
payments the Company could be required to make under these provisions is not determinable. The Company has not incurred any cost to defend lawsuits or
settle claims related to these indemnification provisions.
Legal—During the normal course of business, the Company may be a party to legal claims that may not be covered by insurance.
In March 2025, the United States District Court for the District Court of Massachusetts dismissed, without prejudice and without leave to amend, a
putative class action complaint that was filed in August 2023 against the Company and certain current and former executive officers of the Company,
which alleged, among other things, that the defendants violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder
by misrepresenting and/or omitting certain material facts related to the design of SYFOVRE’s clinical trials and the risks associated with SYFOVRE’s
commercial adoption, and sought, among other relief, compensatory damages and equitable relief in favor of the alleged class against all defendants,
including interest, and reasonable costs and expenses incurred by plaintiffs, including attorneys’ and expert fees. In April 2025, the plaintiffs filed an appeal
to the United States Court of Appeals for the First Circuit, which conducted a hearing in January 2026.
In December 2024, purported stockholders filed putative stockholder derivative lawsuits in the United States District Court for the District of
Massachusetts on behalf of the Company against the Company’s directors for breach of fiduciary duty, unjust enrichment, waste, and alleged violation of
Section 14(a) of the Exchange Act related to the design of SYFOVRE’s clinical trials and the risks associated with SYFOVRE’s commercial adoption, and
sought monetary and punitive damages, and costs, including attorneys’ fees. These cases were consolidated under the caption In re Apellis
Pharmaceuticals, Inc. Derivative Litigation, No. 1:24-cv-13128-JEK in January 2025 and are stayed pending the outcome of the appeal in the United States
Court of Appeals for the First Circuit of the dismissal of the securities class action.
The Company’s businesses may also be subject at any time to commercial disputes, product liability claims, personal injury claims, third-party
subpoenas or various other lawsuits arising in the ordinary course of business, including intellectual property infringement, employment or investor
matters, and the Company expects that this will continue to be the case in the future.
14. Equity Incentive Plans
Share-based Compensation
The Company’s Board of Directors adopted, and its stockholders approved, an equity incentive plan in 2010 (as amended, the “2010 Plan”). The
Board of Directors and stockholders amended the 2010 Plan in August 2017 to increase the number of shares of common stock reserved for issuance
thereunder to 6,188,466. The 2010 Plan allowed for the grant of incentive stock options and non-qualified stock options to purchase common stock for
employees, directors and consultants under terms and conditions established by the Board of Directors. Incentive stock options and nonqualified stock
options were granted at exercise prices that were no less than 100% of the estimated fair value per share of the common stock on the date of grant. If an
individual owns capital stock representing more than 10% of the voting shares, the price of each share was at least 110% of the fair value on the date of
grant. The Board of Directors determined the fair value of common stock with the assistance of a third-party specialist. Options expire 10 years from the
issuance date. Following the adoption of Company’s the 2017 Stock Incentive Plan (the “2017 Plan”), the Company no longer grants stock options or other
awards under the 2010 Plan.
In October 2017, the Company’s Board of Directors adopted, and its stockholders approved, the 2017 Plan, which became effective on November 8,
2017. The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, awards of restricted stock,
restricted stock units and other stock-based awards. The number of shares of common stock reserved for issuance under the 2017 plan is the sum of (i)
1,359,587 shares of common stock, plus (ii) an additional number of shares of common stock equal to the sum of (a) the number of shares of common
stock reserved for issuance under the 2010 equity incentive plan that remained available for future issuance immediately prior to the effectiveness of the
2017 Plan, which was 299,568 shares, and (b) the number of shares of common stock subject to outstanding awards under the 2010 equity incentive plan
upon effectiveness of the 2017 plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance
price pursuant to a contractual repurchase right plus (iii) an annual increase, to be added the first day of each fiscal year, beginning with the fiscal year
ending December 31, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the lowest of (i) 4,219,409 shares of
common stock, (ii) 4.0% of the number of shares of common stock outstanding on the first day of the fiscal year and (iii) an amount determined by the
board of directors. On January 1, 2025, the shares available for future issuance under the 2017 plan were increased by 4,219,409 shares pursuant to the
annual increase described above. As of December 31, 2025, there were 2,865,381 shares available for future grants under the 2017 Plan. In January 2026,
the shares available for future issuance under the 2017 plan were increased by an additional 4,219,409 shares.
Additionally, since 2019, the Company has granted equity awards as equity inducement awards material to entry into employment with the
Company to certain newly hired employees outside of the Company’s existing plans in accordance with Nasdaq listing rule 5635(c)(4). In February 2020,
the Board of Directors adopted the 2020 Inducement Stock Incentive Plan (the “2020 Plan”), which permitted the Company to grant equity awards to
newly hired employees in accordance with Nasdaq listing rule 5635(c)(4).
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The aggregate number of shares reserved for issuance under the 2020 Plan was initially 750,000 shares. The Board of Directors amended the 2020 Plan to
add 200,000 shares on January 1, 2024, which increased the total number of shares reserved for issuance to 1,950,000 shares as of January 1, 2024. As of
December 31, 2025, there were 1,032,021 shares available for future grants under the 2020 Plan. No additional shares have been reserved under the 2020
Plan in 2025 or 2026.
In October 2017, the Company’s board of directors adopted, and the Company’s stockholders approved the 2017 Employee Stock Purchase Plan
(“ESPP”) and provides participating employees with the opportunity to purchase up to an aggregate of 468,823 shares of common stock. The number of
shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal
year ending December 31, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the lowest of (i) 937,646 shares of
common stock, (ii) 1.0% of the number of shares of common stock outstanding on the first day of the fiscal year and (iii) an amount determined by the
board of directors. The board of directors initiated the first offering under ESPP in October 2019. On December 31, 2025, 208,848 shares of common stock
remained available for issuance pursuant to the ESPP. On January 1, 2026, the shares available for future issuance under the ESPP were increased by
500,000 shares pursuant to the annual increase described above.
The Company has reserved the following shares of common stock for future issuance (in thousands):
December 31,
2025
2024
2023
Shares reserved under 2017 Equity Incentive Plan
17,797
20,062
16,989
Shares reserved under 2017 Employee Stock Purchase Plan
209
411
553
Shares reserved under 2020 Inducement Stock Incentive Plan
1,631
1,627
1,638
Total
19,637
22,100
19,180
Total share-based compensation expense related to the various plans during the years ended was as follows (in thousands):
Year Ended December 31,
2025
2024
2023
Research and development
$
40,105 $
41,267 $
45,644
Selling, general and administrative
63,898
72,861
60,301
Total share-based compensation expense included in expenses
$
104,003 $
114,128 $
105,945
Capitalized share-based compensation expense to inventory (1)
5,128
—
—
Total share-based compensation
$
109,131 $
114,128 $
105,945
(1) Prior to the year ended December 31, 2025, capitalized share-based compensation expenses into inventory were not material.
Stock Options—Options granted to employees typically vest over 48 months in installments of (i) 25% at the one-year anniversary and (ii) in either
36 equal monthly or 12 equal quarterly installments beginning in the thirteenth month after the initial vesting commencement date (as defined) subject to
the employee’s continuous service with the Company.
Under the Executive Separation Benefits and Retention Plan and by resolutions adopted by the Compensation Committee in October 2019, the stock
options granted to the Company’s executives and employees will become fully vested upon the occurrence of a change in control, as defined in the
Executive Separation Benefits and Retention Plan, if such executive or senior employee is terminated without cause or resigns for good reason within 12
months after such change in control.
The following table summarizes the Company’s stock option activity:
Weighted -
Weighted -
Average
Average
Aggregate
Exercise
Contractual
Intrinsic
Shares
Price
Life
Value
(in thousands)
Per Share
(in years)
(in thousands)
Outstanding, December 31, 2024
8,048
$
35.36
Granted
2,919
20.17
Exercised
(438)
12.65
Forfeited
(1,466)
44.07
Outstanding, December 31, 2025
9,063
$
30.16
Options exercisable, December 31, 2025
5,919
$
33.00
4.09 $
24,018
Expected to vest, December 31, 2025
3,144
$
24.82
3.89 $
14,763
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138
The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the fair value of the common stock.
During the years ended December 31, 2025, 2024 and 2023, the Company granted stock options to purchase an aggregate of 2.9 million, 0.7 million
and 0.8 million shares of its common stock, respectively with weighted average grant date fair values per share of $9.66, $42.61 and $34.26, respectively.
The aggregate intrinsic value of options exercised during the years ended December 31, 2025, 2024 and 2023 were $3.0 million, $46.0 million, and
$181.0 million, respectively, calculated as the difference between the exercise price of the options and the fair value of the common stock on the respective
date of exercise.
As of December 31, 2025, unrecognized compensation expense related to unvested options was $32.3 million, which the Company expects to
recognize over an estimated weighted-average period of 1.9 years.
The assumptions used in the Black-Scholes model to estimate the grant date fair value are as follows:
Year Ended December 31,
2025
2024
2023
Risk-free interest rate
3.77% - 4.42%
3.94 - 4.36%
3.50 - 4.01%
Dividend yield
0%
0%
0%
Volatility
70.32% - 73.11%
71.91 - 77.01%
68.4 - 71.0%
Expected terms (years)
2.25 - 6.25
3.81 - 6.08
3.81 - 6.08
Restricted Stock Units— The fair value of RSUs is estimated based upon the closing market price of the Company’s common stock on the date of
grant. RSUs generally vest annually over a four-year period.
The following table summarizes the Company’s RSU activity:
Number of Stock
Units
(in thousands)
Weighted Average
Grant Date Fair
Value Per Share
Unvested Balance at December 31, 2024
3,961 $
53.19
Granted
3,343
27.41
Vested
(1,487)
50.18
Forfeited
(1,084)
45.05
Unvested Balance at December 31, 2025
4,733 $
37.69
The fair value of restricted stock units vested during the year ended December 31, 2025, 2024 and 2023, respectively, were $74.6 million, $65.5
million and $42.2 million.
As of December 31, 2025, there was approximately $118.2 million of related unrecognized compensation cost which the Company expects to
recognize over a remaining weighted average period of 2.5 years.
Performance and Market-Based Stock Unit Awards
Market-Based RSUs
In January 2025, the Company granted 646,488 shares of performance restricted stock units (“PSUs”) to each of its executives pursuant to the 2017
Plan. Each performance restricted stock unit represents a contingent right to receive one share of the Company’s common stock. The PSUs will vest,
subject to the satisfaction of the market conditions outlined below, so long as the grantee has a continuing service relationship with the Company. All
vesting is dependent on grantee remaining employed by the Company on the applicable vesting dates. The market condition shall mean the attainment of
Company relative total shareholder return (“rTSR”) performance compared to the Nasdaq Biotechnology Index (“NBI”) during the following three
performance periods: 2025, 2025 - 2026, and 2025 - 2027, as determined by the Compensation Committee of the board of directors, utilizing a twenty (20)
business day average stock price preceding the commencement date and preceding the conclusion of the performance period, with the following potential
target threshold payout:
• 25th percentile relative TSR = 50% of original number of rTSR PSUs
• 55th percentile relative TSR = 100% of the original number of rTSR PSUs
• 90th percentile or greater relative TSR = 200% of the original number of rTSR PSUs
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139
The Company used a Monte Carlo model to estimate the grant-date fair value of the rTSR PSUs. Share-based compensation expense for the rTSR
PSUs is recorded in the consolidated statement of operations and comprehensive income/(loss) over the service period regardless of whether the market
condition is achieved. Assumptions and estimates utilized in the calculation of the fair value of the rTSR PSUs include the risk-free interest rate, dividend
yield, expected volatility based on the historical volatility of the Company and the performance period of the award.
The table below sets forth the weighted average grant date fair value assumptions used to value the rTSR PSUs:
Year Ended December 31,
2025
Risk-free interest rate
4.50%
Dividend yield
0%
Volatility
72.20%
The following table summarizes the Company’s rTSR PSU activity:
Number of Stock
Units
(in thousands)
Weighted Average
Grant Date Fair
Value Per Share
Unvested Balance at December 31, 2024
— $
—
Granted
646
44.04
Vested
—
—
Forfeited
(99)
44.04
Unvested Balance at December 31, 2025
547 $
44.04
As of December 31, 2025, there was approximately $10.7 million of related unrecognized compensation cost which the Company expects to
recognize over a remaining weighted average period of 1.6 years.
Performance-Based RSUs
In June 2025, the Company granted 1,238,937 performance-based RSUs to all active employees pursuant to the 2017 Plan. Each performance-based
restricted stock unit represents a contingent right to receive one share of the Company’s common stock. The performance-based RSUs will vest, subject to
the satisfaction of certain regulatory and revenue performance conditions, so long as the grantee has a continuing service relationship. The fair value of the
performance-based RSUs is estimated based upon the closing market price of the Company’s common stock on the date of grant. Of the 1,238,937
performance-based RSUs legally granted, the Company notes a grant date per ASC Topic 718, Compensation – stock compensation (“ASC 718”) was only
established for 743,265 awards as certain criteria to establish a grant date under ASC 718 was not met for 495,672 awards.
During the year ended December 31, 2025, no expense was recognized because the performance conditions were not considered probable of
achievement.
The following table summarizes the Company’s performance-based RSU activity:
Number of Stock
Units
(in thousands)
Weighted Average
Grant Date Fair
Value Per Share
Unvested Balance at December 31, 2024
— $
—
Granted
743
19.39
Vested
—
—
Forfeited
(31)
19.39
Unvested Balance at December 31, 2025
712 $
19.39
Employee Stock Purchase Plan— Eligible employees who elect to participate in an offering under the ESPP may have up to 15% of their earnings
withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of common stock purchased under the ESPP is
equal to 85% of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant purchase date.
During the year ended December 31, 2025, a total of 202,092 shares of common stock were issued under the ESPP at an average per share price of $16.58.
During the year ended
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140
December 31, 2025, the Company recorded cash received from the issuance of stock to the ESPP of $3.4 million and recorded $1.4 million of share-based
compensation expense related to the ESPP.
15. Net Income/(Loss) per Common Share
The following table presents the calculation of basic and diluted net income/(loss) per common share (amounts in thousands, except per share
amounts):
Year Ended December 31,
2025
2024
2023
Basic net income/(loss) per share
Numerator:
Net income/(loss)
$
22,388 $
(197,878) $
(528,628)
Denominator:
Weighted-average number of common shares used in net income/(loss) per common share -
basic
126,145
123,905
118,678
Net income/(loss) per common share - basic
$
0.18 $
(1.60) $
(4.45)
Diluted net income/(loss) per share
Numerator:
Net income/(loss)
$
22,388 $
(197,878) $
(528,628)
Adjustment - Interest expense on Convertible Notes
3,607
—
—
Adjusted net income/(loss)
$
25,995 $
(197,878) $
(528,628)
Denominator:
Weighted-average number of common shares used in
net income/(loss) per common share - basic
126,145
123,905
118,678
Convertible notes
2,379
—
—
Stock options to purchase common stock
967
—
—
Unvested restricted stock units
346
—
—
Shares expected to be purchased under employee stock purchase plan
18
—
—
Weighted-average number of common shares used in net income/(loss) per common share -
diluted
129,855
123,905
118,678
Net income/(loss) per common share - diluted
$
0.20 $
(1.60) $
(4.45)
Shares outstanding presented below were excluded from the calculation of diluted net income/(loss) per share, prior to the use of the treasury stock
method, as their effect is anti-dilutive (in thousands):
Year Ended December 31,
2025
2024
2023
Convertible notes
—
2,379
2,379
Stock options to purchase common stock
6,506
8,048
8,664
Unvested restricted stock units
3,483
3,962
4,301
Total
9,989
14,389
15,344
16. Segment Information
The Company operates as a single reportable and single operating segment, which is the development and commercialization of treatments across a
broad range of diseases driven by complement. The Company defines its segment on the basis in which internally reported financial information is
regularly reviewed by CODM to analyze financial performance, make decisions, and allocate resources. The Company’s CODM reviews consolidated net
income/(loss) for purposes of assessing performance, making operating decisions, strategically allocating future resources, and planning and forecasting for
future periods.
The following table presents information about reported segment revenue, segment loss, and significant segment expenses as provided to the CODM
with respect to the Company’s single operating segment for the years ended December 31, 2025, 2024 and 2023:
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141
Year Ended December 31,
2025
2024
2023
Revenue
$
1,003,782
$
781,367
$
396,591
Less:
Internal research and development costs
88,182
91,881
121,931
Internal selling, general and administrative costs
180,833
162,874
176,778
External commercial costs
228,986
229,991
230,166
External research and development costs
167,567
194,422
186,812
External general and administrative costs
76,548
35,327
33,570
Other segment items (1)
102,369
121,842
59,237
Share-based compensation expense
104,003
114,128
105,945
Interest income
(13,143)
(12,773)
(20,933)
Interest expense
44,327
40,391
29,581
Income tax expense
1,722
1,162
2,132
Net income/(loss)
$
22,388
$
(197,878)
$
(528,628)
(1)
Other segment items include cost of sales, loss on conversion of debt, and other expenses.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the
effectiveness of the Company’s disclosure controls and procedures as of as of December 31, 2025. The term “disclosure controls and procedures,” as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a
company 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. 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 the company’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of
December 31, 2025, the Company’s chief executive officer and chief financial officer concluded that, as of such date, the Company’s disclosure controls
and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the Company; and
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142
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2025. In
making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework (2013).
Based on our assessment, management concluded that, as of December 31, 2025, our internal control over financial reporting is effective based
on those criteria.
Changes in Internal Control over Financial Reporting
As required by Rule 13a‑15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial
officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the year ended
December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that
evaluation, our principal executive officer and principal financial officer concluded no such changes during the year ended December 31, 2025 materially
affected, or were reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2025 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report, which is included below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Apellis Pharmaceuticals, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Apellis Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31, 2025,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 24, 2026, expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
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143
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 24, 2026
Item 9B. Other Information.
The following table describes, for the quarterly period covered by this report, each trading arrangement for the sale or purchase of our securities adopted or
terminated by our directors and officers that is either (1) a contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule
10b5-1(c), or a Rule 10b5-1 trading arrangement, or (2) a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K):
Name (Title)
Action Taken
(Date of
Action)
Type of Trading
Arrangement
Nature of Trading
Arrangement
Duration of Trading
Arrangement
Aggregate Number of
Securities
Tim Sullivan
Chief Financial Officer and
Treasurer
Adoption
12/11/2025
Rule 10b5-1 trading
arrangement
Sale
Until 9/30/2026, or such earlier date
upon which all transactions are
completed or expire without execution Up to 30,000 shares
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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144
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission on
Schedule 14A in connection with our 2026 Annual Meeting of Stockholders, or the Proxy Statement, which we intend to file not later than 120 days after
the end of our fiscal year ended December 31, 2025, under the headings “Our Executive Officers,” “Our Board of Directors,” “How our Board of Directors
is Organized and Governed,” and “ Delinquent Section 16(a) Reports,” and is incorporated in this Annual Report on Form 10-K by reference.
Item 11. Executive Compensation.
The information required by this item regarding executive compensation will be set forth in the sections titled “Our Executive Compensation
Programs” and “How our Directors are Compensated” in our Proxy Statement and, other than the information required by Item 402(v) of Regulation S-K,
is incorporated in this Annual Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item regarding security ownership of certain beneficial owners and management will be set forth in the sections
titled “Principal Stockholders” and “Securities Authorized for Issuance Under Equity Compensation” in our Proxy Statement and is incorporated in this
Annual Report on Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item regarding certain relationships and related transactions and director independence will be set forth in the
sections titled “Transactions with Related Persons,” “Election of Directors,” and “Corporate Governance,” respectively, in our Proxy Statement and is
incorporated in this Annual Report on Form 10-K by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item regarding principal accountant fees and services will be set forth in the section titled “Our Auditors” in our
Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.
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145
PART IV
Item 15. Exhibits, and Financial Statement Schedules.
(a) Documents filed as a part of this Report:
(1) Financial Statements—Included in Item 8 of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
110
Consolidated Financial Statements as of and for the years ended December 31, 2024 and 2023 and for each of the three years in the period ended
December 31, 2024:
Consolidated Balance Sheets as of December 31, 2025 and 2024
112
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2025,2024 and 2023
113
Consolidated Statements of Changes in Stockholders’ Equity for the period from January 1, 2023 to December 31, 2025
114
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
115
Notes to Consolidated Financial Statements
117
(2) Financial Statement Schedules
No financial statement schedules have been filed as part of this Annual Report on Form 10-K because they are not applicable, not required or the
required information is otherwise included in our consolidated financial statements or notes thereto.
(3) Index to Exhibits.
Exhibit Index
Description of Exhibit
Incorporated by Reference
Exhibit
Number
Form
File Number
Date of
Filing
Exhibit
Number
Filed
Herewith
2.1*
Asset Purchase Agreement
S-1
333-220941
10/13/2017
2.1
3.1
Restated Certificate of Incorporation of the Registrant
8-K
001-38276
11/13/2017
3.1
3.2
Amended and Restated By-Laws of the Registrant
8-K
001-38276
11/13/2017
3.2
4.1
Specimen Stock Certificate evidencing the shares of common
stock
S-1/A
333-220941
10/27/2017
4.1
4.2
Investors’ Rights Agreement dated as of August 7, 2017, among
the Registrant and the other parties thereto
S-1
333-220941
10/13/2017
4.2
4.3
Indenture (including form of Note), dated as of September 16,
2019, by and between Apellis Pharmaceuticals, Inc. and U.S.
Bank National Association, as trustee
8-K
001-38276
9/16/2019
4.1
4.4
Description of Securities Registered Under Section 12 of the
Exchange Act
10-K
001-38276
2/28/2022
4.4
4.5
Form of Pre-Funded Warrant
8-K
001-38276
2/24/2023
4.1
10.1+
2010 Equity Incentive Plan, as amended
S-1
333-220941
10/13/2017
10.1
10.2+
Form of Incentive Stock Option Grant Notice and Agreement
under 2010 Equity Incentive Plan
S-1
333-220941
10/13/2017
10.2
10.3+
Form of Nonstatutory Stock Option Grant Notice and Agreement
under 2010 Equity Incentive Plan
S-1
333-220941
10/13/2017
10.3
10.4+
2017 Stock Incentive Plan
S-1/A
333-220941
10/30/2017
10.4
10.5+
Form of Incentive Stock Option Agreement under 2017 Stock
Incentive Plan
S-1/A
333-220941
10/27/2017
10.5
10.6+
Form of Nonstatutory Stock Option Agreement under 2017 Stock
Incentive Plan
S-1/A
333-220941
10/27/2017
10.6
10.7+
Form of Director and Officer Indemnification Agreement
S-1/A
333-220941
10/27/2017
10.7
10.8†
Patent License Agreement, dated as of March 28, 2008, by and
between Apellis AG and The Trustees of the
S-1/A
333-220941
10/13/2017
10.8
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146
University of Pennsylvania, as assigned to the Registrant
10.9†
Amended and Restated Patent License Agreement, dated as of
March 28, 2008, by and between Potentia Pharmaceuticals, Inc.
and The Trustees of the University of Pennsylvania, as amended
by the First Amendment to the Amended and Restated Patent
License Agreement, dated as of October 14, 2009 and as assigned
to the Registrant
S-1/A
333-220941
10/13/2017
10.9
10.10
Summary of Non-Employee Director Compensation Program
10-K
001-38276
2/28/2022
10.11
10.11
Lease, dated as of April 27, 2017, by and between the Registrant
and NWALP PHOP Property Owner, LLC
S-1/A
333-220941
10/13/2017
10.13
10.12+
2017 Employee Stock Purchase Plan
S-1/A
333-220941
10/30/2017
10.15
10.13+
Offer Letter, dated as of October 9, 2017, by and between the
Registrant and Timothy Sullivan
S-1/A
333-220941
10/20/2017
10.16
10.14
First Amendment to Lease, dated July 25, 2018, by and between
Registrant and NWALP PHOP Property Owner LLC.
10-Q
001-38276
7/31/2018
10.2
10.15
Second Amendment to Lease, dated June 5, 2019, by and
between Registrant and NWALP PHOP Property Owner LLC.
10-Q
001-38276
7/31/2019
10.2
10.16
Third Amendment to Lease, dated September 25, 2019, by and
between Registrant and NWALP PHOP Property Owner LLC.
10-Q
001-38276
11/5/2019
10.1
10.17
Fourth Amendment to Lease, dated November 13, 2020, by and
between Registrant and NWALP PHOP Property Owner LLC.
10-K
001-38276
2/25/2020
10.17
10.18
Standard Office Lease, dated as of March 29, 2019, by and
between the Registrant and Geary-Market Investment Company,
Ltd.
10-Q
001-38276
5/7/2019
10.2
10.19
Form of Capped Call Transaction Confirmation
8-K
001-38276
5/7/2020
10.1
10.20+
Amendment No. 1 to 2017 Employee Stock Purchase Plan
10-Q
001-38276
11/2/2020
10.1
10.21
Collaboration and License Agreement, dated October 27, 2020,
by and among, the Registrant, Apellis Switzerland GmbH, APL
DEL holdings, LLC and Swedish Orphan Biovitrum AB (publ)
10-K
001-38276
2/25/2020
10.25
10.22
Commercial Supply Agreement, dated December 30, 2020, by
and between the Registrant and Bachem Americas, Inc.
10-K
001-38276
2/25/2020
10.26
10.23
Sales Agreement, dated as of November 1, 2023 by and between
Apellis Pharmaceuticals, Inc. and Cowen and Company, LLC.
8-K
001-38276
11/01/2023
1.1
10.24††
Amended and Restated Commercial Supply Agreement, dated
March 10, 2021, by and between the Registrant, Apellis
Switzerland GmbH and NOF Corporation
10-Q
001-38276
4/28/2022
10.1
10.25
Inducement Stock Incentive Plan
S-8
333-236710
2/27/2020
99.1
10.26+††
Offer Letter, dated as of December 25, 2022, by and between the
Registrant and Baumal Caroline
10-K
001-38276
2/27/2024
10.28
X
10.27+††
Separation Agreement, dated February 21, 2025, by and between
the Registrant and Adam Townsend
10-Q
001-38276
5/7/2025
10.1
10.28
Form of Exchange Agreement
8-K
001-38276
7/8/2021
10.1
10.29
Form of Restricted Stock Unit Agreement under the 2017 Stock
Incentive Plan
10-K
001-38276
2/21/2023
10.33
10.30
Royalty Buy-Down Agreement dated July 1, 2025, by and
between Swedish Orphan Biovitrum AB and the Registrant
10-Q
01-38276
10/30/2025
10.1
Table of Contents
147
10.31††
Amended and Restated Fee Letter, dated June 30, 2025, by and
between the Company and Sixth Street Lending Partners
X
10.32
Fifth Amendment to Lease, dated September 5, 2025, by and
between the Apellis Pharmaceuticals, Inc. and Delaware
Corporation
X
10.33 +
Form of Restricted Stock Unit Award Agreement under 2017
Stock Incentive Plan
X
21.1
Subsidiaries of the Registrant
X
23.1
Consent of Deloitte & Touche, LLP
X
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.
X
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.
X
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.
X
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.
X
97.1
Dodd-Frank Compensation Recovery Policy
10-K
001-38276
2/27/2024
97.1
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)
* Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Asset
Purchase Agreement to the Securities and Exchange Commission upon request.
† Confidential treatment has been granted as to certain portions, which portions have been omitted and separately filed with the Securities and Exchange
Commission.
†† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
+ Management contract or compensatory plan or arrangement.
Filed herewith.
Item 16. Form 10-K Summary.
Not applicable
Table of Contents
148
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Apellis Pharmaceuticals, Inc.
Date: February 24, 2026
By:
/s/ Cedric Francois
Cedric Francois
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Cedric Francois
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 24, 2026
Cedric Francois
/s/ Timothy E. Sullivan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
February 24, 2026
Timothy E. Sullivan
/s/ Jim Chopas
Vice President, Corporate Controller and Chief Accounting
Officer
(Principal Accounting Officer)
February 24, 2026
Jim Chopas
/s/ Gerald Chan
Director
February 24, 2026
Gerald Chan
/s/ A. Sinclair Dunlop
Director
February 24, 2026
A. Sinclair Dunlop
/s/ Alec Machiels
Director
February 24, 2026
Alec Machiels
/s/ Stephanie M. O’Brien
Director
February 24, 2026
Stephanie M. O’Brien
/s/ Paul Fonteyne
Director
February 24, 2026
Paul Fonteyne
/s/ Keli Walbert
Director
February 24, 2026
Keli Walbert
/s/ Craig Wheeler
Director
February 24, 2026
Craig Wheeler
100 5th Avenue, 3rd Floor Waltham, MA 02451
P. 617.977.5700
Revised December 25, 2022
Caroline Baumal, M.D.
[**]
Dear Caroline:
We are pleased to extend you an offer to join Apellis Pharmaceuticals, Inc. (“Apellis” or the “Company) as Chief
Medical Officer. You will be responsible for developing and executing the Medical Affairs strategy in support of our
overall business plan and strategic direction. You will lead the Company’s external medical messaging and
engagement with key opinion leaders, health care professionals, the patient community and other stakeholders;
representing the Company at medical, scientific and investor forums; strategic leadership in support of the Company’s
business plan; oversight of the medical affairs division and personnel. You will be responsible for the entire product
portfolio, including ophthalmology, rare disease, and future therapeutic areas of focus. All employees in the medical
affairs function will report to you as the Chief Medical Officer. You will provide input to all portfolio decisions at Apellis.
You will work from our offices in the Waltham area, with travel as may be reasonably required from time to time to
properly fulfill your employment duties and responsibilities. You will report to the Chief Executive Officer.
Subject to satisfaction of the conditions described in this letter, you will begin employment on, or before, January 3,
2023 (or another mutually acceptable start date). From your start date until January 31, 2023, you will be permitted to
wind down your current medical practice and otherwise transition your current employment duties in a manner
consistent with your professional obligations, on such terms as mutually agreed with senior management of the
Company. On and after February 1, 2023, you may continue to provide up to one day per week of patient care, outside
of normal business hours for the Company, on such terms as mutually agreed with senior management of the
Company.
You may continue to participate in the speaking engagements and consulting services outlined in Exhibit A (attached to
this offer letter and incorporated by reference), so long as your time spent on these matters is outside of normal
business hours and does not interfere with the performance of your duties with the Company, subject to ongoing
assessment by you and the Company to ensure that there is no impact on the Company or its business. You have
represented and certified that these speaking engagements and consulting services are not competitive with the
present or currently planned business of the Company. The Company acknowledges and agrees that, notwithstanding
any other agreements being entered into by you with the Company, that the Company has no right, claim, or interest in
or
to any intellectual property rights or trade secrets related to or arising from any such consulting services provided by
you to such third parties.
Otherwise, you agree to devote substantially all your full business time, attention, and commercially reasonable efforts
to the performance of your duties and to the furtherance of the Company’s interests. During the period of your
employment, you agree not to engage in any other employment, consulting or other business activity that is currently or
potentially competitive, or that represents a conflict of interest, with the current or planned business of the Company
without the prior written consent of the Company. You may continue to engage in patient care activities, consulting and
other business activities that are not competitive and that do not represent a conflict of interest with the business of the
Company, provided any such activities shall (x) not conflict or materially interfere with the effective discharge of your
duties and responsibilities to the Company, (y) not be provided during the Company’s regular business hours or on
Company premises or using any of the Company’s property or equipment, and (z) be conducted strictly in accordance
with applicable laws, regulations, and professional standards (including those regarding disclosure of financial or
professional interest). You must disclose any outside engagements or business activities to the Company on a periodic
basis. Any exceptions must be approved in writing by the Chief Executive Officer after consultation with the Board of
Directors.
Your initial salary will be an annualized base salary of $575,000 paid in accordance with our standard payroll practices
and subject to all withholdings and deductions as required by law. You will also be eligible to participate in the 2023
Apellis Bonus Program on a pro-rated basis from your start date with an annual target bonus of 45% of your annualized
base salary. All bonus payments, if any, will be pro-rated from your start date and are subject to the approval of the
Board of Directors based upon company, departmental, and individual performance. You must remain employed with
the Company through the date of the bonus payment to receive such payment.
You will be eligible for Apellis’ standard benefits package offered to every full-time employee, which includes health
insurance, LTD/ADD/life insurance, and 401(k). You will be reimbursed for travel and other expenses in accordance
with our reimbursement policy. You will be eligible for Apellis’ Flexible Time Off program, which does not restrict
employees to a specific number of personal or vacation days. Apellis reserves the right to amend, modify or terminate
any of its benefit plans, policies or programs at any time and for any reason.
You will be eligible for a sign-on bonus in the amount of $250,000 paid in two installments. The first payment of
$125,000 will be paid with your first payroll and subject to all withholdings and deductions as required by law. Upon the
one-year anniversary of your date of hire, you will be eligible for the second sign-on in the amount of $125,000 and
subject to all withholdings and deductions as required by law. If Apellis is acquired prior to one year of service, or you
are terminated by Apellis without “Cause” or you resign for “Good Reason” (as such terms are defined in the Executive
Separation Benefits and Retention Plan, with the modifications noted herein), the second payment will be accelerated
and payable on the effective date of any Change in Control or your last date of employment, as applicable. If you leave
Apellis prior to your first anniversary you will be required to pay back this bonus in full, other than in the case of a
reduction in force or termination without cause or you resign for “Good Reason”.
You will be eligible to receive separation benefits under the terms and conditions of our Executive Separation Benefits
and Retention Plan, adopted on October 1, 2019 (the “Separation Benefits Plan”), a copy of which is provided for your
reference. All forms of cash compensation paid to you as an employee pursuant to this offer letter or the Separation
Benefits Plan shall be less all applicable withholdings.
Subject to the approval of the Board of Directors, you will receive a grant of 35,549 Restricted Stock Units (RSUs) and
an option to purchase 49,000 shares of Common Stock at an exercise price equal to the fair market value as
determined by the Board at the time of the grant, with such option to vest in equal monthly installments over four years
from the Grant Date, subject to a one-year vesting cliff. The RSUs will vest over four years with 25% of the RSUs
vesting on the first anniversary of the Grant Date and 25% on each anniversary of the Grant Date thereafter. The Grant
Date will be the first trading day of the month following your date of hire. The terms of these grants will be set forth in
one or more agreements and shall be subject to the provisions of the Separation Benefits Plan, except as agreed
herein.
Along with this letter, you are being provided a copy of the Apellis Executive Separation Benefits and Retention Plan.
You will be entitled to the benefits and rights of a C-Level Officer under this plan. If the Company determines that
geographic atrophy will no longer be a strategic focus (whether because the Company does not get approval for
intravitreal pegcetacoplan as a treatment for geographic atrophy or for any other reason), or if you are required to
relocate more than 20 miles from Waltham, Massachusetts, these circumstances would also constitute a "Good
Reason" termination event with respect to the sign-on bonus described above and the provisions of the Executive
Separation Benefits and Retention Plan.
You will also be subject to the provisions of our Stock Ownership Guidelines and Recoupment Policy, which are also
provided.
This offer letter is intended to comply with Section 409A of the Internal Revenue Code (“Section 409A”) or an
exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any
other provision of this offer letter, payments provided under this offer letter may only be made upon an event and in a
manner that complies with Section 409A or an applicable exemption. Any payments under this offer letter that may be
excluded from Section 409A either as separation pay due to an involuntary separation from service or a short-term
deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, any
installment payment provided under this offer letter shall be treated as a separate payment. Any payments to be made
under this offer letter upon a termination of employment shall only be made upon a “separation from service” under
Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits
provided under this offer letter comply with Section 409A and in no event shall the Company be liable for all or any
portion of any taxes, penalties, interest or other expenses that may be incurred by you on account of non-compliance
with Section 409A. If any payment or benefit provided to you in connection with termination of employment is
determined to constitute “nonqualified deferred compensation” and you are determined to be a “specified employee,” in
each case within the meaning of Section 409A, the Company agrees to negotiate with you in good faith to appropriately
and lawfully modify the contractual terms relating to such payment or benefit.
On your first day of employment, you will be given additional information about our procedures, policies, and benefit
programs. We will require you, as a condition of employment, to verify your right to work in the United States and to
enter into the standard noncompetition, nondisclosure, and development agreement on your first day of employment.
By signing below, you represent that (i) your employment with the Company and your execution of this offer letter does
not and will not violate or conflict with agreements you may have with any former employer and (ii) you have provided
the Company with all written agreements that describe any continuing post-employment obligations to any former
employer. Your employment will be at will, and this letter does not represent any guarantee of employment for any
period. If you wish to resign from your employment with the Company, we request not less than 15 calendar days’
written notice.
This offer letter, along with the agreements regarding stock options and RSUs, the non- competition, non-solicitation,
nondisclosure and development agreement, the separation benefits plan, the stock ownership guidelines and the
recoupment policy, constitute the complete agreement between you and the Company, contain all the terms of your
employment, and supersede any prior agreements, representation or understanding (whether written, oral or implied)
between you and the Company. The terms of this offer letter and the resolution of any disputes as to the meaning,
effect, performance or validity of this offer letter or arising out of, related to, or in any way connected with, this offer
letter, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will
be governed by Massachusetts law, excluding laws relating to conflict of choice of law. You and the Company agree to
submit to the exclusive personal jurisdiction of the federal and state courts located in the Commonwealth of
Massachusetts in connection with any dispute or any claim related to any dispute.
This offer will expire at the close of business, December 26, 2022, unless accepted by you prior to that time. This offer
and your continued employment is contingent upon the successful completion of a background check and satisfactory
reference check.
We are excited at the prospect of your joining our team. Feel free to contact me if you have questions or if you need
any additional information.
Sincerely,
Karen Lewis
Chief People Officer
Apellis Pharmaceuticals, Inc. ACCEPTED AND AGREED:
Name : Caroline Baumal, M.D.
12/25/2022Date :
EXHIBIT A
Approved Outside Activities
Speaking Engagements
1.
Hawaii Retina (January 16-19, 2023)
Moderator-Pediatric retina/tumor/uveitis, talk-pediatric retinal detachment Will be working with the
Apellis team
2.
Fuji Retina (Tokyo, March 25-26, 2023)
Talks-Complement inhibition in GA and pediatric retinal detachment
3.
Macula Society (February 23, 2023)
Talk- Update on TKI inhibitor for wet AMD
4.
Angiogenesis – Virtual (February 10-11, 2023)
Talk- update on faricimab (for diabetic Macular edema and wet AMD)
5.
Investigator Meeting – (February 10-11, 2023) - Faricimab update
6.
Johns Hopkins - Vail retina meeting
"Faricimab and High-Dose Aflibercept: Newest Anti-VEGF Agents on the Block, "Port Delivery Systems for
Retinal Diseases
7.
Wade Hanson meeting (Boston February 23, 2023) – Complement in GA
Consulting Engagements
1.
CROs – Ora, Infocus
2.
Data safety monitoring – Regenexbio
3.
Consulting
Surgical – Alcon, DORC, Zeiss, B and L, I Luemns
Consultant – Roche/Genentech, Regeneron, Apellis, Eyepoint, Ocuphire, Ocuterra, Opthea, Allergan
Certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) is the type of
information that the registrant treats as private or confidential. Double asterisks denote omissions.
SIXTH STREET LENDING PARTNERS
2100 McKinney Avenue, Suite 1500
Dallas, Texas 75201
PERSONAL AND CONFIDENTIAL
June 30, 2025
Apellis Pharmaceuticals, Inc.
100 5th Avenue
Waltham, MA 02451
Timothy Sullivan, Chief Financial Officer
Mark DeLong, Chief Business & Strategy Officer
Amended and Restated Fee Letter
Dear Ladies and Gentlemen:
Reference is hereby made to (a) the Financing Agreement, dated as of May 13, 2024 (as amended, restated,
replaced, supplemented or otherwise modified from time to time, the "Financing Agreement"; terms not otherwise defined herein
shall have the meaning set forth in the Financing Agreement or the Consent (as defined below), as applicable) by and among
APELLIS PHARMACEUTICALS, INC., a Delaware corporation ("Borrower"), certain Subsidiaries of Borrower, as Guarantors,
the lenders from time to time party thereto (the "Lenders") and SIXTH STREET LENDING PARTNERS ("SSLP"), as
administrative agent for the Lenders (in such capacity, "Administrative Agent") and (b) the Consent No. 1 to the Financing
Agreement, dated as of the date hereof (the “Consent”), by and among Borrower, the other Loan Parties party thereto, the
Lenders party thereto and Administrative Agent.
Borrower and Administrative Agent hereby agree to the following:
1.
Borrower agrees to pay to Administrative Agent, solely for its own account, an administration fee (the
“Administration Fee”) in an amount per year equal to $[**] payable annually in advance on the Closing Date, and on each
anniversary of the Closing Date thereafter, until payment in full of the Obligations (other than any contingent obligations or
liabilities thereunder that by the express terms thereof survive such payment in full of all Obligations) under the Financing
Agreement, or otherwise as agreed by Borrower and Administrative Agent.
2.
As consideration for the services, agreements and undertakings of each Lender that is Sixth Street Lending
Partners, Sixth Street Specialty Lending, Inc. and TAO Talents, LLC (each a “Sixth Street Lender” and collectively the “Sixth
Street Lenders”) under the Financing Agreement, Borrower agrees to pay (or cause to be paid) to Administrative Agent, for the
account of each Sixth Street Lender, on the Closing Date, a fee equal to (x) [**]% of the aggregate principal amount of Initial
Term Loans of each such Sixth Street Lender that is actually funded under the Financing Agreement on the Closing Date (the
“Initial Term Loan Arrangement Fee”) and (y) [**]% of the aggregate principal amount of the Delayed Draw Term Loan
Commitments of each
Apellis Pharmaceuticals, Inc.
June 30, 2025
Page 2
such Sixth Street Lender as of the Closing Date (the “Delayed Draw Arrangement Fee” and, together with the Initial Term Loan
Arrangement Fee, the “Arrangement Fee”). The Arrangement Fee shall be fully earned and shall be paid (and once paid shall be
non-refundable) on the Closing Date. For the avoidance of doubt, the Arrangement Fee may, in each Sixth Street Lender’s sole
discretion, be netted out of the proceeds of the Initial Term Loans funded on the Closing Date by such Sixth Street Lender.
3.
Borrower agrees to pay (or cause to be paid) to Administrative Agent, for the account of each Sixth Street
Lender on the Closing Date, an upfront fee in an amount equal to [**]% of the aggregate principal amount of the Initial Term
Loans funded on the Closing Date by each such Sixth Street Lender (the “Sixth Street Upfront Fee”), which is fully earned and
due and payable to Administrative Agent, for the account of each such Sixth Street Lender, on the Closing Date. For the
avoidance of doubt, the Sixth Street Upfront Fee may, in each Sixth Street Lender’s sole discretion, be netted out of the proceeds
of the Initial Term Loans funded on the Closing Date by such Sixth Street Lender.
4.
Borrower agrees to pay (or cause to be paid) to Administrative Agent, for the account of each Sixth Street
Lender making Delayed Draw Term Loans, as of the funding date of the Delayed Draw Term Loan, a funding fee (the “Delayed
Draw Upfront Fee”) equal to [**]% of the aggregate principal amount of the Delayed Draw Term Loan actually funded on such
date, which shall be divided among such Sixth Street Lenders based on their pro rata share of the amount of the Delayed Draw
Term Loan actually funded on such date, which will be fully earned and due and payable to such Sixth Street Lenders on, and
subject to the occurrence of, the funding date of Delayed Draw Term Loan.
5.
Borrower agrees to pay (or cause to be paid) to the Administrative Agent, for the account of each Lender
holding Delayed Draw Term Loan Commitments, a commitment fee (the “Delayed Draw Commitment Fee”) at a rate per annum
equal to [**]% on the average daily undrawn portion of the Delayed Draw Term Loan Commitment, payable monthly in arrears
on the last Business Day of each fiscal month of Borrower, calculated based upon the actual number of days elapsed for the
period from and including the Closing Date to but not including the Delayed Draw Commitment Termination Date. The Delayed
Draw Commitment Fee shall be distributed to such Lenders pro rata in accordance with the amount of each such Lender’s
Delayed Draw Term Loan Commitment as of such date.
6.
If, on or prior to the twelve (12) month anniversary of (i) with respect to the Initial Term Loan, the Consent
Effective Date (as defined in the Consent) and (ii) with respect to the Delayed Draw Term Loan, the funding date of the Delayed
Draw Term Loan (each of the foregoing clauses (i) and (ii), as applicable, a “Funding Date”), Borrower pays (or is deemed to pay
in the case of an acceleration of the Loans), for any reason (including, but not limited to, any optional or mandatory payment
after the occurrence of an Event of Default or after acceleration of the Term Loans including in connection with the
commencement of any Insolvency Proceeding or other proceeding pursuant to any Debtor Relief Laws), all or any part of the
principal balance of any Term Loan, Borrower shall pay to Administrative Agent, for the ratable benefit of all Lenders entitled to
a portion of such prepayment, an amount (the "Yield
Apellis Pharmaceuticals, Inc.
June 30, 2025
Page 3
Maintenance Premium") equal to (A) the aggregate amount of interest (calculated, in the case of all SOFR Loans, using Term
SOFR for an Interest Period of three months) (including, without limitation, interest payable in cash, in kind or deferred) which
would have otherwise been payable on the amount of the principal prepayment from the date of prepayment (or deemed
prepayment in the case of an acceleration of the Loans) until the twelve (12) month anniversary of the applicable Funding Date
discounted at the Treasury Rate plus [**]%, plus (B) an amount equal to the Prepayment Premium that would otherwise be
payable as if such prepayment (or deemed prepayment in the case of an acceleration of the Loans) had occurred on the day after
the twelve (12) month anniversary of the applicable Funding Date. Notwithstanding the foregoing, to the extent the Yield
Maintenance Premium becomes due and payable as a result of the occurrence of an Event of Default or acceleration of the Loans
(including in connection with the commencement of any Insolvency Proceeding or other proceeding pursuant to any Debtor
Relief Laws), the interest rate to be used in calculating the Yield Maintenance Premium pursuant to clause (A) of the preceding
sentence shall be the interest rate applicable to Base Rate Loans plus [**]% per annum for the period from the occurrence of such
Event of Default or acceleration (including in connection with the commencement of any Insolvency Proceeding or other
proceeding pursuant to any Debtor Relief Laws) until the twelve (12) month anniversary of the applicable Funding Date. The
term "Treasury Rate" shall mean, as of any date of determination, a rate per annum (computed on the basis of actual days elapsed
over a year of 360 days) equal to the rate determined by the Administrative Agent on the date [**] prior to the date of
prepayment, to be the yield expressed as a rate listed in The Wall Street Journal (or, if such rate is not available in The Wall
Street Journal, such other recognized data source as selected by the Administrative Agent in its sole discretion) for United States
Treasury securities having a term of no greater than the period for the remaining months until the twelve (12) month anniversary
of the applicable Funding Date. Nothing contained in this Section 6 shall permit any voluntary prepayment not otherwise
permitted by the terms of the Financing Agreement.
7.
If Borrower pays (or is deemed to pay in the case of an acceleration of the Loans), for any reason
(including, but not limited to, any optional or mandatory payment after the occurrence of an Event of Default or after acceleration
of the Loans including in connection with the commencement of any Insolvency Proceeding or other proceeding pursuant to any
Debtor Relief Laws), all or any part of the principal balance of any Term Loan during the period commencing with the date
immediately following the 12 month anniversary of the applicable Funding Date and ending on the 36 month anniversary of the
applicable Funding Date (inclusive of such date), in addition to the Yield Maintenance Premium set forth above (if any),
Borrower shall pay to Administrative Agent, for the ratable benefit of all Lenders entitled to a portion of such prepayment a
prepayment premium (the "Prepayment Premium") on the amount so prepaid (or deemed prepaid in the case of an acceleration of
the Loans) as follows:
Apellis Pharmaceuticals, Inc.
June 30, 2025
Page 4
Relevant period (number of calendar months
elapsed since the applicable Funding Date)
Prepayment
Premium
as
a
percentage of the amount so
prepaid
After the 12 month anniversary of the applicable
Funding Date but on or prior to the 24 month
anniversary of the applicable Funding Date
[**]%
After the 24 month anniversary of the applicable
Funding Date but on or prior to the 36 month
anniversary of the applicable Funding Date
[**]%
After the 36 month anniversary of the applicable
Funding Date
[**]%
8.
Without limiting the generality of the foregoing, it is understood and agreed that if the Obligations are
accelerated for any reason, including because of default, the commencement of any Insolvency Proceeding or other proceeding
pursuant to any Debtor Relief Laws, sale, disposition or encumbrance (including that by operation of law or otherwise), the Yield
Maintenance Premium, if any, and the Prepayment Premium, if any, determined as of the date of acceleration will also be due
and payable as though said Indebtedness was voluntarily prepaid as of such date and shall constitute part of the Obligations, in
view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of each Lender's lost profits as a result thereof. Any Yield Maintenance Premium and Prepayment
Premium payable in accordance with the immediately preceding sentence shall be presumed to be the liquidated damages
sustained by each Lender as the result of the early termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Yield Maintenance Premium, if any, and Prepayment Premium, if any, shall also be payable (i) in the
event the Obligations (and/or the Financing Agreement or the Notes evidencing the Obligations) are satisfied or released by
foreclosure (whether by power of judicial proceeding or otherwise), deed in lieu of foreclosure or by any other means and/or (ii)
upon the satisfaction, release, payment, restructuring, reorganization, replacement, reinstatement, defeasance or compromise of
any of the Obligations (and/or the Financing Agreement or the Notes evidencing the Obligations) in any Insolvency Proceeding
or other proceeding pursuant to any Debtor Relief Laws, foreclosure (whether by power of judicial proceeding or otherwise),
deed in lieu of foreclosure or by any other means or the making of a distribution of any kind in any Insolvency Proceeding or
other proceeding pursuant to any Debtor Relief Laws to the Administrative Agent, for the account of the Lenders, in full or
partial satisfaction of the Obligations. BORROWER EXPRESSLY WAIVES THE PROVISIONS OF ANY PRESENT OR
FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING YIELD
MAINTENANCE PREMIUM AND PREPAYMENT PREMIUM IN CONNECTION WITH ANY SUCH ACCELERATION
INCLUDING IN CONNECTION WITH ANY VOLUNTARY OR INVOLUNTARY
Apellis Pharmaceuticals, Inc.
June 30, 2025
Page 5
ACCELERATION OF THE OBLIGATIONS PURSUANT TO ANY INSOLVENCY PROCEEDING OR OTHER
PROCEEDING PURSUANT TO ANY DEBTOR RELIEF LAWS OR PURSUANT TO A PLAN OF REORGANIZATION.
Borrower expressly agrees that: (A) the Yield Maintenance Premium and Prepayment Premium are reasonable and are the
product of an arm's length transaction between sophisticated business people, ably represented by counsel; (B) the Yield
Maintenance Premium and Prepayment Premium shall be payable notwithstanding the then prevailing market rates at the time
payment is made; (C) there has been a course of conduct between Lenders and Borrower giving specific consideration in this
transaction for such agreement to pay the Yield Maintenance Premium and Prepayment Premium; and (D) Borrower shall be
estopped hereafter from claiming differently than as agreed to in this paragraph. Borrower expressly acknowledges that its
agreement to pay the Yield Maintenance Premium and Prepayment Premium to Lenders as herein described is a material
inducement to Lenders to provide the Commitments and make the Loans and other extensions of credit.
9.
Borrower further acknowledges and agrees that no fees will be paid to any other Lender in connection with
the Financing Agreement and the other Loan Documents except as expressly set forth in the Loan Documents or as may
otherwise be agreed in writing by SSLP. All fees payable hereunder shall be fully earned when due and non-refundable when
paid and shall be in addition to any other fees, costs and expenses payable pursuant to the Financing Agreement or the other Loan
Documents. SSLP reserves the right to allocate, in whole or in part, to any of its affiliates certain fees payable to SSLP hereunder
in such manner as SSLP and such affiliates shall agree in their sole discretion.
10. To the extent permitted by applicable law, Borrower's obligation to pay the foregoing fees will not be
subject to counterclaim or setoff for, or be otherwise affected by, any claim or dispute Borrower may have. In addition, all such
payments shall be made without deduction for any taxes, levies, imposts, duties, deductions, charges or withholdings imposed by
any national, state or local taxing authority (“Taxes”), or, if Borrower is compelled by applicable law to deduct or withhold such
Taxes, such payments will be grossed up by Borrower for such amounts to the extent provided in the Financing Agreement (as if
the payments had been made pursuant to the Financing Agreement).
11. Please note that this Amended and Restated Fee Letter is exclusively for the information of the senior
management of Borrower and may not be disclosed to any third party other than to Borrower's officers, directors, agents and
advisors who are directly involved in the negotiation of the Loan Documents to the extent such persons agree to hold the same in
confidence or circulated or referred to publicly, except to the extent expressly set forth in the Financing Agreement.
12. This Amended and Restated Fee Letter is the “Fee Letter” referred to in the Financing Agreement and shall
be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of
law. If this Amended and Restated Fee Letter becomes the subject of a dispute, each of the parties hereto hereby waives trial by
jury. Borrower agrees that any suit or proceeding arising in respect to this Amended and Restated Fee Letter or any matter
referred to in this Amended and Restated Fee Letter will be
Apellis Pharmaceuticals, Inc.
June 30, 2025
Page 6
tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter
jurisdiction, in any state court located in the City of New York and Borrower agrees to submit to the jurisdiction of, and to venue
in, such courts.
13. This letter agreement amends and restates in its entirety the Fee Letter, dated as of May 13, 2024 (the
“Existing Fee Letter”), between Borrower and Administrative Agent. On the Consent Effective Date, the Existing Fee Letter
shall be superseded and replaced in its entirety by this Amended and Restated Fee Letter.
14. This Amended and Restated Fee Letter may be executed in any number of counterparts, each of which
when executed shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an
executed counterpart of a signature page of this Amended and Restated Fee Letter by facsimile or electronic transmission shall be
effective as delivery of a manually executed counterpart hereof.
[Remainder of page intentionally left blank]
Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the
enclosed copy of this Amended and Restated Fee Letter, which shall become a binding agreement upon our receipt.
Very truly yours,
SIXTH STREET LENDING PARTNERS
By: /s/ Robert Stanley
Name: Robert (Bo) Stanley
Title: President
ACCEPTED AS OF THE DATE ABOVE:
APELLIS PHARMACEUTICALS, INC.
By: /s/ Timothy Sullivan
Name: Timothy Sullivan
Title: Chief Financial Officer
EXECUTION VERSION
FIFTH AMENDMENT TO LEASE
This FIFTH AMENDMENT TO LEASE (this “Amendment”) is entered into this 5th day of September 2025 (the
“Effective Date”) by and between NWALP PHOP Property Owner LLC, a Delaware limited liability company
(“Landlord”), and Apellis Pharmaceuticals, Inc., a Delaware corporation (“Tenant”).
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of April 27, 2017 (the “Original Lease”),
regarding premises consisting of approximately 6,126 rentable
square feet (the “Original Premises”) and situated in that certain building located at 200 Fifth Avenue, Waltham,
Massachusetts;
WHEREAS, Landlord and Tenant entered into that certain First Amendment to Lease dated July 25, 2018 (the
“First Amendment”) pursuant to which Landlord and Tenant amended the Original Lease so as to relocate Tenant from the
Original Premises to certain space in the Building located at 100 Fifth Avenue, Waltham, Massachusetts on the third (3rd)
floor thereof consisting of approximately 22,600 rentable square feet (the “New Premises”);
WHEREAS, Landlord and Tenant entered into that certain Second Amendment to Lease dated June 5, 2019 (the
“Second Amendment”) pursuant to which Landlord and Tenant agreed to expand the Premises so as to rent certain space
located on the sixth (6th) floor of the Building consisting of 8,821 rentable square feet of space (the “Expansion Premises”);
WHEREAS, Landlord and Tenant entered into that certain Third Amendment to Lease dated September 25, 2019
(the “Third Amendment”) pursuant to which Landlord and Tenant agreed to expand the Premises so as to rent (i) certain
space located on the seventh (7th) floor of the Building consisting of 18,140 rentable square feet of space (the “7th Floor
Space”), and (ii) certain space located on the fifth (5th) floor of the Building consisting of 11,856 rentable square feet of
space (the “5th Floor Space,” and together, with the 7th Floor Space, the “Second Expansion Premises”);
WHEREAS, Landlord and Tenant entered into that certain Fourth Amendment of Lease dated as of November 13,
2020 (the “Fourth Amendment”) pursuant to which Landlord and Tenant agreed to expand the Premises so as to rent (i)
certain space located on the sixth (6th) floor of the Building consisting of 12,179 rentable square feet of space (the “Sixth
Floor Expansion Premises,” and together with the Expansion Premises, the “6th Floor Space”), (ii) certain space located on
the lower level of the Building consisting of 3,315 rentable square feet of space, and (iii) certain space located on the lower
level of the Building consisting of 907 rentable square feet of space (items (ii) and (iii), together, the “Lower Level
Expansion Premises”) (the Sixth Floor Expansion Premises and the Lower Level Expansion Premises, collectively, the
“Third Expansion Premises”) (the New Premises, the Expansion Premises, the Second Expansion Premises and the Third
Expansion Premises, collectively, the “Current Premises”) (the Original Lease, as amended by the First Amendment, the
Second Amendment,
EXECUTION VERSION
the Third Amendment and Fourth Amendment, is referred to in this Amendment as the “Lease”); and
WHEREAS, Landlord and Tenant mutually desire to alter the Premises so as to remove the Expansion Space and
the 5th Floor Space , all as further provided for below.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Amendment, the Lease and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree as follows effective as of the Effective Date:
1.
Term. The Expiration Date of December 31, 2026 is extended to December 31, 2029.
2.
Rent. Notwithstanding anything in the Lease to the contrary, as of January 1, 2027, the Basic Rent due
from Tenant to Landlord pursuant to Section 3.1 for the Premises shall be payable as set forth in the
following rent table:
RENTAL PERIOD
ANNUAL BASIC RENT
MONTHLY
PAYMENT
1/1/2027 - 12/31/2027
$2,628,486.00
$219,040.50
1/1/2028 - 12/31/2028
$2,685,627.00
$223,802.25
1/1/2029 - 12/31/2029
$2,742,768.00
$228,564.00
3.
Premises. Notwithstanding anything in the Lease to the contrary, as January 1, 2027: (A) the Premises
shall consist of the following: (i) 22,600 rentable square feet located on the third (3rd) floor of the Building;
(ii) 12,179 rentable square feet of space located on the sixth (6th) floor of the Building; (iii) 18,140 rentable
square feet of space located on the seventh (7th) floor of the Building; and (iv) 4,222 rentable square feet of
space located on the lower level of the Building; and
(B) the Premises Rentable Area shall consist of 57,141 rentable square feet.
4.
Tenant’s Proportionate Share: Notwithstanding anything in the Lease to the contrary, as of January 1,
2027, Tenant’s Proportionate Share shall be thirty-six and four hundredths’ percent (36.4%).
5.
Exhibits: As of January 1, 2027, Exhibit A-(i) [i.e., the Plan of the New Premises], Exhibit A-(ii) [i.e., the
Plan of the Expansion Premises], Exhibit A-(iii) [i.e., the Plan of the Second Expansion Premises], Exhibit
A-(iv) [i.e., the Plan of the Sixth Floor Expansion Premises] and Exhibit A-(v) [i.e., the Plan of the Lower
Level Expansion Premises] shall be deleted and replaced with the plan of the Premises attached to this
Amendment as Exhibit A.
EXECUTION VERSION
6.
Brokers. Each of Landlord and Tenant hereby represents that such party has not dealt with any brokers with
respect to the transactions contemplated by this Amendment other Tenant’s broker, Perry Real Estate (the
“Broker”). Each of Landlord and Tenant hereby agrees to defend, indemnify and hold harmless the other,
and its successors and assigns, against and from all claims, losses, liabilities and expenses including,
without limitation, reasonable attorney’s fees, arising out of any claim by any broker, consultant, finder or
like agent, other than the Broker, which are based upon alleged dealings by such party with respect to this
Amendment. Landlord shall pay a commission to the Broker in connection with this Amendment pursuant
to a separate agreement.
7.
Capitalized Terms. Capitalized terms that are not otherwise defined herein shall have the meaning set
forth in the Lease.
8.
Ratification of Existing Lease Terms. Other than as expressly set forth herein, the terms and provisions
of the Lease are hereby ratified, confirmed and shall remain unmodified and in full force and effect.
9.
Governing Law. This Amendment shall be governed by the laws of the Commonwealth of Massachusetts
without regard to its conflict of law provisions.
10.
Counterpart Signatures. This Amendment may be executed in counterparts, each of which shall constitute
an original document and all of which, together, shall constitute one and the same instrument. Signed copies
of this Amendment or of the signature pages hereto may be exchanged by (a) mail (either United States
Postal Service or via reputable overnight carrier) or (b) Docusign or other similar e-signature commercial
software provided that such e-signature process is initiated by Landlord or, if initiated by Tenant, Tenant
shall provide a certificate of completion for the same that is satisfactory to Landlord. Any such method shall
be equally binding on the parties and shall have the same legal effect as delivery of an original executed
copy of this Amendment for all purposes, and in all circumstances, including, but not limited to, collection,
admissibility, authentication, or any other legal purpose.
[Signatures Appear on the Following Page]
3
EXECUTION VERSION
IN WITNESS WHEREOF, Landlord and Tenant have each caused this Amendment to be executed as of the date
first above written.
LANDLORD:
NWALP PHOP PROPERTY OWNER LLC, a Delaware
limited liability company
By: ALP PHOP Manager, LLC, a Massachusetts limited liability
company, its appointed representative
By: /s/ Brian Chaisson
Name: Brian Chaisson
Title: Manager
APELLIS PHARMACEUTICALS, INC., a Delaware corporation
By: /s/ Cedric Francois
Name: Cedric Francois
Title: CEO
APELLIS PHARMACEUTICALS, INC.
RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Agreement”)
Apellis Pharmaceuticals, Inc. (the “Company”) has selected you to receive an award of restricted stock units
(“RSUs”) pursuant to the Company’s 2017 Stock Incentive Plan (the “Plan”). The terms and conditions attached hereto are
also a part hereof. Terms used in this Agreement which are not defined in this Agreement shall have the meanings used or
defined in the Plan.
Notice of Grant
Name of recipient (the “Participant”):
Grant Date (the “Grant Date”):
Number of RSUs
Vesting Start Date:
Vesting Schedule:
Please confirm your acceptance of this restricted stock unit award and of the terms and conditions of this Agreement
by signing a copy of this Agreement where indicated below.
APELLIS PHARMACEUTICALS, INC.
Accepted and Agreed:
By:
Name: Tim Sullivan
Title: Chief Financial Officer
Signature of Participant
Street Address
City/State/Zip Code
1
APELLIS PHARMACEUTICALS, INC.
Restricted Stock Unit Award Agreement
Incorporated Terms and Conditions
The award of RSUs granted to the Participant hereunder is made pursuant to the Plan.
The terms and conditions of the award of RSUs made to the Participant, as set forth in the Notice of Grant
that forms part of this Agreement (the “Notice of Grant”), are as follows:
1.
Grant of Restricted Stock Units.
The RSUs are issued to the Participant, effective as of the Grant Date set forth in the Notice of
Grant, in consideration of employment services to be rendered by the Participant to the Company.
2.
Vesting Schedule. Unless otherwise provided in this Agreement or in the Plan, the RSUs shall vest in
accordance with the vesting schedule set forth in the Notice of Grant. Any fractional shares that would
otherwise vest as of a particular date will be rounded down and carried forward to the next vesting date
until a whole share can be issued. Upon the vesting of this award, the Company shall deliver, for each
RSU that becomes vested, one (1) share of Common Stock (as defined in the Plan). The Common Stock
shall be delivered as soon as practicable following each vesting date or event set forth in the Notice of
Grant, but in any case, within thirty (30) days after such date or event.
3.
Termination of Employment.
Notwithstanding any other provision of the Plan to the contrary, if the Participant ceases to be an
employee of the Company for any reason or no reason, with or without cause, all of the RSUs that are
unvested as of the time of such cessation shall be forfeited immediately and automatically to the Company,
without the payment of any consideration to the Participant, effective as of such cessation. The Participant
shall have no further rights with respect to any RSUs that are so forfeited. If the Participant is an employee
of a subsidiary of the Company, any references in this Agreement to employment by the Company shall
instead be deemed to refer to employment by or a relationship with such subsidiary.
Notwithstanding any other provision of the Plan, this Agreement or any other agreement (written or
oral) to the contrary, the Participant shall not be entitled (and by entering into this Agreement, hereby
irrevocably waives any such entitlement) to any payment or other benefit to compensate the Participant for
the loss of any rights under the Plan as a result of the termination or expiration of an award in connection
with any termination of the Participant’s employment with the Company.
4.
Transfer Restrictions.
Except as set forth in the Plan, this award may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of law or otherwise.
2
5.
Rights as a Stockholder.
The Participant shall have no rights as a stockholder of the Company with respect to any shares of
Common Stock underlying or relating to any award until the issuance of such Common Stock to the
Participant in respect of such award.
6.
Provisions of the Plan.
This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this Agreement.
7.
Tax Obligations.
(a)Acknowledgments; No Section 83(b) Election. The Participant acknowledges that he or she is
responsible for obtaining the advice of the Participant’s own tax advisors with respect to the award of
RSUs and the Participant is relying solely on such advisors and not on any statements or representations of
the Company or any of its agents with respect to the tax consequences relating to the RSUs. The
Participant understands that the Participant (and not the Company) shall be responsible for the
Participant’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of
the RSUs. The Participant acknowledges that no election under Section 83(b) of the Internal Revenue
Code, as amended, is available with respect to RSUs.
(b)Withholding. The Participant acknowledges and agrees that the Company has the right to
deduct from payments of any kind otherwise due to the Participant any federal, state, local or other taxes
of any kind required by law to be withheld with respect to the vesting of the RSUs. At such time as the
Participant is not aware of any material nonpublic information about the Company or the Common Stock
and is not subject to a blackout period under the Company’s insider trading policy, the Participant shall
execute the instructions set forth in Exhibit A attached hereto (the “Automatic Sale Instructions”) as the
means of satisfying such tax obligation. If the Participant does not execute the Automatic Sale Instructions
prior to an applicable vesting date, then the Participant agrees that, if under applicable law the Participant
will owe taxes at such vesting date on the portion of the Award then vested, the Company shall be entitled
to immediate payment from the Participant of the amount of any tax required to be withheld by the
Company. Notwithstanding the foregoing, if the Participant is unable to execute the Automatic Sale
Instructions prior to one or more vesting dates or events under this RSU Award because the Participant has
been in continuous possession of material nonpublic information about the Company or the Common
Stock or otherwise subject to a blackout period between the Grant Date of the RSU Award and the
applicable vesting date or event, then the Participant acknowledges and agrees that the withholding shall
be satisfied by the Company retaining from the number of shares of Common Stock otherwise issuable to
the Participant on the applicable vesting date or event a number of shares of Common Stock having a fair
market value equal to the amount of withholding tax required to be paid to the Company by the
Participant. The Company is not obligated to, and shall not, deliver any shares of Common Stock to the
Participant until it is satisfied that all required withholdings have been made.
3
8.
Miscellaneous.
(a)No Right to Continued Employment. The Participant acknowledges and agrees that,
notwithstanding the fact that the vesting of the RSUs is contingent upon his continued employment by the
Company, this Agreement does not constitute an express or implied promise of continued employment or
confer upon the Participant any rights with respect to continued employment with the Company.
(b)Governing Law. This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the State of Delaware without regard to any applicable conflicts of laws
provisions.
(c)Participant’s Acknowledgments. The Participant acknowledges that he or she has read this
Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and
the Plan.
4
Exhibit A Automatic
Sale Instructions
The undersigned hereby consents and agrees that any taxes due on a vesting date as a result of the vesting of
RSUs on such date shall be paid through an automatic sale of shares as follows:
(a) Upon any vesting of RSUs pursuant to Section 2 hereof, the Company shall arrange for the sale of
such number of shares of Common Stock issuable with respect to the RSUs that vest pursuant to Section 2 as
is sufficient to generate net proceeds sufficient to satisfy the Company’s minimum statutory withholding
obligations with respect to the income recognized by the Participant upon the vesting of the RSUs (based on
minimum statutory withholding rates for all tax purposes, including payroll and social security taxes, that are
applicable to such income), and the Company shall retain such net proceeds in satisfaction of such tax
withholding obligations.
(b)The Participant hereby appoints the Chief Financial Officer and/ or the General Counsel of
the Company as his attorney in fact to sell the Participant’s Common Stock in accordance with this
Exhibit A. The Participant agrees to execute and deliver such documents, instruments and certificates as
may reasonably be required in connection with the sale of the Shares pursuant to this Exhibit A.
(c) The Participant represents to the Company that, as of the date hereof, he or she is not aware of any
material nonpublic information about the Company or the Common Stock and is not subject to a blackout
period under the Company’s insider trading policy. The Participant and the Company have structured this
Agreement, including this Exhibit A, to constitute a “binding contract” relating to the sale of Common Stock,
consistent with the affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934
under Rule 10b5-1(c) promulgated under such Act.
(d)Notwithstanding the foregoing, the Participant may tender cash sufficient to satisfy the
Company’s minimum statutory withholding obligations with respect to the income recognized by the
Participant upon the vesting of the RSUs (based on minimum statutory withholding rates for all tax purposes,
including payroll and social security taxes, that are applicable to such income) by providing the Company
with written notice and sufficient funds at least five (5) business days before the applicable vesting.
The Participant acknowledges that the Company is not obligated to, and will not, deliver any shares of
Common Stock to the Participant until it is satisfied that all required withholdings have been made.
Participant Name:
Date:
Exhibit 21.1
SUBSIDIARIES OF APELLIS PHARMACEUTICALS, INC.
Subsidiary
Jurisdiction of Incorporation or Organization
Apellis Australia Pty Ltd.
Australia
Apellis Austria GmbH
Austria
Apellis Bermuda Ltd.
Bermuda
Apellis Canada Inc.
Canada
APL DEL Holdings, LLC
United States
Apellis Europe B.V.
Netherlands
Apellis Germany GmbH
Germany
Apellis France S.A.S.
France
Apellis International GmbH
Switzerland
Apellis Ireland Ltd.
Ireland
Apellis Italy S.r.I.
Italy
Apellis Netherlands, B.V.
Netherlands
Apellis Schweiz GmbH
Switzerland
Apellis Sweden AB
Sweden
Apellis U.K. Limited
United Kingdom
Apellis MA Securities, Inc.
United States
APL Sales I LLC
United States
APL PRG I Corporation
United States
APLSPRJ MRS, Inc.
United States
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement Nos. 333-221528, 333-229876, 333-236708, 333-236710, 333-253518, 333-
263100, 333-269888, 333-277381 and 333-285393 on Form S-8 of our reports dated February 24, 2026, relating to the financial statements of Apellis
Pharmaceuticals, Inc. and the effectiveness of Apellis Pharmaceuticals, Inc.’s internal control over financial reporting appearing in this Annual Report on
Form 10-K for the year ended December 31, 2025.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 24, 2026
Exhibit 31.1
CERTIFICATION 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
I, Cedric Francois, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2025 of Apellis Pharmaceuticals, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 24, 2026
By:
/s/ Cedric Francois
Cedric Francois
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATION 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
I, Timothy E. Sullivan, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2025 of Apellis Pharmaceuticals, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 24, 2026
By:
/s/ Timothy E. Sullivan
Timothy E. Sullivan
Chief Financial Officer and Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Apellis Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2025 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Cedric Francois, the Chief Executive Officer and
President of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 24, 2026
By:
/s/ Cedric Francois
Cedric Francois
Chief Executive Officer and President
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Apellis Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2025 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Timothy Sullivan, Chief Financial Officer and
Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 24, 2026
By:
/s/ Timothy E. Sullivan
Timothy E. Sullivan
Chief Financial Officer and Treasurer