The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onFebruary 28, 2022 , which we refer to as the 2021 Annual Report on Form 10-K. This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Please also refer to those factors described in "Part I, Item 1A. Risk Factors" of our 2021 Annual Report on Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.
Overview
We are a commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutic compounds to treat diseases with high unmet needs through the inhibition of the complement system, which is an integral component of the immune system, at the level of C3, the central protein in the complement cascade. We believe that this approach can result in broad inhibition of the principal pathways of the complement system and has the potential to effectively control a broad array of complement-dependent autoimmune and inflammatory diseases. InMay 2021 , theU.S. Food and Drug Administration , or the FDA, approved EMPAVELI® (pegcetacoplan), the first targeted C3 therapy and our first approved product, for the treatment of paroxysmal nocturnal hemoglobinuria, or PNH. EMPAVELI is approved for use in adults with PNH and can be used by patients who are either treatment-naïve or who are switching from C5 inhibitors eculizumab or ravulizumab. We believe that EMPAVELI has the potential to elevate the standard of care in PNH and are seeking to establish EMPAVELI as the preferred first-line treatment for patients. Inthe United States , there are approximately 1,500 patients with PNH currently being treated with C5 inhibitors and another 150 patients who are expected to be newly diagnosed each year. Since our launch of EMPAVELI inMay 2021 throughJune 30, 2022 , we generated$42.9 million in net product revenue from sales. For the three and six months endedJune 30, 2022 , we generated$15.7 million and$27.8 million , respectively, in net product revenue from sales of EMPAVELI. InDecember 2021 , theEuropean Commission , or the EC, approved Aspaveli® (pegcetacoplan) for the treatment of adults with PNH who are anemic after treatment with a C5 inhibitor for at least three months. InJanuary 2022 , systemic pegcetacoplan was also approved for the treatment of PNH inSaudi Arabia andAustralia , and inMarch 2022 , systemic pegcetacoplan was approved for the treatment of PNH in theUnited Kingdom . Systemic pegcetacoplan is currently marketed under the trade name EMPAVELI™ inthe United States ,Saudi Arabia andAustralia and Aspaveli in theEuropean Union andUnited Kingdom . Under our collaboration and license agreement with Swedish Orphan Biovitrum AB (Publ), or Sobi, Sobi has global co-development and exclusive ex-U.S. commercialization rights for systemic pegcetacoplan and initiated the commercial launch of EMPAVELI/Aspaveli in jurisdictions outside ofthe United States during the first quarter of 2022. We have commercialization rights for systemic pegcetacoplan inthe United States . We also are leveraging our expertise in targeting C3 to advance intravitreal pegcetacoplan as the first potential treatment for geographic atrophy, or GA, secondary to age-related macular degeneration, or AMD. Intravitreal pegcetacoplan has the potential to be a breakthrough for patients with GA, a disease that affects approximately one million people in theU.S. and five million people worldwide. Based on the results of our Phase 3 (DERBY and OAKS) and Phase 2 (FILLY) clinical trials of intravitreal pegcetacoplan, we submitted a new drug application, or NDA, to the FDA inJune 2022 with a request for six-month priority review. InJuly 2022 , the FDA accepted the NDA and granted priority review with a Prescription Drug User Fee Act (PDUFA) target date ofNovember 26, 2022 . The FDA stated that it is not planning to hold an advisory committee meeting to discuss the NDA. We also plan to submit a 22
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market authorization application, or MAA, to the
We believe that inhibition of the complement system by targeting C3 may enable a broad range of therapeutic approaches, and that pegcetacoplan has the potential to address the limitations of existing treatment options or provide a treatment option in indications where there currently are none. Under our collaboration with Sobi, we are co-developing systemic pegcetacoplan for cold agglutinin disease, or CAD, and hematopoietic stem cell transplantation-associated thrombotic microangiopathy, or HSCT-TMA, in hematology; C3 glomerulopathy, or C3G, and immune complex membranoproliferative glomerulonephritis, or IC-MPGN, in nephrology; and amyotrophic lateral sclerosis, or ALS, in neurology. We are also evaluating the administration of systemic pegcetacoplan as an approach to enabling adeno-associated virus, or AAV, vector administration for gene therapies. We believe complement inhibition may yield important benefits when used in combination with AAV-delivered gene therapies, such as increasing the safety of AAV-delivered gene therapies, decreasing the required AAV dose needed to achieve a therapeutic effect, and allowing for dosing in patients who have pre-existing antibodies. In collaboration with commercial and academic researchers, we are advancing pre-clinical studies to assess the impact of complement inhibition on AAV-delivered gene therapies. In collaboration with Spark Therapeutics, Inc., we presented pre-clinical data inMay 2022 at theAmerican Society for Gene Therapy Annual Meeting. Lastly, we are developing additional product candidates with other routes of administration and plan to conduct clinical trials of these product candidates, including the combination of EMPAVELI and a small interfering RNA, or siRNA, which may offer the potential to reduce the treatment frequency of EMPAVELI by reducing the production of C3 proteins in the liver. Furthermore, we are collaborating with Beam Therapeutics, Inc., or Beam, on up to six research programs focused on C3 and other complement targets in the eye, liver and brain, using Beam's proprietary base editing technology to discover new treatments for complement-driven diseases. Intravitreal Pegcetacoplan. InSeptember 2021 , we reported top-line data from our Phase 3 clinical program consisting of two Phase 3 clinical trials evaluating intravitreal pegcetacoplan in patients with GA. We refer to these trials as DERBY and OAKS. Monthly and every-other-month treatment with intravitreal pegcetacoplan met the primary endpoint in OAKS, significantly reducing GA lesion growth by 21% (p=0.0004) and 16% (p=0.0055), respectively, compared to pooled sham at 12 months. Monthly and every-other-month treatment with pegcetacoplan did not meet the primary endpoint in DERBY, showing a reduction in GA lesion growth of 12% (p=0.0609) and 11% (p=0.0853) with monthly and every-other-month treatment, respectively, compared to pooled sham at 12 months. In a prespecified analysis of the combined DERBY and OAKS studies, monthly and every-other-month treatment with pegcetacoplan reduced GA lesion growth by 16% (p<0.0001) and 14% (p=0.0014), respectively, compared to pooled sham at 12 months. In a prespecified analysis of the primary endpoint, pegcetacoplan demonstrated a greater effect in patients with extrafoveal lesions at baseline. Patients with GA typically present first with extrafoveal lesions, which then progress toward the fovea where central vision is impacted. Under the prespecified analysis, in the combined studies, monthly and every-other-month treatment with pegcetacoplan decreased GA lesion growth by 26% (p<0.0001) and 23% (p=0.0002), respectively, in patients with extrafoveal lesions compared to pooled sham at 12 months. Intravitreal pegcetacoplan was well-tolerated in both DERBY and OAKS. The pooled rate of new-onset exudations was 6.0% of patients in the monthly treatment groups, 4.1% in the every-other-month treatment groups, and 2.4% in the sham groups. Two cases of confirmed infectious endophthalmitis and one case of suspected infectious endophthalmitis were observed in the study eye out of a total of 6,331 injections (0.047%). Thirteen events of intraocular inflammation were observed in the studies (0.21% per injection). No events of retinal vasculitis or retinal vein occlusion were observed. There were no clinically relevant changes in vision for patients who developed infectious endophthalmitis or intraocular inflammation. InMarch 2022 , we reported longer-term data from DERBY and OAKS showing that intravitreal pegcetacoplan continued to reduce GA lesion growth and demonstrate a favorable safety profile at month 18 (all p-values are nominal). In OAKS, monthly and every-other-month treatment with intravitreal pegcetacoplan reduced GA lesion growth by 22% (p<0.0001) and 16% (p=0.0018), respectively. In DERBY, monthly and every-other-month treatment with intravitreal pegcetacoplan reduced GA lesion growth by 13% (p=0.0254) and 12% (p=0.0332). Further, pegcetacoplan demonstrated marked improvements in DERBY during months 6-12 with reductions of 17% with monthly and 16% with every-other-month treatment compared to months 0-6, and the treatment effects were sustained through month 18. The treatment effects observed in DERBY were comparable with OAKS during months 6-18. The nominal p-values presented in the month 18 results were calculated using the same methodology as the month 12 primary endpoint analysis. 23
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At month 18, pegcetacoplan continued to demonstrate a favorable safety profile, consistent with safety at 12 months and longer-term exposure to intravitreal injections. The rate of infectious endophthalmitis was 0.044% per injection, and the rate of intraocular inflammation was 0.23% per injection. Rates of endophthalmitis and intraocular inflammation continue to be generally in line with those reported in studies of other intravitreal therapies. No events of retinal vasculitis or retinal vein occlusion were observed. The combined rate of new-onset exudations at month 18 was 9.5%, 6.2%, and 2.9% in the pegcetacoplan monthly, every-other-month, and sham groups, respectively. Additional data presented at theAssociation for Research in Vision and Ophthalmology Annual Meeting inMay 2022 showed that monthly and every-other-month intravitreal pegcetacoplan showed a continuous and clinically meaningful reduction in the growth of both extrafoveal and foveal lesions at month 18. We plan to continue the buildout of our ophthalmology team inthe United States with leadership positions in place across medical affairs, marketing and sales, and market access, and we have also begun to build out our European team and affiliates inGermany andAustralia . Systemic Pegcetacoplan. In addition to PNH, for which we obtained approval inthe United States , we are developing systemic pegcetacoplan in several other indications, including C3G, IC-MPGN, ALS, CAD and HSCT-TMA. PNH. InJanuary 2020 , we announced top-line data from the PEGASUS trial, our Phase 3 clinical trial evaluating systemic pegcetacoplan in 80 patients with PNH who exhibited signs of moderate to severe anemia. The PEGASUS trial that showed that pegcetacoplan met the trial's 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). InMay 2021 , we and Sobi announced top-line data from thePRINCE trial, a second Phase 3 clinical trial in patients with PNH who have not been treated with complement inhibitors within three months before entering the trial, which showed that pegcetacoplan met both of the co-primary efficacy endpoints of hemoglobin stabilization and reduction in lactate dehydrogenase or LDH compared to standard of care, which did not include complement inhibitors, at week 26. InMay 2021 , the FDA approved systemic pegcetacoplan for the treatment of adult patients with PNH. EMPAVELI is approved for use in adults with PNH and can be used by patients who are either treatment-naïve or who are switching from C5 inhibitors eculizumab or ravulizumab. We believe that EMPAVELI has the potential to elevate the standard of care in PNH and are seeking to establish EMPAVELI as the preferred first-line treatment for patients. Inthe United States , there are approximately 1,500 patients with PNH currently being treated with C5 inhibitors and another 150 patients who are expected to be newly diagnosed each year. InDecember 2021 , the EC approved Aspaveli for the treatment of adults with PNH who are anemic after treatment with a C5 inhibitor for at least three months. InJanuary 2022 , systemic pegcetacoplan was approved for the treatment of PNH inSaudi Arabia andAustralia , and inMarch 2022 , systemic pegcetacoplan was approved for the treatment of PNH in theUnited Kingdom . Systemic pegcetacoplan is currently marketed under the trade name EMPAVELI™ inthe United States ,Saudi Arabia andAustralia and Aspaveli in theEuropean Union andUnited Kingdom . Under our collaboration and license agreement with Sobi, Sobi has global co-development and exclusive ex-U.S. commercialization rights for systemic pegcetacoplan and initiated the commercial launch of Aspaveli in jurisdictions outside ofthe United States during the first quarter of 2022. We have commercialization rights for systemic pegcetacoplan inthe United States . C3G/IC-MPGN. We have initiated and will continue to lead our registrational program in C3G / IC-MPGN. We dosed the first patient in the NOBLE trial in up to 12 patients with post-kidney transplant recurrence of C3G or IC-MPGN in September of 2021. InJune 2022 , we dosed the first patient in our Phase 3 VALIANT trial. VALIANT is a randomized, placebo-controlled, double-blinded, multi-center Phase 3 trial being conducted in approximately 90 patients who are 12 years of age and older with primary IC-MPGN or C3G. VALIANT is the only study to include both native kidney patients and patients who have recurrent disease after receiving a kidney transplant. ALS. InMarch 2022 , we completed enrollment in MERIDIAN, our randomized, placebo-controlled Phase 2 clinical trial of systemic pegcetacoplan in adults with sporadic ALS. The trial enrolled approximately 250 adults. Trial participants are randomized in a 2:1 ratio to receive pegcetacoplan or placebo while continuing to receive their existing standard of care treatment for ALS. After 52 weeks of blinded treatment, all patients in the study will receive pegcetacoplan. We expect to report top-line data from this trial in mid-2023. CAD and HSCT-TMA. Sobi will lead development activities for a Phase 3 clinical trial in CAD and a Phase 2 clinical trial in HSCT-TMA. In early 2022, Sobi dosed the first patient in the Phase 2 clinical trial of systemic pegcetacoplan in patients with HSCT-TMA. Sobi expects to begin the Phase 3 trial in patients with CAD in the second half of 2022. 24
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Pipeline. We are developing pegcetacoplan in multiple indications and other product candidates targeting C3 through various routes of administration. We plan to conduct clinical trials of these compounds in additional complement-dependent indications.
We plan to advance up to three new product candidates into clinical development in 2023. These candidates include a siRNA treatment designed to reduce the production of C3 proteins by the liver; an oral alternative pathway inhibitor for certain renal conditions; and APL-2006, a novel compound designed to treat both GA and wet AMD by intravitreal administration. We also plan to continue our research activities under collaboration with Beam to develop gene-editing therapies in multiple therapeutic areas. Since our commencement of operations inMay 2010 , we have devoted substantially all of our resources to developing our proprietary technology, developing product candidates, undertaking preclinical studies and conducting clinical trials for pegcetacoplan, building our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, preparing for and executing the commercial launch of our products and providing general and administrative support for these operations. As ofJune 30, 2022 , we had cash, cash equivalents and marketable securities of$852.8 million . We believe that our cash and cash equivalents and marketable securities, along with cash anticipated to be generated from sales of EMPAVELI and committed development reimbursement payments from Sobi, as ofJune 30, 2022 , will be sufficient to enable us to fund our current operations at least into the first quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. For additional information see "Liquidity and Capital Resources." Since the launch of EMPAVELI inMay 2021 throughJune 30, 2022 , we have generated$42.9 million of net product revenue from sales. We have incurred significant annual net operating losses in each year since our inception and expect to continue to incur net operating losses for the foreseeable future. Our net losses were$156.0 million and$219.2 million for the three months endedJune 30, 2022 and, 2021, respectively, and$294.9 million and$402.9 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we had an accumulated deficit of$2.0 billion . Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase significantly particularly as we continue to incur significant commercialization expenses related to building sales, marketing, medical affairs, manufacturing, distribution and other commercial infrastructure associated with the commercialization of EMPAVELI for the treatment of PNH. We are incurring significant expenses for the commercialization and further development of intravitreal pegcetacoplan. In addition, we expect our expenses to increase if and as we continue to develop and conduct our ongoing and planned clinical trials of pegcetacoplan and our other product candidates; initiate and continue research and preclinical and clinical development efforts for any future product candidates; seek to identify and develop additional product candidates for complement-dependent diseases; seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure to commercialize any additional products for which we may obtain marketing approval; require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional personnel, such as clinical, quality control, regulatory and scientific personnel; add operational, financial and management information systems and personnel, including personnel to support our product development and add equipment and physical infrastructure to support our research and development programs and commercialization. We temporarily closed our facilities inMarch 2020 in respect to the COVID-19 pandemic. We have since reopened our facilities, subject to compliance with strict safety guidelines, but many of our employees continue to work remotely. As of the date of this Quarterly Report on Form 10-Q, we do not believe that the COVID-19 pandemic has had a significant impact upon our operations, including sales of EMPAVELI (except to the extent that our representatives' access to the offices of health care providers was limited during the omicron wave of the pandemic), our ongoing clinical trials (except for the delay of the clinical trials for ALS) and the manufacture and supply of our product candidates.
SFJ Agreement
OnFebruary 28, 2019 , we entered into a development funding agreement, which we refer to as the SFJ agreement, withSFJ Pharmaceuticals Group , or SFJ, under which SFJ agreed to provide funding to us to support the development of systemic pegcetacoplan for the treatment of patients with PNH. Pursuant to the agreement, SFJ paid us$60.0 million following the signing of the agreement and agreed to pay us up to an additional$60.0 million in the aggregate in three equal installments upon the achievement of specified development milestones with respect to our Phase 3 program for pegcetacoplan in PNH and subject to our having cash resources at the time sufficient to fund at least 10 months of our operations.
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InSeptember 2019 , we received$20.0 million from SFJ, as the second installment of the additional$60.0 million due to the achievement of a milestone and inJanuary 2020 received the remaining$20.0 million installment of the additional$60.0 million upon the announcement of the results of the PEGASUS phase 3 trial. Under the SFJ agreement, following regulatory approvals by the FDA and the EMA for the use of systemic pegcetacoplan as a treatment for PNH, we paid SFJ$4.0 million in 2021 in connection with the FDA approval inMay 2021 . In 2022, we paid SFJ$16.5 million which consisted of$5.0 million in connection with the EMA approval inDecember 2021 and$11.5 million in connection with the one-year anniversary of the FDA approval, respectively. We are obligated to pay SFJ an additional$439.5 million in the aggregate in six additional annual payments with the majority of the payments being made from the third anniversary to the sixth anniversary of regulatory approval. For the remainder of 2022, we are obligated to pay a total of$18.0 million in connection with the one-year anniversary of the EMA approval.
Collaboration Agreement with Sobi
OnOctober 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 ofthe United States . We retained the right to commercialize licensed products inthe United States , and, subject to specified limitations, to develop licensed products worldwide for commercialization inthe United States . Under the agreement, Sobi made an upfront payment of$250.0 million inNovember 2020 , and agreed to pay up to an aggregate of$915.0 million upon the achievement of specified one-time regulatory and commercial milestone events, including a$50.0 million milestone which would be payable following the first regulatory and reimbursement approval of system pegcetacoplan in any major European country, and to reimburse us for up to$80.0 million in development costs. InJanuary 2021 we received a$25.0 million development reimbursement payment from Sobi and inJanuary 2022 we received a$20.0 million development reimbursement payment. We expect to receive the balance annually in installments over the next two years, subject to certain conditions.European Commission approval of systemic pegcetacoplan for the treatment of PNH was received inDecember 2021 . InMarch 2022 , we earned a$50.0 million payment from Sobi related to the first regulatory and reimbursement milestone inEurope . We considered the reimbursement approval to be probable atDecember 31, 2021 , and recorded revenue at that time. We received the$50.0 million payment inApril 2022 . We are also entitled to receive tiered, double-digit royalties (ranging from high teens to high twenties) on sales of licensed products outside ofthe United States , subject to customary deductions and third-party payment obligations, until the latest to occur of: (i) expiration of the last-to-expire of specified licensed patent rights; (ii) expiration of regulatory exclusivity; and (iii) ten (10) years after the first commercial sale of the applicable licensed product, in each case on a licensed product-by-licensed product and country-by-country basis. We remain responsible for our license fee obligations (including royalty obligations) to theUniversity of Pennsylvania and for our payment obligations to SFJ. Financial Operations Overview Revenue
Our revenues consist of product sales of EMPAVELI and revenues derived from our collaboration arrangement with Sobi.
Revenue is recognized when, or as, we satisfy a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset. For performance obligations that are satisfied over time, we recognize revenue using an input or output measure of progress that best depicts the satisfaction of the relevant performance obligation. Product Revenues
Product revenue is derived from our sales of our commercial product, EMPAVELI,
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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.
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:
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employee-related expenses including salaries, bonuses, benefits and share-based compensation expense related to individuals performing research and development activities;
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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;
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the cost of consultants, including share-based compensation expense; and
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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 because historically we have not tracked or recorded our research and development expenses on a program-by-program basis. 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:
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establishing an appropriate safety profile in preclinical studies;
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successful enrollment in, and completion of clinical trials;
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receipt of marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
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launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; and
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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 progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses including salaries, bonuses, benefits and share-based compensation. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services. 27
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We anticipate that our general and administrative expenses will increase in the future to support the commercialization of EMPAVELI in PNH and, if approved, intravitreal pegcetacoplan, continued research and development activities, potential commercialization of our other product candidates and costs of operating as a public company.
Critical Accounting Policies and 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 withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to product revenue, licensing revenue, costs of research collaboration arrangements, inventory, accrued research and development expenses, convertible notes, capped call transactions and the development derivative liability and development liability, which we described in our 2021 Annual Report on Form 10-K. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, "Critical Accounting Policies and Estimates" in our 2021 Annual Report on Form 10-K. There have been no changes to our critical accounting policies and estimates since our 2021 Annual Report on Form 10-K.
Results of Operations
Three Months EndedJune 30, 2022 and 2021 (in thousands, except percentages) For the Three Months Ended June 30, Change Change 2022 2021 $ % Revenue: Product revenue, net$ 15,654 $ 623 $ 15,031 2,413 % Licensing and other revenue 668 - 668 100 % Total revenue: 16,322 623 15,699 2,520 % Operating expenses: Cost of sales 82 - 82 100 % Research and development 101,661 95,943 5,718 6 % Cost of research collaboration - 50,000 (50,000 ) (100 %) General and administrative 63,203 48,967 14,236 29 % Total operating expenses: 164,946 194,910 (29,964 ) (15 %) Net operating loss (148,624 ) (194,287 ) 45,663 (24 %) Loss from remeasurement of development derivative liability - (21,180 ) 21,180 (100 %) Interest income 1,432 104 1,328 1,277 % Interest expense (8,448 ) (3,767 ) (4,681 ) 124 % Other income/(expense), net 149 (61 ) 210 (344 %) Net loss before taxes (155,491 ) (219,191 ) 63,700 (29 %) Income tax expense 486 - 486 100 % Net loss$ (155,977 ) $ (219,191 ) $ 63,214 (29 %) Product Revenue, Net Our product revenue, net is derived from EMPAVELI sales inthe United States which was launched inMay 2021 . We recognized$15.7 million and$0.6 million of net product revenue for the three months endedJune 30, 2022 and 2021.
Licensing and Other Revenue
Licensing and other revenue includes$0.7 million in royalty revenue from Sobi during the three months endedJune 30, 2022 . We did not recognize any licensing and other revenue for the three months endedJune 30, 2021 . 28
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Research and Development Expenses
The following table summarizes our research and development expenses incurred during the three months endedJune 30, 2022 and 2021 (in thousands, except percentages): For the Three Months Ended June 30, Change Change 2022 2021 $ % Clinical trial costs$ 22,636 $ 29,810 $ (7,174 ) (24 %) Compensation and related personnel costs 39,136 25,913 13,223 51 % Contract manufacturing 13,278 23,842 (10,564 ) (44 %) Sobi development milestone - (9,112 ) 9,112 (100 %) Research / innovation costs 5,086 5,674 (588 ) (10 %) Other development costs 17,452 15,621 1,831 12 % Pre-clinical study expenses 3,916 4,108 (192 ) (5 %) Device development expenses 157 87 70 80 % Research and development expenses 101,661 95,943 5,718 6 % Cost of research collaboration - 50,000 (50,000 ) (100 %) Total research and development expenses$ 101,661 $ 145,943 $ (44,282 ) (30 %) Research and development expenses decreased by$44.3 million to$101.7 million for the three months endedJune 30, 2022 from$145.9 million for the three months endedJune 30, 2021 , a decrease of 30%. The decrease was primarily attributable to the$50.0 million cost of research collaboration associated with the collaboration arrangement with Beam Therapeutics, Inc., or Beam, recorded in the prior period, a decrease of$10.6 million in contract manufacturing expenses due primarily to the timing of drug supply and analytical activity, a decrease of$7.2 million in clinical trial costs due to the completion of our Phase 3 DERBY and OAKS trials, and a decrease of$0.6 million in research and innovation costs. The decrease was partially offset by a$13.2 million increase in personnel related costs due to having more employees in the three months endedJune 30, 2022 , a decrease of$9.1 million in contra research and development expense related to the Sobi transaction, and a$1.8 million increase in other research and development supporting activities primarily driven by regulatory, quality and medical affairs expenses.
General and Administrative Expenses
General and administrative expenses increased by$14.2 million to$63.2 million for the three months endedJune 30, 2022 , from$49.0 million for the three months endedJune 30, 2021 , an increase of 29%. The increase was primarily attributable to higher employee related costs of$7.9 million , an increase in professional and consulting fees and general commercial preparation activities of$4.3 million , higher office costs of$2.0 million , an increase in travel related expenses of$0.9 million , and higher insurance costs of$0.1 million . The increase was partially offset by lower director stock option compensation of$1.0 million . The increase in employee related costs of$7.9 million consisted of a$6.4 million increase in salaries and benefits primarily due to the higher number of employees in the current period, an increase of$1.3 million in recruiting expenses, and$0.2 million related to stock compensation expense associated with the grant of stock options and restricted stock units to employees. The increase in other professional and consulting fees and general commercial preparation activities of$4.3 million was primarily related to higher commercialization related activity of$6.8 million , and was partially offset by a decrease in general professional fees of$2.5 million .
Loss from Remeasurement of Development Derivative Liability
Loss from remeasurement of development derivative liability was$21.2 million for the three months endedJune 30, 2021 . OnDecember 15, 2021 , the development derivative liability was reclassified to development liability and no longer remeasured to fair value at the end of each quarter. See Note 6 Development Liability and Development Derivative Liability in the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the development derivative liability.
Interest Income
Interest income was$1.4 million for the three months endedJune 30, 2022 , an increase of$1.3 million , compared to$0.1 million for the three months endedJune 30, 2021 . The increase in interest income was primarily attributable to purchases of marketable securities during the month endedJune 30, 2022 . 29
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Interest Expense
Interest expense was$8.4 million for the three months endedJune 30, 2022 and$3.8 million for the three months endedJune 30, 2021 . The increase is primarily due to accretion of the development liability discount related to the SFJ agreement in the current period.
Other Income/(Expense), Net
Other income/(expense), net, increased
Income Tax Expense Income tax expense increased by$0.5 million during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase primarily pertained to federal and state income taxes where the utilization of net operating losses and research and development tax credits are limited.
Six Months Ended
For the Six Months Ended June 30, Change Change 2022 2021 $ % Revenue: Product revenue, net$ 27,763 $ 623 $ 27,140 4,356 % Licensing and other revenue 2,940 - 2,940 100 % Total revenue: 30,703 623 30,080 4,828 % Operating expenses: Cost of sales 1,329 - 1,329 100 % Research and development 192,606 179,955 12,651 7 % Cost of research collaboration - 50,000 (50,000 ) (100 %) General and administrative 114,390 89,546 24,844 28 % Total operating expenses: 308,325 319,501 (11,176 ) (3 %) Net operating loss (277,622 ) (318,878 ) 41,256 (13 %) Loss on conversion of debt - (39,487 ) 39,487 (100 %) Loss from remeasurement of development derivative liability - (38,264 ) 38,264 (100 %) Interest income 1,530 237 1,293 546 % Interest expense (16,986 ) (7,941 ) (9,045 ) 114 % Other (expense)/ income, net (140 ) 1,483 (1,623 ) (109 %) Net loss before taxes$ (293,218 ) $ (402,850 ) $ 109,632 (27 %) Income tax expense 1,694 - 1,694 100 % Net loss$ (294,912 ) $ (402,850 ) $ 107,938 (27 %) Product Revenue, Net Our product revenue, net is derived from EMPAVELI sales inthe United States which was launched inMay 2021 . We recognized$27.8 million and$0.6 million of net product revenue for the six months endedJune 30, 2022 and 2021.
Licensing and Other Revenue
Licensing and other revenue of$2.9 million during the six months endedJune 30, 2022 includes$2.1 million in revenue for product supplied to Sobi and$0.8 million in royalty revenue. We did not recognize any licensing and other revenue for the six months endedJune 30, 2021 . 30
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Research and Development Expenses
The following table summarizes our research and development expenses incurred during the six months endedJune 30, 2022 and 2021 (in thousands, except percentages): For the Six Months Ended June 30, Change Change 2022 2021 $ % Clinical trial costs$ 49,434 $ 60,709 $ (11,275 ) (19 %) Compensation and related personnel costs 76,895 50,470 26,425 52 % Contract manufacturing 23,606 45,650 (22,044 ) (48 %) Sobi development milestone (4,993 ) (17,165 ) 12,172 (71 %) Research / innovation costs 9,068 9,352 (284 ) (3 %) Other development costs 32,548 24,717 7,831 32 % Pre-clinical study expenses 5,781 6,027 (246 ) (4 %) Device development expenses 267 195 72 37 %
Research and development expenses 192,606 179,955 12,651 7 % Cost of research collaboration - 50,000
(50,000 ) (100 %)
Total research and development expenses including
cost of research collaboration
Research and development expenses decreased by$37.4 million to$192.6 million for the six months endedJune 30, 2022 from$230.0 million for the six months endedJune 30, 2021 , a decrease of 16%. The decrease was primarily attributable to the$50.0 million cost of research collaboration associated with the Beam arrangement recorded in the prior period, a decrease of$22.1 million in contract manufacturing expenses due primarily to the timing of drug supply and analytical activity, a decrease of$11.3 million in clinical trial costs due to the completion of our Phase 3 DERBY and OAKS trials, and decreases of$0.2 million in research and innovation costs and$0.2 million in pre-clinical study expenses. The decrease was partially offset by a$26.4 million increase in personnel related costs due to having more employees in the six months endedJune 30, 2022 , a decrease of$12.2 million in contra research and development expense related to the Sobi transaction, and a$7.8 million increase in other research and development supporting activities primarily driven by regulatory, quality and medical affairs expenses.
General and Administrative Expenses
General and administrative expenses increased by$24.9 million to$114.4 million for six months endedJune 30, 2022 , from$89.5 million for the six months endedJune 30, 2021 , an increase of 28%. The increase was primarily attributable to an increase in employee related costs of$14.5 million , an increase in professional and consulting fees and general commercial preparation activities of$9.0 million , an increase in travel related expenses of$1.8 million , higher office costs of$1.1 million , and an increase in insurance costs of$0.3 million . The increase was partially offset by lower director stock option compensation of$1.8 million . The increase in employee related costs of$14.5 million consisted of a$7.4 million increase in salaries and benefits primarily due to the higher number of employees in the current period, an increase of$5.2 million related to stock compensation expense associated with the grant of stock options and restricted stock units to employees, and an increase of$1.8 million in recruiting expenses. The increase in other professional and consulting fees and general commercial preparation activities of$9.0 million primarily related to higher commercialization related activity of$10.7 million , partially offset by a decrease in general professional fees of$1.7 million .
Loss on Conversion of Debt
Loss on conversion of debt was$39.5 million for the six months endedJune 30, 2021 . We did not have any conversions of debt during the six months endedJune 30, 2022 . See Note 7 Long-term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the conversion of debt in the six months endedJune 30, 2021 .
Loss from Remeasurement of Development Derivative Liability
Loss from remeasurement of development derivative liability was$38.3 million for the six months endedJune 30, 2021 . OnDecember 15, 2021 , the development derivative liability was reclassified to development liability and no longer remeasured to fair value at the end of each quarter. See Note 6 Development Liability and Development Derivative Liability in the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the development derivative liability.
Interest Income
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Interest income was
Interest Expense
Interest expense was$17.0 million for the six months endedJune 30, 2022 and$7.9 million for the six months endedJune 30, 2021 . The increase was primarily due to accretion of the development liability discount related to the SFJ agreement in the current period.
Other (Expense)/Income, Net
Other (expense)/income, net during the six months endedJune 30, 2022 decreased$1.6 million compared to the six months endedJune 30, 2021 . The decrease was primarily due to foreign currency revaluation losses.
Income Tax Expense
Income tax expense increased by$1.7 million during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase primarily pertained to federal and state income taxes where the utilization of net operating losses and research and development tax credits are limited.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through$1.6 billion in net proceeds from public offerings of our common stock, including our initial public offering, or IPO,$535.8 million in net proceeds from offerings of Convertible Notes, a$250.0 million up-front payment and a$25.0 million development reimbursement payment from Sobi pursuant to the Sobi collaboration agreement,$112.6 million in proceeds from the private placement of shares of our convertible preferred stock prior to our IPO,$140.0 million under the SFJ agreement,$20.0 million in proceeds from borrowings under a term loan facility withSilicon Valley Bank , and$7.0 million in proceeds from our issuance and sale of a promissory note. We have repaid the term loan facility and the promissory note in full, and we exchanged$327.2 million of aggregate principal amount of our Convertible Notes for shares of our common stock inJanuary 2021 andJuly 2021 .
In
In
In
InJanuary 2020 , we issued and sold 10,925,000 shares of our common stock in a follow-on offering at a public offering price of$37.00 , including 1,425,000 shares sold pursuant to the underwriters' exercise in full of their option to purchase additional shares of common stock. We received total net proceeds of$381.4 million after deducting underwriting discounts and commissions of$22.2 million and offering costs of$0.5 million .
In
InJanuary 2021 , we entered into separate, privately negotiated exchange agreements with certain holders of our 2019 Convertible Notes. Under the terms of these exchange agreements, the holders exchanged approximately$126.1 million in aggregate principal amount of 2019 Convertible Notes held by them for an aggregate of 3,906,869 shares of our common stock. These exchange transactions closed inJanuary 2021 . 32
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InJuly 2021 , we entered into separate, privately negotiated exchange agreements to modify the conversion terms with certain holders of the Convertible Notes. Under the terms of these exchange agreements, the holders exchanged approximately$201.1 million in aggregate principal amount of Convertible Notes held by them for an aggregate of 5,992,217 shares of common stock. These exchange transactions closed inJuly 2021 . InNovember 2021 , we issued and sold 10,062,500 shares of our common stock in a follow-on offering at a public offering price of$40.00 , including 1,312,500 shares sold pursuant to the underwriters' exercise in full of their option to purchase additional shares of common stock. We received total net proceeds of$380.4 million after deducting underwriting discounts and commissions of$22.1 million and offering costs of$0.6 million . InMarch 2022 , we issued and sold 8,563,830 shares of our common stock in a follow-on offering at a public offering price of$47.00 , including 1,117,021 shares sold pursuant to the underwriters' exercise in full of their option to purchase additional shares of common stock. We received total net proceeds of$380.1 million after deducting underwriting discounts and commissions of$22.1 million and offering costs of$0.3 million . InJuly 2022 , we entered into separate, privately negotiated exchange agreements with certain holders of Convertible Notes pursuant to which the holders exchanged approximately$98.1 million in aggregate principal amount of Convertible Notes held by them for an aggregate of 3,027,018 shares of common stock. These exchange transactions closed inAugust 2022 . Following closing of the exchange transactions, there was$93.9 million in aggregate principal amount of Convertible Notes outstanding and held by third parties. We held in treasury Convertible Notes in aggregate principal amount of$425.4 million , which notes had not been cancelled. In addition to our existing cash, cash equivalents and marketable securities, we anticipate cash to be generated from sales of EMPAVELI and committed development reimbursement payments from Sobi. Our ability to earn these milestone payments and the timing of earning these payments is dependent upon the outcome of our research and development and commercialization activities and is uncertain at this time. The capped call transactions that we entered into concurrently with the issuance of the Convertible Notes are expected generally to reduce the potential dilution to our common stock upon any conversion of the 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.
Refer to Note 7 Long-term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q for additional information regarding the convertible notes and capped call transactions.
Cash Flows
The following table provides information regarding our cash flows for the six
months ended
For the Six Months Ended
2022
2021
Net cash used in operating activities
(282,002 ) Net cash used in investing activities (189,020 ) (17,013 ) Net cash provided by financing activities 371,969
6,158
Effect of exchange rate changes on cash,
cash equivalents and restricted cash (365 ) (1,852 ) Net decrease in cash, cash equivalents and restricted cash $ (36,000 ) $
(294,709 )
Net cash used in operating activities was$218.6 million for the six months endedJune 30, 2022 and consisted primarily of a net loss of$294.9 million adjusted for$59.2 million of non-cash items, including share-based compensation expense of$43.3 million , depreciation expense of$0.8 million , accretion of discounts for convertible notes of$0.2 million , accretion of discount to the development liability of$13.3 million , and other liabilities of$1.6 million . Further, it includes a net increase in current operating assets of$16.1 million , an increase in other assets of$15.8 million , an increase in accounts payable of$2.6 million and a decrease in accrued expenses of$17.3 million . 33
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Net cash used in operating activities was$282.0 million for the six months endedJune 30, 2021 and consisted primarily of a net loss of$402.9 million adjusted for$115.1 million of non-cash items, including a loss on early conversion of debt of$39.5 million and a loss from remeasurement of development derivative liability of$38.3 million , share-based compensation expense of$34.2 million , and the forfeiture of accrued interest in the exchange of the 2019 Convertible Notes of$1.7 million , a net increase in current operating assets of$16.2 million , a decrease in other assets of$2.8 million , a decrease in accounts payable of$3.3 million and an increase in accrued expenses of$22.5 million .
Net cash used in investing activities during the six months ended
Net cash used in investing activities during the six months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$372.0 million during the six months endedJune 30, 2022 and consisted primarily of proceeds from the follow-on common stock offering inMarch 2022 of$380.1 million ,$8.8 million proceeds upon the exercise of stock options and$2.5 million proceeds from the issuance of common stock under the employee stock purchase plan partially offset by payments of$16.5 million for the development liability as well as$3.0 million for the payments of employee tax withholding related to equity-based compensation. Net cash provided by financing activities was$6.2 million during the six months endedJune 30, 2021 and consisted primarily of$9.7 million upon the exercise of stock options and$1.7 million sales of common stock under the employee stock purchase plan, offset by$4.0 million for the payment on the development derivative liability as well as$1.2 million for the payment of employee tax withholding related to equity-based compensation.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution of EMPAVELI and pre-commercialization activities related to intravitreal pegcetacoplan for GA. In addition, we expect our expenses to increase as we continue the research and development of, and seek marketing approval for, our product candidates. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or commercialization efforts. We believe that our cash, cash equivalents and marketable securities as ofJune 30, 2022 , along with cash anticipated to be generated from sales of EMPAVELI and committed development reimbursement payments from Sobi, will enable us to fund our operating expenses and capital expenditure requirements at least into the first quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. We are devoting resources to the building of a commercial infrastructure for intravitreal pegcetacoplan for GA. We will incur substantial additional commercialization expenses for intravitreal pegcetacoplan if we obtain regulatory approval for GA. We are also devoting additional resources to the development of our product candidates. We will need to seek additional funding to conduct these activities. Because of the numerous risks and uncertainties associated with the commercialization of EMPAVELI, the development of intravitreal pegcetacoplan and other product candidates, and because the extent to which we may enter into collaborations with third parties for the development of these product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements will depend on many factors, including:
•
our ability to successfully commercialize and sell EMPAVELI in
•
the cost of and our ability to effectively establish and maintain, the commercial infrastructure and manufacturing capabilities required to support the commercialization of EMPAVELI, systemic pegcetacoplan and intravitreal pegcetacoplan 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 pegcetacoplan, and future product candidates;
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•
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 future 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 pegcetacoplan in additional indications or any of our other product candidates that receive marketing approval to the extent such costs are not the responsibility of our 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 the COVID-19 pandemic 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 in
•
the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We currently do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders' ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings 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 disclosure of our contractual obligations and commitments is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations" in our 2021 Annual Report on Form 10-K. See Note 14 Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q for a discussion of obligations and commitments. 35
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