| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Apellis Australia Pty Ltd, Apellis Bermuda Limited, Apellis Germany GmbH, Apellis Ireland Ltd, Apellis Netherlands B.V., Apellis Switzerland GmbH, Apellis UK Limited, APL DEL Holdings LLC, APL Sales Corp I, LLC, APL PRG I, Corp., Apellis Cayman Holdings, Ltd., APL DEL Holdings II, LLC and Apellis MA Securities Corp. 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 of America (“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 revenue derived from its collaboration arrangement with ee Note 13, License and Collaboration Agreements for further discussion related to the Sobi Collaboration and License Agreement. The Company accounts for contracts with its customers in accordance with FASB 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 In 2021, the Company’s revenue from net product sales was generated in the United States following the FDA’s approval for marketing of EMPAVELI for the treatment of PNH in May 2021. The Company sells EMPAVELI 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. The Company provides limited right of return to the customers in cases of shipment errors or expiring or defective products. 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 the 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: Distribution Fees : Distribution fees include distribution service fees paid to SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (WAC), fees for data, and prompt payment discounts. The Company does not receive a distinct good or service in exchange for the payment. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized. Chargebacks : Chargebacks are discounts and fees related to contracts with various third-party payers including pharmacy benefit managers, private healthcare insurers and government healthcare programs that 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 these entities. The Company issues credit notes for the chargeback which are applied to future sales. Product Returns : Consistent with industry practice, the Company offers SPs and SDs limited product return rights for shipment errors or expiring or defective 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 (to the extent available), the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry. Licensing and Collaboration 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 our 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. We evaluate 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 . Revenue is recognized when, or as, the Company satisf ies 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 recognize s 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. See Note 13, License and Collaboration Agreements, for further discussion related to the Sobi collaboration agreement. Offering Costs Offering costs represent underwriting, legal, accounting and other direct costs related to the Company’s follow-on offerings and filing of a registration statement on Form S-3 in 2019, and to the Company’s offering of Convertible Notes in 2020 and 2019. Costs were deferred until completion of the follow-on offerings and offering of Convertible Notes, at which time they were reclassified to additional paid-in capital as a reduction of the proceeds. 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, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: development derivative liability, accrued expenses, prepaid expenses, convertible debt and taxes. 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 8, Long-term Debt, Note 10, Marketable Securities, and Note 12, 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 Cash and cash equivalents are defined as cash in banks and investment instruments having maturities of three months or less from their acquisition date. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates the fair value. See Note 12, Fair Value Measurements, for additional information. Accounts Receivable The Company’s accounts receivable primarily arise from product sales. They are generally stated at the invoiced amount and do not bear interest. 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 the 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. The accounts receivable from product sales represents receivables due from the Company’s SPs or SDs. The Company has had no historical write offs of its accounts receivable, and its payment terms are generally 30-65 days. 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, 2021, the credit profiles for the Company’s customers were deemed to be in good standing and an allowance for credit losses was not considered necessary. 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, and freight. The Company primarily uses actual costs to determine the cost basis for its inventory. The Company periodically reviews its inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. The determination of whether inventory costs will be realizable requires estimates by management. The Company does not have any obsolete inventory as of December 31, 2021. Prior to regulatory approval of its product candidates, the Company expensed costs associated with the manufacturing of its product candidates to research and development expense unless the Company was reasonably certain such costs have future commercial use and net realizable value. When the Company believes regulatory approval and subsequent commercialization of our 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. Prior to receiving FDA approval for EMPAVELI on May 14, 2021, the Company included in research and development expense the costs associated with the manufacture of EMPAVELI inventory to be sold upon commercialization. As a result, the manufacturing costs related to the EMPAVELI inventory build-up incurred before FDA approval were expensed, totaling approximately $60.4 million in a prior period and are, therefore, excluded from the cost of goods sold for the year ended December 31, 2021. Development Derivative Liability and Development Liability Prior to obtaining Regulatory Approval, the development derivative liability was recorded at fair value using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The liability was remeasured quarterly with any change in fair value recorded in loss from remeasurement of development derivative liability on the consolidated statements of operations and comprehensive loss. Following the EMA approval obtained on December 15, 2021, the Company will make annual payments to SFJ following pre-determined, fixed payment schedules as set forth in the SFJ agreement and SFJ amendment. The Company made a $4.0 million initial payment to SFJ in June 2021 for FDA approval, and, as of December 31,2021, the remaining annual payments due to SFJ totaled $456.0 million, with the first payment of $5.0 million due in January 2022 and the final payment due in 2027. As the variability of the future payments EMA approval and FDA approval) no longer exist, the Company remeasured the development derivative liability on December 15, 2021 and reclassified it from development derivative liability to development liability, with subsequent accounting to follow an effective interest accretion schedule to the fixed payment amounts. From December 15, 2021 and thereafter until the final annual payment due December 2027, the development liability will be accreted from its initial carrying amount to the total payment amount using the effective interest rate method under ASC 835 over the remaining life of the SFJ agreement. The difference between the carrying amount and the total payment amount is presented as discount to the development liability. The accretion is recorded as interest expense in the consolidated income statement. Foreign Currency The financial position and results of operations of the Company's Australian, Irish and German subsidiaries are measured using the foreign subsidiary’s local currency. 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. The financial position and results of operations of the Company’s Swiss subsidiary are measured and reported in U.S. dollars and transactions are translated to U.S. dollars at the end of the period. 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. Patents Costs incurred in connection with the application for and issuance of patents are expensed as incurred. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases 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 in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. 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, 2021 and 2020, the Company did not have any significant uncertain tax positions. Concentrations of Credit Risk Cash and cash equivalents are the only financial instruments that potentially subject the Company to concentrations of credit risk. Cash and cash equivalents are held at financial institutions in the United States, Netherlands, Switzerland, Australia, Ireland and Germany. The Company is exposed to credit risk in the event of default by the financial institution to the extent that cash and cash equivalent balances recorded in the balance sheets are in excess of the amounts that are insured by the Federal Deposit Insurance Corporation. 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. Net Loss per Share Basic net loss per common share is calculated by dividing net loss by the weighted-average shares outstanding during the period. For purposes of the diluted net loss per share calculation, convertible notes and common stock options are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented. Comprehensive Loss The Company’s components of comprehensive loss other than its net loss, are foreign currency gains/losses recorded from the remeasurement of the long-term intra-entity loan transaction to the Company’s wholly owned subsidiaries, foreign currency gain/loss from the translation of the Company’s wholly owned subsidiaries into U.S. dollars, and unrealized gains and losses on marketable securities. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) |
