APLS 2017 Annual Report

2 PART I Item 1. Business. Overview We are a clinical-stage biopharmaceutical company focused on the development of novel therapeutic compounds to treat disease through the inhibition of the complement system, which is an integral component of the immune system, at the level of C3, the central protein in the complement cascade. 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. We have the most advanced clinical program targeting C3. We believe that our lead product candidate, APL-2, has the potential to be a best-in-class treatment that may address the limitations of existing treatment options or provide a treatment option where there currently is none. APL-2 has already shown activity that we believe is clinically meaningful in clinical trials for two distinct medical conditions—geographic atrophy in age-related macular degeneration, or GA, and paroxysmal nocturnal hemoglobinuria, or PNH— and we plan to conduct clinical trials in additional complement-dependent diseases. In our Phase 2 trial of APL-2 in patients with GA, treatment with APL-2 resulted in a significant reduction in the rate of GA lesion growth over 12 months, and we are planning to initiate a Phase 3 clinical program evaluating APL-2 in patients with GA. In our two ongoing Phase 1b trials in PNH, APL-2 achieved improvements in transfusion dependency, hemoglobin levels and other hematological indicators that we believe are clinically meaningful. We are also developing other novel compounds targeting C3. We hold worldwide commercialization rights to APL-2 and these other novel compounds targeting C3. In GA, we are developing APL-2 to be injected intravitreally as a monotherapy. GA is an advanced form of age-related macular degeneration, or AMD, which is a disorder of the central portion of the retina characterized by progressive retinal cell death that ultimately leads to blindness. GA is a disease with significant unmet need that affects approximately one million patients in the United States and for which there are no U.S. Food and Drug Administration, or FDA, approved therapies. In August 2017, we completed the primary endpoint analysis for the 12-month treatment period in our Phase 2 clinical trial in 246 patients with GA and in February 2018 we completed our analysis of the results for the six-month period following the 12-month treatment period during which patients were monitored and did not receive APL-2. In the Phase 2 trial, APL-2 achieved the primary endpoint of reduction in the rate of GA lesion growth at 12 months. Patients treated monthly with APL-2 showed a 29% reduction in the rate of GA lesion growth compared to sham, with a p-value of 0.008, and patients treated with APL-2 every other month showed a 20% reduction, with a p-value of 0.067. P-value is a conventional statistical method for measuring the statistical significance of clinical results. In our Phase 2 trial, we set statistical significance as a p-value of 0.1 or less, meaning that there is a 1-in-10 or less statistical probability that the observed results occurred by chance rather than as a result of a treatment effect. Because the p-value of these results was less than 0.1, they are statistically significant. Additionally, in a post hoc analysis of the Phase 2 trial, a greater effect was observed during the second six months of the treatment period compared to the first six months. During the second six months, we observed a reduction in the rate of GA lesion growth for patients for whom images were available at six and 12 months of 47% with monthly administration compared to sham, with a p-value of less than 0.001, and a reduction of 33% with administration every other month compared to sham, with a p-value of 0.01. These results are also statistically significant. After the 12 month treatment period, patients were monitored for a further six months without treatment. During this monitoring period, the GA lesions in the previously treated groups grew at a rate similar to sham. Patients for whom images were available at 12 and 18 months who received monthly APL-2 showed only a 12% reduction over the six-month monitoring period compared to sham, while patients who received every other month administration of APL-2 showed a 9% reduction compared to sham. These differences are not considered to be statistically significant. The most frequently reported adverse events in the trial were associated with the injection procedure and are common for intravitreal injections. In addition, during the 12 month treatment period and the six-month monitoring period (18 months total), we observed a higher incidence of new onset exudation, or fluid leakage in the retinas of eyes in which exudation had not previously been observed, in the study eyes treated with APL-2 as compared to sham, predominantly in patients with a history of wet AMD in the non- study eye, or fellow eye. Specifically, we observed that, after the 12 month treatment period and the six-month monitoring period, 21% of patients who received administration of APL-2 every month and 9% of patients who received administration of APL-2 every other month showed new onset exudation in the study eye, as compared to 1% in the sham group. We submitted a safety report to the FDA in April 2017 regarding these events, and the FDA has not communicated any concern or requested additional information with regards to these findings. Patients who experienced new onset exudation in the study eye were discontinued from treatment with APL- 2 and were treated with standard-of-care therapies that inhibit vascular endothelial growth factor, or VEGF, a naturally occurring