Apellis Pharmaceuticals, Inc. (APLS) Earnings Call Transcript & Summary

Good morning. I'm Brian Cheng. I'm the associate on [indiscernible] Mid-Cap Biotech team here at Bank of America. Thanks for joining us at the fireside chat this morning with [Audio Gap] Joining from Apellis this morning is CEO, Cedric Francois; CFO, Tim Sullivan; and CCO, Adam Townsend. Good morning, guys.

Hi, Brian. Thank you for having us.

So before we get to questions about your indications, Cedric, why don't you go ahead and briefly highlight your company's achievement so far and the upcoming catalyst for the investor this year?

Thank you so much, Brian. So for those on the call that don't know our company well, we are a biotech company that's been public for about 2.5 years now. And we are a company focused on the complement pathways, which is an ancient part of our immune system, hundreds of millions of years old, and involved when it's regulated in many immune conditions. When we approached the complement system about a decade ago, we decided that we would try to go after the central mediator of this pathway. It's called complement factor C3. And what is unique about this complement factor C3 is that it sits centrally in this complex cascade, which you can best compare to the coagulation pathway in terms of complexity. And C3 sits centrally and can slow down or activate both -- sorry, I should say, connected C3 can activate all of the effects of complement, regardless of which source of activation there is. So you should think of it as an hourglass, where there are multiple pathways that can activate this highly reactive system, and that can lead to and will lead to multiple effects. Now C3 sits centrally. And by controlling C3, you can, therefore, mediate and control all of the deleterious effects that could come from mis-activation in disease conditions. Now when we engaged in this target about a decade ago, we were facing an important challenge, which is that C3 is highly abundant in the body. There's a lot of it floating, especially inside the vasculature, so much so that if you try to target it with antibodies, it is actually not possible to do that. So we had a challenge on one hand to create and find a molecule that could actually control C3. And #2, if you could, then there were many people that were concerned that, that would be associated with potentially a bad safety profile. Now to balance those preconceptions, we said, look, we believe that we can do it, and we believe that we can do it safely in the whole body and do it chronically over long periods of time. But we also want to offset that risk and go after disease indication where local complement dysegulation, we believe, is involved, where the exposure to C3 is much less and where you would need much less drug to try to have an effect. And that became the eye. So we moved forward on parallel tracks, where, on one hand, we had a systemic program where we try to control, and have now proven that we can control, C3 systemically over long periods of time, potentially and in many conditions, life long. And on the other hand, in a local compartment in the eye in an ophthalmological condition. And then as we chose the conditions to go after, we said, look, let's take a condition in the systemic program where it's very easy to establish proof-of-concept, and that became paroxysmal nocturnal hemoglobinuria, PNH, which is an indication best known for its standard-of-care drug Soliris. And that is a disease in which we saw an important unmet need in the sense that Soliris also targets the complement pathways, but too far downstream. And by doing that, it leaves these patients exposed to severe anemia and transfusion dependency. So we said let's go on a quest to try to solve that important unmet need in these patients. Now on the flip side, in the ophthalmological program, we decided to go after a disease called geographic atrophy, which is a very large indication. There's 1 million patients in the U.S., 5 million patients globally that have the pure form of geographic atrophy, and then many millions more that have a secondary form of that disease. There is nothing that can treat geographic atrophy, and it is one of the leading causes of blindness. And the challenge that we have there is that everything has failed in terms of clinical development. So at the same time, it's also really hard. You have to run large trials to show efficacy in that disease indication, but we felt that the balance between a complex pharmacological issue with an easy proof-of-concept was well balanced with an easy pharmacological issue with a very complex pharmacological readout in ophthalmology. So both of these programs moves forward. And then in 2017, in November, we went public, really on the heels of a robust proof-of-concept in both of these indications. And that's the best way to think of Apellis, where we have a systemic program where we give a lead compound that we call pegcetacoplan twice a week subcutaneous with now a completed Phase III clinical trial in PNH and several other indications that we will take forward into registrational studies, balanced out with 2 very large Phase III clinical trials, 600 patients each, in geographic atrophy, with the readout in the second half of next year that, should it be successful, will make a big difference in patients with that disease. So that's the broad overview of our company. On the corporate side, Brian, maybe as a brief side note, we are about 270 people now. The global footprint we are building out our commercial organization in Europe. Our manufacturing and CMC is in San Francisco, and our main operations are in Waltham Boston.

Great. So maybe first, I just want to touch on a few things related to COVID. So in the earnings press release that you recently announced, you reiterated the enrollment completion for the GA studies midyear. As a lot of the elective business are shut down in the COVID world, how confident are you that you can meet that time line? And can you talk about how you're dealing with patients who have missed doses in the GA side?

Yes. Thank you, Brian. So this is, of course, a very important question, considering that the patients in our geographic atrophy trial are vulnerable subjects. They are older, typically north of 65, 70 years old, sometimes much older. And for these subjects, the risk of exposure to COVID-19 is a very serious effect, as it should be for everyone, but especially that population. We are still confident that we will be fully enrolled by the end of next month. We obviously had a significant slowdown in enrollment in this study, but we were well ahead of schedule. So this trial has enrolled remarkably fast and done really well. So in spite of the slowdown, we still believe that we can meet what we had promised the street, which was to be fully enrolled before the end of next month. #2 is that, as it relates to missing injections, there, too, of course, you make a very important point, which is these subjects are due for a visit. What's going to happen? And we did have a lot of missed injections, as you would expect in the current circumstances. The fortune that we have there is twofolds. On one hand, in the FILLY trial, which was our Phase II clinical trial in geographic atrophy, we did also have a lot of missed injections. For other reasons, there was no proven drug at the time. We had nuance and exudation that made patients discontinue their injections. So -- but we have a deep insight into what we can afford in terms of missed injections in this Phase III clinical trial. And for now, we feel comfortable and confident with the number of missed injections that we have had. We will kind of have the final determination around that in a couple of months when things hopefully will have stabilized and then determine if anything else is needed. But for now, we feel good with where we stand in terms of missed injections and with the enrollment, I think, the end of next month as well. The last piece there is that the pickup that we see now is also very good and meaningful in geographies that were a little bit earlier in terms of shutdowns than the United States. I'm talking about, of course, Europe. We have patients that are getting enrolled in Italy right now, to give you an example. And generally speaking, in the retinal practice, so retinal physicians, especially the private practices, it's important to bear in mind that those practices are not in hospitals typically. They're in somewhere in the street, it's -- these are private practices, where the risk of exposure to SARS-CoV-2 is quite low. And if you do it carefully with good transportation, I call it white plastic glove service, right? We make sure that patients feel safe going to the retinal practice. And don't forget that for retinal specialist, research is now an important source of revenue as well. So that helps us.

Great. Actually, this is the first time where I hear white plastic glove service. Maybe just taking a step back and looking at your company as a whole. What do you think the long-term implication of COVID will be? Is there anything that you're changing in the way that you operate now that will persist even after when things return back to normal?

Everything will change. Everything will change for us. Everything will change, I think, for the whole world and for our industry, right? The great fortune that we had as a company was that the pandemic really struck right between, on one hand, the top line readout in PEGASUS, which was, therefore, not jeopardized, and the close to completion of enrollment in the geographic atrophy trial. So without COVID-19, we would probably have been fully enrolled either the last week of March or the first week of April in our geographic atrophy studies. So that is the -- had it hit last year in September, it would have been very different. So for us, as we were -- as we looked at Apellis in March and how we were focused in terms of execution, first of all, let's make sure that our employees and our patients are protected. We closed the offices very early on. We made sure that everybody was properly installed at home to be able to work from home, meaning including equipment and things like that. We made sure that there was a good communication channel that was established very early on by our great communications team. And all of that, I think, helps kind of soothe the environment internally at the company. Then there was a heroic effort to make drug available in spite of the travel restrictions globally. And one of the proudest things for me is that, in PNH, where missing a dose can be fatal, right? I mean, you can break through hemolytic event, et cetera, not a single patient with PNH on treatment with pegcetacoplan has missed a dose globally. So it was extraordinary accomplishment. So that was our initial focus. Then the focus was to make sure that, as a company, we would get through this and do it properly. And to understand that, and I will bring this up again later as well. There are 3 cornerstones, strategic cornerstones, to our company. The first one is the geographic atrophy readout, doing that in a timely fashion and with good and proper quality. #2, the successful launch in PNH second half of next year, really important in terms of showing what imprint we can have in that disease. And #3, the strategic deployment of pegcetacoplan in next-in-line indications for the systemic pegcetacoplan drug that we had in PNH, what are the next indications where we will deploy that. Those 3 elements are so tightly bound together. They need each other, so to speak, that our financing strategy needed to be in lockstep with that. And that meant for us that making sure that we had the capitalization to not have to cut into either of these 3 pieces was really important. And that's something that we've been very dedicated to. As you may know from our history, we did our convertible note last week to really shore up our balance sheet and be able to do all of these things. As we move forward, being nimble as an organization, being compassionate as an organization and cognizant of the fact that everything changes and, quite frankly, being grateful as an organization for where we are and where we find ourselves. Those are going to be central tenets, and we will evolve with everyone else into whatever the world will look like in a couple of years, hopefully better than it was before.

Okay. So maybe let's start with PNH first. As we're looking into your indications for pegcetacoplan, you have pre-NDA meeting with the FDA expected this quarter. Have you had that meeting with the FDA? And can you remind us what you need to get alignment on from this meeting? And what do you see as a possible outcome from this discussion?

So we will report the meeting minutes before the end of next month, and we have not had the meeting yet. So while we don't give the date, you can do a little bit of math in your head. You know that is not far away. Look, we -- as you will see from the EHA abstract and from the top line data that we presented, the PEGASUS study is a study that, quite frankly, beat our wildest expectations both in terms of efficacy as well as in terms of safety. And I think that sets us up ideally to be able to file with PEGASUS as the one trial in our NDA. As you know, this pre-NDA meeting for us is an important checkbox because we didn't have full clarity from the FDA as it relates to the delta in hemoglobin that we have to show in terms of superiority in order to be able to file with this study alone. These discussions that we had were centered on, is 1 gram per deciliter enough or should it be 2? We showed 3.8 grams per deciliter for superiority, and we are hopeful that, that will be viewed as acceptable by the FDA. So that is what that meeting is about. Again, it's a checkbox item that for us we want to put behind us, and -- but in the meantime, obviously, we have operated completely with the expectation that, that meeting will be successful, and the preparation of the NDA started early January with the top line.

Okay. And what's your plan in Europe? Have you also started the discussion with EMA?

Yes. So with EMA, we did not have that lack of clarity. It was clear what EMA expected. And with PEGASUS, we very much met those expectations. So EMA and the NDA with the FDA are both going on parallel tracks. We're not providing clarity yet on when the filing exactly will happen, but you should expect that in the not-too-distant future as well.

Okay. Going back to your EHA presentation for PEGASUS. The abstract will actually be online, I think, in less than an hour. So maybe, first, how much granularity should we expect from the presentation? And will there be any data beyond the 16-week in the open-label extension?

So there's no data beyond the 16 weeks. That was not the purpose of the EHA presentation. There's really more clarity on -- beyond the top line data that we have. So you will hear about the -- more clarity on the number of units. So a lot that were required, much more deep insights into the efficacy and safety profile, but quite frankly, ultimately, a confirmation and a full confirmation of what we already disclosed in early January.

Okay. As you're looking into the competitors' treatment landscape for PNH, there are several oral inhibitors out there. Some of them are targeting oral -- factor D in a complement pathway. So how do you think about the -- these oral competitors in the landscape? What differentiations do you think pegcetacoplan has compared to these ones that are in the earlier stage?

Yes. So first of all, I think it's a great thing for patients that we have now what looks like oral products that will be able to control the alternative pathway of complement activation, right? I think that there's great medical appeal to that in a number of indications. A couple of important points to bear in mind are the following: there are 3 pathways of activation in complement that center on this complement factor, C3. There's the classical pathway, the mannose-binding lectin pathway and the alternative pathway. And without diving into details as to what each one of those does, these oral products are capable of controlling the alternative pathway. Now depending on which indications you go after, that alternative pathway can be more or less important. It is rarely exclusively important and probably, as far as I know, there's not a single disease that I know where it is truly and exclusively the only role player in pathology. So that's the first point to bear in mind. Because I think when you have a disease, where this regulated complement is primarily driven by the alternative pathway and you want to have a beneficial effect with something that is very practical and easy for patients, then, obviously, an oral product will be highly attractive. Which brings us now to PNH, which is, of course, the first indication, which we will find approval. Now that is an indication where such oral products may be challenging. You have to remember that, in PNH, you are treating a life-threatening disease. There's about 1/3 of patients who pass away every 5 years. It's an indication where, if you have any void, any interruption in the control of complement, you can have what we call breakthrough hemolysis, which can be fatal. So imagine, if you have to take a pill 2 times a day or 3 times a day to control your condition, and if you forget to take it though you may be exposed to one of those breakthrough hemolytic events. We all know how easy it can be to forget to take these pills. In addition to that, the classical pathway does kick in, in PNH, when you have, for example, an infection or something like that. At that point in time is an alternative pathway blockade going to be sufficient in monotherapy to control that? We think that, that requires quite a bit more research to make sure that, that can be done safely. So all of that is in the context of oral alternative pathway inhibitors in a disease like PNH in monotherapy. Now if we talk about combining it with a C5 inhibitor, and a C5 inhibitor can kind of, like Soliris or ULTOMIRIS, on a baseline, can help you control and protect you against breakthrough hemolysis. And then you take an oral product to, in addition to that, control the other forms of hemolysis that C5 does not take care of. And in that case, we believe that these oral products will very much help these patients that are on C5 inhibitors alone, because C5 inhibitors alone simply do not control PNH well. So 5 years from now, I think the choice will be between pegcetacoplan as a monotherapy. And as we've seen from PEGASUS, it's very good and stable way of controlling the disease versus the possibility to do a combination between the intravenous, Soliris or ULTOMIRIS or some of the others that are coming around the corner, in combination with an oral pill that you can take 2 or 3 times a day. And where, in that case, forgetting a pill is not going to be a threat to your life.

Great. So maybe turning to Adam. Adam, so this is a commercial question. So how are you thinking about positioning for your commercial launch in the U.S.? As Cedric has mentioned that in the next, let's say, 5 years from now, there is basically pegcetacoplan as monotherapy and also patients can have options with combo with the oral and also C5 inhibitors. How are you thinking about positioning in that kind of environment? And how big of a sales force that you envision that you would need for a U.S. launch?

Thanks, Brian. It's a great question. So obviously, we'll soon learn how our interactions with the regulatory authorities are and what type of label we'll get. But agnostic to that, I think based on our interactions with physicians and patients, the majority of the first wave of patients we'll get will be likely those that were studied in the PEGASUS. So those patients that are -- need much more of a lift from their current treatment, need to elevate the standard of care a little bit. So those that have a hemoglobin that's much lower, those that are on transfusions struggling with the fatigue that comes with that. I expect in reality that we'll get those type of patients first. And then I think, very quickly, we'll broaden that patient population. So we'll start to step into the patient population where those that don't have transfusions and actually want a step up in hemoglobin. Those that feel fatigued, but their bone marrow's going crazy and they want to shut that down. So I think we'll broaden the population as we progress. And obviously, based on our label, that will hopefully eventually get to a total treatment of PNH indication. So that's how I think the dynamic will play out. And we've got a great opportunity before new competitors enter the market. We have great data to have conversations about. And we're already virtually having those conversations with physicians. In terms of the sales force, we actually have already in the U.S., we have virtual feet on the ground interacting with patients and physicians appropriately. And we expect to execute a super lean and nimble sales force. We know where these physicians are. We've built relationships. We know where the patients are. We're going to do things very differently, because that's how we do things at Apellis. So we're super confident that with a lean and nimble sales force, we can meet the needs of all of these PNH patients and all of the physicians that they go and see.

Great. So maybe turning to geographic atrophy, your second indication for pegcetacoplan. We saw some data -- new data from Phase Ib data -- from a Phase Ib study last month in advanced GA. Cedric, can you give us a recap of that data? And I think, more importantly, how does that read through to your ongoing Phase III GA studies in terms of excitation rates and also the rates of the GA lesion growth?

Yes. Thank you, Brian. So kind of briefly on the background there, we had an issue with inflammation when we started our Phase III clinical trials in September, early October of 2018. Something that happened in the scale-up of the manufacturing that introduced an impurity that was causing that inflammation. And we very quickly identified what we believed was the cause of that, removed it from the product, but then wanted to run a small safety study to make sure that we had indeed successfully done that before restarting Phase III. That became 12 subjects, who -- with low vision who were not eligible for the trial, the Phase III trial itself, and who would be receiving pegcetacoplan with monthly intravitreal injections. It is on those 12 subjects after 1 year of treatment with monthly pegcetacoplan that we reported now, I think it was 2 weeks ago. And while we don't want to read too much into efficacy in geographic atrophy on such a small number of patients, we didn't want to overblow it, so we didn't make a big deal about it. Internally, we're very excited about it. And here is why. What we had in these 9 subjects on whom the images were all available out of those 12 is something that's very intriguing. This is not a controlled study. There's no control group. But there are control eyes. We're fortunate to have -- most people are fortunate to have 2 eyes. And only 1 eye is being treated with pegcetacoplan. Well, these 9 subjects had bilateral geographic atrophy. So they have the disease in both of their eyes, and only 1 is being treated. So we thought wouldn't it be interesting to look at the treated eye and the growth of geographic atrophy compared to the contralateral eye? And why is that so interesting? Well, we know from historical data that eyes in patients with bilateral GA tend to progress at identical rates. That's a well-established fact. As a matter of fact, in the entire history of GA, I'm only aware of 3 groups of patients where the 2 eyes of GA did not progress at the same rates. And it is the 2 active arms of the FILLY study and this Phase Ib study where the eye that was being injected with pegcetacoplan actually started to progress more slowly in terms of retinal degeneration compared to the contralateral eye. And you could say, "Oh, well, that's fantastic, an internal patient control. Why did you not use that in your primary endpoint readout? Why doesn't everybody use that?" Well, the reason for that is that there is something called the fellow eye effect, where when you inject 1 drug with an eye, the other eye may benefit a little bit as well. And we saw that as well, both in the FILLY study as well in this small Phase Ib. But what's most intriguing and gets us most excited, considering that it's a very small patient sample, is that when you look at every historical study in geographic atrophy that I'm aware of, and you look at the progression of GA over the course of 1 year, it is always linear. It's like a [ forest fire ]. There's no change in the pace. There are only 3 groups of patients in the history of GA where the pace changes halfway through the year. And where from month 6 to month 12, the slowdown is more pronounced or there's a pronounced slowdown compared to the first 6 months. And it is, again, the first -- the 2 group, the active groups in the FILLY study and this Phase Ib study. And when you look at the -- and that is, by the way, the exact same temporal manifestation as when you compare in the Phase II FILLY study the groups between each other. So now not looking at the contralateral eye, but looking at the study eye between the different groups. So all of that evidence combined is just very intriguing. And Tim and I were laughing about it the other day because we said, had we done this Phase Ib study before we did the Phase II study in FILLY, then FILLY would have been a confirmation of what we saw in this Phase Ib study. This is kind of upside down. So again, we don't read a lot into this. But internally, it makes us more confident to the extent that, that was needed, that we are doing something good in our Phase II study.

Great. So maybe one more question. So Adam, you have a virtual foot on the ground talking to physicians. And from your conversation with them, is slower rate of lesion growth enough for them to use pegcetacoplan for their GA patients? And how are they viewing the use of it based on severity? And how comfortable are they with these exudation events that you're seeing in -- that you saw in the FILLY study?

Thanks, Brian. So yes, lesion growth. As I said, we are virtually interacting with key opinion leaders, retinal specialists and ophthalmologists around the world. And people see lesion growth as a critical piece of our puzzle in terms of how we get to the market with geographic atrophy. And in our interactions with all of these prescribers and physicians, we obviously see a range of lesion growth. But on average, I think clinical meaningful lesion growth is around 20%. We get some retina specialists that said anything around there is significant in my mind and will be significant for patients. We also see a range lower than that, right? We've had 1 or 2 retina specialists that said "I would see that 10% is reasonable, and I'm super happy to do that." And on the other scale, we have some more that would be like "I want to blow it out of the park." So the majority is around the 10% to 20% lesion growth. Exudations are obviously -- people are much more aware of that now, but they understand that these are not the normal type of exudations, and they're not as severe as people anticipate. And I think people are getting comfortable. And obviously, our data will point towards how they can be addressed as we get into actual commercialization. So the medical affairs team is in the field now discussing all of the data that we have around geographic atrophy. And obviously, as more data comes, we'll do a lot more education. The one thing that comes consistently around our GA program is there is a huge excitement about us coming to market. There are no current treatments. People are super, super thrilled that we have the potential to address this unmet need. And we hear that consistently from patients. They're like "As soon as something is approved, I want to go and get that drug" purely because consistent things. Cedric mentioned the age of some of these patients. We hear consistently that grandkids are so important. The more time I can spend looking at my family, watching them grow up, the better for me. So we get that message from patients, too. So there's a huge excitement there. Obviously, the more data we start to present, and the closer we get, the more we'll interact with all of these GA patients and physicians.

Great. So we're at the end of our 30-minute fireside chat this morning. Cedric, Tim and Adam, thank you so much for joining us this morning in our virtual conference, and I really look forward to talking to you guys soon.

Thank you, Brian.

Thank you, Brian.