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

All right. Perfect. Welcome, everyone, to the 30th Annual Healthcare Conference for Crédit Suisse. I'm Tiago Fauth, here. I'm a biotech analyst here at Crédit Suisse. We're joined today by Apellis. We have Tim and we have David from the company, and we're going to have a fireside chat. So if you guys want to try to ask in a few questions, you can send them my way, I'll try to work those in. The e-mail is Tiago -- T-I-A-G-O F-A-U-T-H @credit-suisse.com, and we can get started.

So as usual, we can start bigger picture. Updates. Huge year for you guys. I'm sure you're tired of telling the story. You just had your earnings call, but if you can give us a brief introduction, kind of the key catalysts that you had in 2021 and the outlook going forward. And then we'll take it from there.

Yes, sure. So -- and just as a brief background, I'm Tim Sullivan, I'm the Chief Financial Officer. And with me, I have David Acheson here, who runs our U.S. Commercial, have been with the company for about 7 years, and David has been building out our commercial organization in the U.S. for a little over 2 years. So at Apellis, we're a leader in complement. Complement is part of the innate immune system, an old part of the innate immune system that when uncontrolled can result in many different severe diseases. Our focus is on C3, which is the central component of the complement system. And we have a lead drug that was recently approved for systemic administration for paroxysmal nocturnal hemoglobinuria, which is the primary indication for systemic C5, at least historically was the primary and first big indication for the C5 inhibitor class. Our lead drug is a C3 inhibitor, but it's also a C5 inhibitor. And as such, it has a very unique mechanism of action. It's a multimodal mechanism of action. It targets C3 as well as the downstream convertases -- the C3 convertase, the C5 convertase and as a result, has broad complement control. This year was a really big year for us because we got approval in May for that drug, which we call EMPAVELI in the U.S. The trade name will be Aspaveli ex-U.S., but in the U.S., we call it EMPAVELI. And in May, it was approved based on a Phase III program that showed nearly 50% improvement in hemoglobin over the then standard of care Soliris in patients who are anemic while still on C5 inhibitors. And again, we just finished our first full quarter where we achieved $5.3 million in revenue. So a strong start to the launch. And so that's been a big year for us from a commercial perspective, making us a fully integrated biopharmaceutical company. But we also had a huge readout in our Phase III program for geographic atrophy that happened in September. Geographic atrophy is the largest -- the leading cause of blindness in people over 50 in the developed world, with about 1.3 million people in the U.S. who have geographic atrophy and around 2 million people in Europe and then sort of 5 million globally in the developed world. So the rest are in the rest of world. So we have that. Results. It's been a huge year for us on both scores. In addition to that, we also have 4 late-stage development programs for the systemic indication of EMPAVELI that are either ongoing or soon to be started. Those are in partnership with our partner for EMPAVELI, which is Sobi. Sobi has the ex-U.S. commercialization rights, and we are codeveloping in C3G, cold agglutinin disease, ALS and hematopoietic stem cell transplant-associated thrombotic microangiopathy. And together, those represent about 34,000 patients in the U.S. on top of the 1,500 patients or so that are addressable with the C5 inhibitor who have PNH in the U.S. And then beyond that, we have research programs. We have several of those we talked about in our R&D Day this summer. We had 4 or 5 we talked about -- which we can talk about more, if you like. And we also announced the partnership for gene editing with Beam for complement diseases. And so we're excited to take all of that forward into 2022.

Cool. No, that's helpful background. And obviously, the bigger focus recently has been on GA readout, right? So wanted to unpack a couple of things there, at least get your latest take on it. So again, you had recently presented a series of post hoc analysis across that data to try to understand a little bit better the outcome. The Phase II FILLY data set look impressive, especially from an efficacy perspective, and you had some differences between OAKS and DERBY in your Phase III. So like could you kind of just highlight at least the most important post-hoc analysis that you think kind of helps to elucidate that? Or any other factors that actually help to explain some of the disparities from a strong Phase II to a Phase III program that had different results between the 2 trials?

Yes, sure. It's a great question.

It's deep question, right?

It's deep question. Exactly. So the one thing I would tell you is that I think what we always knew academically, but what we've really learned in our study, especially when you have a drug that clearly is -- it clearly works. The question, right, when you have this type of data set is, just how do you figure out how well it works? Is the variability in the disease? So I think that we did a number of post-hoc analyses that we put out really pretty quickly that kind of gave a little more color to the topline. So the topline was all pretty much prespecified. There was one analysis that wasn't prespecified, but we showed the 2 individual trials. We showed the pooled data. We showed the safety data, and we showed the extrafoveal data, which was a prespecified analysis of approximately 460 patients or so. So a prespecified large analysis of extrafoveal data. But we also showed, I think, probably the kind of data that, a, helps you figure out where something happened. We can't actually necessarily attribute too much to one thing about what happened with DERBY, but we can kind of narrow in on where it happened. And primarily, that was ex-U.S. in DERBY, as you probably have seen from some of these analyses. But what we tried to do was that to sort of level out the playing field. So there are a couple of really important post-hoc analyses. One was the fellow eye efficacy. That's probably the most important analysis. So in geographic atrophy, when you have 2 patients -- sorry, patients who has geographic atrophy in both eyes, those lesions tend to grow at more or less the same rate. There are some small differences, but they grow more or less at the same rate. And so what we ended up showing in a post-hoc analysis was, you can see very clearly that when you give pegcetacoplan either monthly or every other month, you can get one eye to slow down relative to the progression of the other eye in these bilateral GA patients. And that's a really important analysis because even in a study as big as DERBY, you could have these imbalances that can drive a complex result or a confounding result when you compare it to sham. So having this internal control for the bilateral GA patients gives you a second way to look at the data. And one of the most important things about that is, when you look at the FILLY, DERBY and OAKS, those differences were highly consistent. So again, rather than worry about the baseline characteristics or drivers of the different progressions of the different groups, you have this internal control excluding the sham. And even in the sham, you can sort of show that these eyes tend to grow at the same rate when they're untreated. So that's really important. The second one would be the covariant analysis, which is a way to do that in a sham-controlled sense, but to normalize for these baseline conditions. And just to be very clear, what we saw, we had 8 of these covariants that could drive disease in one direction or another, 8 of these. So it's really hard to prespecify or balance for these in trials. It's just a highly variable disease. And to add to that, when you look at the other really large Phase III program that was run, which was the lampalizumab study, it's done by Roche. They had 3 that they talked about quite a bit. The largest one was GA lesion size. And the GA lesion sizes could -- in the smaller quartile would grow about 1.69 millimeter square, but the largest quartile grew 2.31. That's an enormous difference. If you have an imbalance in that alone, that can explain the difference when you compare one group to sham. So the great normalizer again is the fellow eye analysis, and that's something that we gave way back in the day on FILLY. So it gave us a great deal of confidence in our Phase III program, and we showed it in DERBY [ not very consistent ]. So for us, that's really the crux these post-hoc analyses are actually super, super meaningful, and they give real context to the top line and the other prespecified analyses.

Got it. that's helpful. So -- and perhaps, again, the Phase III program was the first time we actually saw or at least that you explicitly analyzed a pretty distinct treatment benefit between foveal and extrafoveal lesions. Was that something that could have been predicted prospectively? I'm curious what drove that analysis, and if that could actually impact the potential addressable population at all or not?

Well, again, based on our FILLY study that we wouldn't have necessarily predicted that. Again, these are -- these start to get very small numbers when you -- already FILLY is -- it's less than half the size of either DERBY or OAKS. It's 246 patients. It's approximately 80 per group. When you start to get the extrafoveal, you get to be very small numbers. What I will say is, the biggest -- I think the biggest and most reliable natural history study is probably the lampalizumab studies. And if you look at those, the foveal versus the non-foveal, the extrafoveal, grew at pretty different rates. So you could definitely tell that one grew faster than the other, but we couldn't tell necessarily whether our drug would work better in one or another. And so the answer is, no, we couldn't tell.

Got it. So -- but now that you have established that benefit, is it more about just having greater efficacy and faster growing lesions and having some benefit in slower growing lesions? Is that the right way to think about that? Distinction mechanistically and biologically or is there any other way to assume that the response was greater in that subset?

So I think it's clear that there is a bigger benefit in extrafoveal, but we also think there's a meaningful benefit in the foveal lesions. It's really -- we looked at a really diverse patient population in this study. We enrolled all comers. So whether they had -- as long as they fit that 1 to 7 disc area, enrollment criteria in terms of the lesion size, didn't matter if they had fellow eye, CNV. It didn't matter if they had foveal or subfoveal. We really wanted to look at an exemplary population. And we think, overall, yes, extrafoveal does benefit probably, and you look at this, it looks much more like FILLY, right? It looks much more like the 20% to 29% you saw in FILLY. This is 23% every other month, 26% monthly. These are really strong and clinically meaningful data, but we also think there needs to be a solution for these patients who still retain vision, especially those who are losing that last portion of their central vision, it's important to give them an option as well.

That's fair. So yes, then and honestly, again, relative to initial expectations, perhaps, the DERBY and OAKS did show a pretty amenable safety profile, right? So can you contextualize the rate of inflammation that you saw? How does that compare to other intravitreal therapies out there? And then to be clear, just there's some variability depending on how you want to classify CNVs or the exudations. How comparable is the FILLY data versus DERBY and OAKS? Or how much did that criteria change based off of some of the learnings from the FILLY study?

Okay. So I'll start with the first part of that question, which is the rates of the other kind of AEs you typically see with an intravitreal administration and this goes for the VEGF inhibitors, right? The rates of endophthalmitis and the rates of intraocular inflammation. So in both cases, those were generally in line with the reported studies for other intravitreal therapies. I don't think anybody -- we never certainly been heard anybody raise a flag around those. We had a little bit more of that in the endophthalmitis, in the FILLY study, then I think we had 2 cases or something. So people were initially worried about that.

Just a small sample size, yes.

Obviously, small sample size and who knows. And I think, to some extent, the same goes for what happened in FILLY. In FILLY, after 12 months, we had 16% exudations. In the monthly arm, 6% in the every other month and 1% in sham. And so those numbers, I think, raised some concern around the safety risk for administration of pegcetacoplan. And maybe in some cases, people thought it may limit the use. Those again were pretty small numbers when you start to have an incidence of this type of AE, but FILLY was designed or was enrolled at a time when the lampalizumab Roche study were being enrolled. And those studies excluded patients with contralateral history of CNV. So we ended up getting in the FILLY study, we think a higher proportion of patients. So we had roughly 40% of patients who had a history of wet in the contralateral eye. And what we know is that those patients have roughly 4% to 5% -- 4 to 5x higher rate of exudation in the eye that doesn't have that history, right? So we had a huge number of patients, and so we think that's what probably drove that. And once you went into the Phase III studies, we had a more normal 20%. And we also had a situation where the treating physicians were not the same physicians that were calling the exudations. But in both cases, both in FILLY as well as in DERBY and OAKS, those are physician reported. How they're reported, how they're diagnosed, how they're called, it's all the same. We did change the terminology though. So initially, we called those -- and I think it was a real disservice not only to us but to the situation we called this wet AMD.

Wet AMDs, yes.

I think you remember that, right?

I totally remember that. We spent a lot of time discussing...

Talked about shooting yourself in the foot with terminology. So that was not the wisest of choices because we are the ones who coined it, but these are all generally small exudates, right? So we ended up calling these exudations, which is what they really are. These were not classical CNV. In fact, in FILLY, we had -- in all of these cases that were diagnosed as having -- officially having CNV [ were a cult ]. So they weren't classical, the kind that you think of when you think of a massive leak in the eye, and yet that terminology implied that. So we ended up reclassifying these as a name as exudative AMD or exudative events. And so, yes, we changed the name, but everything else is the same.

And I appreciate the clarification. And obviously, I mean, the big question is the regulatory plan going forward. And you guys did speak to that in the last earnings call. So you do expect to have a meeting with FDA pretty shortly. So the idea there is just basically try to understand if you're either going to need the 24-month data or to run another trial? Is that kind of the expected outcome of that meeting? How explicit do you think you're going to get in terms of guidance on the potential approvability of the regulatory package as is, given that -- I don't know how much data you actually provide ahead of time for that discussion.

Yes. Well, look, I mean, so when -- in our interactions with FDA and it's like everybody else, those are very much standard. What we do is, we prepare a very detailed briefing book on the data we have available for FILLY, DERBY, OAKS. We say, we think this is the package that gives you the visibility and the understanding. These are three, we think large well-controlled trials. These are the things that we think are evaluable for potential approval and then we have a discussion, and hopefully, they will agree with that. And the implication being, if they do think that we wouldn't need to run another study or we wouldn't need to wait for, let's say, 24-month data to incorporate that into the NBA. And I think there's certainly a lot of investor speculation around that, but it is diametrically opposite what our view is on this. And I think that regulatory clarity, depending on what it is, could go a long way to dispelling those concerns.

Yes, absolutely fair. And perhaps, somewhat related to that. So again, you had a couple of different data points. You do believe the totality of the data kind of supports an approvable product. Relative to your initial expectations for -- based on the FILLY trial, has anything changed relative to the potential market opportunity? Or how broadly addressable it could be for geographic atrophy, against there is always some expectations of perhaps a lower benefit with a larger sample size. So curious how you feel about that product profile that you have right now that you think is potentially approvable? And how that will do commercially relative to your initial expectations? If that changes at all, maybe the demand is inelastic, right? So -- but I'm curious in that spectrum, how you feel about that.

So commercially, we don't believe that the data -- actually, the data has been very well received at Retina Society, ASRS or AAO this week. It's been super exciting because, remember, this has not been done by anyone up to this point time, right? We don't think the addressable market changes for us because we've got foveal and extrafoveal data. 85% of the patients, the fast progressors that you talked about earlier, are extrafoveal or have extrafoveal lesions. And we think that, that market in both situations is going to remain the same for us. The other thing, too, is just keep in mind compliance, I think one of the things that we're hearing from these physicians is, there's been 0 choice for patients today. So patients want treatment. Physicians want to help the patients. We believe compliance, whether it's every month or every other month, is going to be suitable and patients will stick to it. So we don't look at the market any different than we did before the data readout. As a matter of fact, we're probably -- I can tell you, commercially, we're more excited because we're talking to customers now and physicians that are telling us, they're excited that they're working on something.

Got it. Perfect. I appreciate those -- color there. So yes, I know we spent a lot of the time discussing geographic atrophy, but I do want to highlight some other aspects of the business. I think your first update this last quarter for the PNH has been really well received, right? So there was a lot of speculation relative to which patients would actually utilize this drug. Some questions about the delivery device and the dosing regimen. We'd love to get a little more granular or any sort of feedback that you've received so far. And how much do you think there's going to be a read-through from this first quarter of launch relative to how they expected ramp-up should look like?

Yes. No, that's great. Thank you. So first of all, we're very excited about where EMPAVELI has taken off in regards to our initial few months of launch. It's still early, right? And there's still a lot to be done. But let me just level set a couple of things around the marketplace and how we looked at it from a patient perspective. So there's about 1,500 patients in the space that are treated for PNH today. About 500 of them are high on transfusion dependency and low hemoglobin, so less than 10, which is about 1/3 of the total patient population. That's been our initial significant focus. Well remember, though, the label is very broad. So we can go for low hemoglobins. We can go for anyone else, mostly on the product, it feels like they can benefit from it. And we can also have an opportunity for naive patients to step in and be treated right away, which is also -- we've seen some short forms that have come through for naive patients as well. About -- the majority of our patients are coming over as a C5 switch. About 70% of them are coming from Ultomiris, which is really good news for us. And I can tell you, anecdotally, when you talk to patients, we actually had a patient speaker, who's been moved over to EMPAVELI for the company at last week. Her hemoglobin was a 7. It's now at 13.5, okay? Think about that. And she just started treatment within the last couple of months. So the story is that she can tell you what she's able to do and her quality of life is significantly different than it used to be. When you think about some of the pushback that you were asking around in regards to treatment at home, subcu, self-infusion, those type of things, we've got a whole nurse team. We've got a group called Apellis Assist, that's attached to our specialty pharmacy. We've got a nurse team that goes in homes and trains. As soon as the patient sees it, understands it's not a large needle, it's very small, it's easy to do. Within the majority of patients are trained once and they are okay to go on their own. Sometimes we'll do a second training via a webcast or something like that from a nurse to one of the -- from the care educators to one of the patients. So it's been very good. And the other thing is that's real positive is our compliance rate has been very high. So we haven't had a lot of patients that have come off the product and super excited about that. I think for the next quarter, it's always that quarter that's a little bit weird because you've got holidays, you've got Thanksgiving, you've got Christmas. I think we're going to continue to see growth in the work that we're doing benefit -- the move that we started to make with the product, but I always caution everybody that the fourth quarter is a little bit unpredictable. But I feel really good about finishing the year strong and going into 2022 with a really strong start.

That's fair. And perhaps, kind of a quick follow-up to that, just related to the new potential body pump that you guys are expecting to develop. It doesn't seem like there is any urgency perhaps on bringing a new pump device for delivery. But if you do choose to go that route to give more options to patients, what would that look like? It's just mostly going to be a human factor study kind of bottleneck. I'm curious how that will look like actually in practice?

Well, Tim, you may want to jump in on the front end of the -- on the commercialization side of it or the patient desire for it, we believe that there's a definite opportunity there. The patients -- this will give them additional flexibility than they have today. The ability to do a wearable, go about your business and then be dosed the way you need to throughout the week. The flexibility continues to remain that we can do more for patients in that situation. And we're hopeful that under the work that we're doing, late '22 , early '23, we've got the opportunity to review that further and have that part available. I don't know, Tim, if you wanted to add anything to that.

No. That was perfect. I would agree with that. We're anticipating filing for approval on that late '22, and so we'll see what suit happens there. But we think that could be a nice thing to have, but really, it comes down to efficacy is what -- as David was saying.

Perfect. Now that, that makes sense. And perhaps, in the last few minutes, I want to talk a little bit about the clinical pipeline, right? So again, you do have multiple programs ongoing right now. Has the current -- I mean you expect to get some visibility on the regulatory pathway going forward, pretty shortly. But as of now, has that outcome kind of changed the potential prioritization between all those programs and execution? I know a lot of those are actually executed by Sobi from a practical perspective. So what you have clinically on the systemic side in terms of those multiple indications, which ones are more interesting? Which ones do you think are going to be a higher priority? Or is everything kind of moving along in tandem? And they're all pretty compelling opportunities by themselves.

So look, the way we look at those pipeline opportunities and the way we've always looked at them is based on everything we know. These are areas where we think targeting complement the way we target complement, which we think is the most powerful complement controlling mechanism, either commercial or in the pipeline. We think these are diseases where this control of complement the way we do it will show a meaningful difference. That's actually starts with GA. But when you look at C3G, ALS, CAD or HSCT-TMA, all of these things are areas where we think targeting C3 has some distinct advantage. And for us, right, that doesn't -- what happens in GA doesn't really impact what we're doing on the systemic side. We're moving ahead on all of those, and we believe in all of them quite a bit. And actually, when you think about it, those are significant increases in patient populations vis-a-vis the...

The PNH population -- there was a lot of debate initially just focused specifically on PNH. And of course, if you have 5 products competing for the same lifting 100. Of course, we were the only C3 kind of in the mix, right? So there was some differentiation there, but point well taken nonetheless. So perhaps just some final thoughts on financing and runway. And honestly, again, recently, you guys had an R&D Day that had a pretty comprehensive vision across multiple different new venues of growth and new areas in complement, honestly, that could be explored. How are you guys thinking about bringing forward some of those programs? Any meaningful changes to timelines as of now? Or honestly, everything is kind of still going until you get some regulatory visibility? And then if necessary, you'll make some choices based off of that. But curious how you're thinking about building out the business in the future as well.

Look, we feel really good about the topic that seems to be taking up most of the air in the room. We feel really good about our potential to get pegcetacoplan approved in GA in the second half of next year. And as a result, we're keeping the gas on everything. One of the true differentiators of this company and it's really been underappreciated is that research engine, right? We have 5 or 6 different modalities for targeting complement for a variety of different diseases. I mean the impact of an uncontrolled complement system for everything from nephrology indications to hematologic to CNS and beyond, we believe very much in those and in the multiple ways we can target those. So I think the statement was really made with our Beam collaboration and nothing has changed. I mean we have a strategy, and we're sticking to it.

Fair enough. Fair enough. I guess we can kind of conclude on those remarks. But again, I appreciate you guys taking the time to talk to us and join our conference. Appreciate all the insight that you gave us today, and have a good rest of the day.

Thank you, Tiago. Thank you very much.

Thanks. Have a great one.

Take care.