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

[Operator Instructions] At this time, it is my pleasure to turn the program over to your host, Tazeen Ahmad.

Okay. Great. Good morning, everybody, and thanks for joining us again at our Bank of America Virtual Biotech Conference. Our next presenting company is Apellis. And we have several members from the management team here with me on this webcast for the next 30 minutes or so. I think everybody knows Cedric and Tim, but I also wanted to also introduce David Acheson, who handles a lot of the commercial responsibilities at the company. David, welcome. Thanks for joining us. As well as our standard bearer Cedric and Tim. So we only have 30 minutes today. So I figure we should just probably go straight into Q&A.

So Cedric, you have this pretty uneventful boring application for GA underway. And I think we get questions about it several times a day. So out of all the ones that I get, the one that I'm going to ask you is the one that I get most frequently, which is, with your decision to submit 24-month data just a few weeks before you're original PDUFA, November 26. I think a lot of us were surprised by your decision to do that. I think you spent a long time now explaining it, and it's logical to us to why you've decided to do it. But did you at any point, with your discussion with FDA whatever that level of discussion was get any indication before you decided to submit the 24-month data that you could get a CRL or that FDA's tone about the application was somehow turning negative?

We did not expect the CRL, and we did this as an unsolicited amendment. So this was -- cannot be more clear than that.

Yes. So the other question -- the other part to that question is you had not yet started label discussion, labeling discussions. Now, traditionally that tends to happen, I don't know, anywhere 4 to 6 weeks before the PDUFA, which is kind of where about you would have been at the time. Did it surprise you that it was odd that you were not yet in that labeling discussion phase? Or was it your intention to not start it because did you feel like by starting it, it would be too far gone to make any changes?

Yes. So we approached the FDA about a month before PDUFA date to discuss this amendment. You have to remember that we did not staff priority review. We had a Type 3 application, which means that the typical priority review is 6 months from the time of acceptance. In this particular case, it comes down to 4 months of review from the time of acceptance. So very condensed timelines and no, we were not concerned.

Okay. So given where you are now, is there anything that you can share about -- are you interacting with the agency with any frequency. You did announce that they accepted your chain from February. They said to you, clearly, they're not planning an AdCom. Has any of that changed?

No, nothing has changed in that regard as well. So this is a very communicative and deliberative body. Dr. Chambers has been there for about 3 decades. Also a very stable division. They had, I think, very little attrition compared to some other divisions during COVID. So had a very stable process all throughout the course.

Okay. That's good to know. Why do you think that they don't feel the need to have an AdCom?

So I mean I'm going to reiterate we discussed when we were in London, which we believe is a combination of factors. I think on one hand, the fact that the data, I think, speaks for itself. Dr. Chambers also has kind of studied this disease for about a decade with his division. Many people know and should know about the collaboration that took about 2 years around 2015 where the FDA and the NIH came together to decide that showing that you can for receptors would be an acceptable endpoint in this disease because the functional endpoints are just very difficult to measure in a disease like geographic atrophy because they don't have the necessary resolution. So I think there's, I think if you put yourself in the shoes of that division, having AdCom on a very complex subject like that, by people that haven't gone through all of that and having put the work into it, I think is a contributing element. I think it also contributes that virtual outcomes are not preferred, but of course, we have one upcoming now for this pediatric indication ROP and then one later in 2023 as well. And then I think, again, the fact that the time lines were so condensed that getting organized on a short time frame is difficult. So I think a bit of everything probably played into this.

Okay. So as we approach February 26, which is the new PDUFA, what are your commercial prep? What type of work are you doing to be prepared? And can you give us a sense of when you would launch? Would you launch immediately after approval?

Yes, that's a great question. Thank you. So our teams, as you know, have been out doing disease state education since the back end of the third quarter, and they'll continue to do that. But that's what they're doing today. We're doing lots of presentations to physicians, really trying to profile the offices and then talking about the disease, which has been hugely helpful. And we've learned a lot, and I think the customers have as well. At the time that we have approval, we'll be ready to go very quickly. If you remember what we did with Empaveli , we went very fast post approval, and we'll be prepared to do the same thing even within days to a week potentially. So we are definitely ready and excited about the opportunity for PDUFA.

Okay. So maybe to tie it back to the previous question. If you think about the market opportunity that you'll have with this 24-month data, how is that different or bigger than what the original filing contained, which was 12-month data for sure, also some level of 18-month-plus data. How is this meaningfully better for commercial opportunity?

Yes. Yes. And Cedric can jump in from his point of view as well. But from a commercial perspective, I can tell you that it definitely gives us -- we're setting the bar very high with the label. And having the 24-month data gives us a very simple message, the most robust data inside the package insert that we can present and promote and message out to the physicians. And it actually gives us the opportunity to really talk through having the 2 consistent studies and the fact that we could show increased effects over time, which is highly impactful. And for us to be able to do that and have the opportunity to have that 1 label out and not have to go through supplemental NDA filings and those type of things in the back end of the year is also going to be hugely helpful and gives the team very focused. So it keeps the disruption down and as we can launch with the label that will help long term.

Yes. And maybe let's go into a little bit more detail about what you would like to have wording wise in the label. Now we've done a bunch of doctor tax on this, and they've universally said that every other month is going to be critical for meaningful uptake, being able to dose every other month for their patients. Now, is it important for you to still have every month and every other month as options? And if so, why? What's important about every month to you guys?

Yes. Look, Tazeen, when you -- if you listen to the market research and you talk to the physicians, almost every weekend where we're in a meeting, right? They will tell you they want the flexibility in the label, and they want to be able to find the patient and treat them aggressively that might be blinded 1 eye already and has encroachment on the phobia today with GA and do what they need to flexibility-wise with the dosing. But many of them are going to start with every end of the month, we think probably 70%. But it's about flexibility, and it's about having them have a label that gives them the ability to treat across the patient types that we'll see coming into the offices. And that's what we feel strongly is going to be the best thing for us and for the physicians and the patients.

Is there a specific patient that would prefer to be dosed every month? I mean it is an injection into the person's eye? It's kind of invasive if you think about it. What type of patients do you think would want that? Because we do quite get a lot of questions about it, especially since at least initially, the view is we won't be able to see that GA clinical benefit, visible acuity gain in the first at least a couple of years of use. So how does the patient stay motivated to want, let's say, be injected once a month?

Yes. I think what we need to look forward to here, Tazeen, is we haven't covered a lot of things about the mechanism of this drug, how it works, what it does in the retina. And 2 important things stand out. The first one, which is really important to us and one of the main motivators behind what we did with the amendment as well is that we have these increased effects over time, right? So when you look at the effect size, the percent slowdown that you have over time, it gets larger and larger from month 18 to 24. We are at 30% slowdown in the monthly patients in every other month at 24% slowdown. And you should expect that as a base case to be carried forward into year 3, 4 and beyond. So that's number one, very important. But number two, to get back to your question on every other month and monthly, we do not measure photoreceptor cells per se when we use autofluorescence the way we do in our clinical trials. What we measure is the layer of cells below that, which are the retinal pigmented epithelium cells, the RPE cells. And those are essentially 2 leaves that are stuck together in the retina, and that gives us our vision. And the reason why I mentioned that is what we have discovered and we presented this at AAO in September is that the RPE cells, which is what we measure, slowed down gradually and increasingly over time, as we mentioned, but the fully receptor cells in the first 6 months of treatment are 100% protected in DERBY and OAKS. And then as the -- because they're further away from the border of the GA lesion. And then as the lesion grows, when the RPE cells catch up with full receptor cells, that is when the effect applies to both the cell types. So I mentioned that because what we believe ultimately will happen is that patients are going to choose to be on treatment for 6 months on monthly dosing to protect for receptor cells followed by every other month to protect the RPE cells.

Okay. Now, how important will this -- the receipt of the J-code B for your uptake? So maybe clarify for us, Cedric, why you think it won't be until October. What needs to happen in order for you to qualify for that J-code?

David?

Yes. So the way -- when we get -- once we get a label, we can't apply for a J-code until we get a label. Once we apply for the J-code and based off of timing, the timing would be October 1 that we would have our own product-specific J-code. In the meantime, there is a generic, what we call generic J-code or a standard J-code that would be used when physicians want to use the product, okay? Now the importance of the J-code, of course, is when you have your own J-code, things tend to go through the reimbursement process faster, it's actually automatic through the computer systems. And when they do benefits investigation, you'll see that it goes through much quicker. When it's a generic J-code, it's not that the physicians won't be paid for it because they will, it just takes a longer period of time. And it doesn't come through as quickly and they want to make sure that they're sending processes through that gets paid by certain plans. What's going to happen and as you will find physicians will start to use the product. They're going to find plans where it's being covered, Medicare plans or Medicare benefit plans. And they're going to focus in on that and make sure they reimbursed. But it's definitely important, but it doesn't mean that they won't get paid for the product. It just takes a period of time. And it's a manual labor piece on the Medicare side before you have your own J-code.

Okay. Now how do physicians -- how would you expect them to order the product? Is it just they want to have a bit of inventory at their office? Or is it that they have the patients coming in and they know that patient is going to be injected and then they'll order it right before the patient's appointment. How does that all work?

Yes, great question. So we have 2 things. First of all, we have a product that they can order and that varies by office. Some offices are just in time order, and they order on a daily basis, and we can ship overnight and product will be there the next day when they're planning for patients that are coming in. Or you'll have offices that have high, high volume that definitely have inventory. Today, they carry inventory and their refrigerators for the wet AMD products, much like they'll do with us. And they'll manage that based off of what their patient pool looks like. But the other thing that we have is we also have samples available, much like other products that are in the space for wet AMD, and they'll have those available in the refrigerator that will be something they can start patients on and then they can put them back on commercial product as soon as the patient comes into the next treatment. So there's not going to be a gap in time. And the ultimate time for these patients is when they're sitting in the chair, having a conversation, they know they've got the disease and the physician says, "I've now got a treatment," is to really have them start that treatment at that time. So it will be available very quickly.

Now do you -- how would you describe to us with your expectation for the initial ramp before you get that J-code? How do you expect that to look?

Yes. Look, we're -- I don't think we've been given any guidance on what our ramp is going to look like. I can tell you that I definitely have been with a lot of retina specialists who are starting to plan for the product to come into play. As far as what that looks like before we had opportunity, many of these patients weren't identified or they were identified, but they weren't sitting in their offices, right? Now what they've done is they've started to have conversations with patients, they know have GA. They're starting to line them up for appointments post PDUFA, so they can bring them in for treatment. And that varies on the size of the office and how many patients, but they are definitely ramping up for it and they're definitely looking forward to having something they can treat patients with today.

Okay. So I only ask because it's difficult from where we all sit to get a sense of how the actual numbers are going to turn out. There's like obviously, a ton of patients, there's nothing approved. And we've seen other launches and other categories. Some of them do is that need the J-code to really accelerate, others somehow managed to do well even before securing that. So should we use like the VEGF launches and wet AMD is like the right comp directionally for what to expect?

We'll, let Cedric jump in on that one, and I'll give you a commercial perspective as well.

Yes. So look, conservatively, I think for a new indication like this one, it's hard to compare it to the anti-VEGF markets, which is so ingrained where physicians are more used to. So I think for us, in our modeling, the introduction of the permanent J-code is a very important driver of the ramp. So to be clear on that. I think, again, kind of what we're going to be working hard on in the next couple of months is for everybody to really understand what that increased effect over time really means. But I mean, people I think either don't understand it properly or don't understand what it really means, right? But when you look at the effect size at 1 year, I mean if you look at effect sizes of 14%, 15%, that is just not that much, right? We all acknowledge that. But following that over time and tracking out at around 30%, which is literally this disease slowly, but certainly getting into a much better place is something that is very powerful and that I think will incentivize physicians and patients to treat. So to David's point, in the beginning, there will be kind of that natural way of thinking, I have a patient that is -- has an acute need and that's trying to fix the situation. But in the long run, I think we are going to get into a place where we say we treat as early as possible so that the maximum benefit really is gained from the slowdown of these lesions from recovering and preserving as much vision as possible.

Well, our feedback from physicians is that they are going to use it, the plan is to use it. I think there's -- there are initial comments as well, we're not seeing clinical signs of benefit vis-a-vis GA. But when you ask them what their plan is to use for such a large market, even a 10% penetration would be meaningful into the physician practice. So it does seem like the demand would be there. And so we're just trying to get a better sense of how the first year potentially of the launch directionally could look. I guess how important will it be for doctors to, you mentioned, understanding the data. You have your sales force already higher. What have they been able to do? You don't have a label and you're not approved, but what have they been able to do?

Right. So we have a field force and the reimbursement team have been out there. They've done a couple of things to really get to know the offices and how the flow works with inside those offices. And the specific work that the field team has been talking through is disease data education and actually holding speaker type programs and having other folks, KOLs talking to other physicians about the disease state. So really understanding geographic atrophy, which those discussions and programs have gone outstanding and have far exceeded what we had set for expectations, which is great. So that's what we've been doing. We also have an MSL team that can react to questions that come up on the data that has been out there as well. It's a very tenured team in the space. And any questions have come up around the data and understanding the data as it relates to the disease state in our studies has been able to be answered through them if they get asked.

Is your team able to specifically discuss the publicly released data with physicians?

The commercial side of the business is fully focused on disease state education. Everything else that's asked or discussed on the clinical data goes through our medical science liaison team.

Okay. And how are they, is it that their venue or these medical meetings to relay this data?

There's medical meetings. There are also many of these retina specialty meetings because we have a medical booth as well that's there, and they can answer those questions. And they're working consistently with our thought leaders and in discussions with them in preparation as well. So it's threefold, much like you see with the field team, but they're talking about the data and the field team is not.

Okay. Got it. Now you obviously can't talk to me about what you're going to price it at, but what is the thought process around range? Is the injections for wet AMD, is that the comp?

Yes. It's the wet AMD range that you typically don't see, right? And that's the range that we've worked within. But we haven't set final price, we won't until we see have a label on approval at PDUFA.

Is it the case that it's difficult to take price increases in this space once you set a price that you can't necessarily like other therapeutic areas do, turn percent price increase every year?

Yes. Tazeen, it's actually related to the fact that it's a Medicare Part B product, right? So it's a buy-build product. And you have to manage really closely ASP. So it's different than a pharmacy benefit product. And that's -- in most cases, you'll see companies who have products that are buy and bill and they manage ASP that they sell and take. And if they do take something that's small for a price increase.

Okay. So would it be illogical to think that you could price it at a premium to whatever it is, as I adjust the price set, for that reason, really get one chance to set.

I wouldn't use the word premium because we'll stay within the range and the market research tells us that's where we should be, and the physicians have talked about that as well. But you have to be really thoughtful in setting price because once it's set, you need to be within that price range. So I wouldn't say that we're looking for anything premium. I think we just need to be in that range, and we're going to make a good decision based off the label when we have approval.

Okay. Maybe let's switch topics perhaps back to Cedric on how the conversations and events around manufacturing and inspection are going. So, the product itself is already approved for another indication, but what is the responsibility of FDA here? Do they have to do a full inspection of your manufacturing site specific to GA? And has that happened?

Yes. So just to be clear Tazeen it's a different product, right? The drug substance.

Sorry, chemical but a different packaged product, right? In a different site than for PNH?

Yes. So the drug substance is manufactured in the same site. I mean we have disclosed the vendor. It's Beckman in Switzerland. And then the feel and finish is very different for systemic compared to administration in the eye. And of course, a different formulation as well. When you go through all of the inspections with the FDA, they do GMP inspections, they do GCP inspections, they do response inspections, all of that. We went, of course, through all of that. We went through it for PNH as well. We have, in our history as a company, never had a 483. So we've done very well on all of our inspections. And the CMC review was done at the time of a request to postpone the -- or to be able to introduce the 18- to 24-month data.

Okay. So everything related to inspection for GA is now complete?

Yes. The FDA always has the ability to request for the inspection if they want to. But if that happens, we also don't foresee any issue.

Okay. Good. Now whenever it is that you launch, do you think you would have enough supply on hand to meet whatever demands you would be getting from physicians that they want?

Yes.

And how do you kind of get comfortable with that? Because we've talked about all the different variables here. You're making a certain assumption about, it will really pick up after your J-code. But what is the demands, is there even before and you're finding ways, doctors are finding ways to work around it. I'm just talking -- I don't know idea how to actually do. But if it's the case that they're able to find ways to get it paid for quickly. Is that any concern?

It's a very valid question, of course. But to kind of put it in perspective, you can -- our entire Phase III clinical program of 1,200 patients took the amount of drug substance that it takes us to treat 2 PNH patients. So that gives you a sense of the supply that we have created.

Okay. Now how should we be thinking about compliance? So again, we're going back to the once per month? And is that easy to do once every other month, it seems like a lot of doctors would prefer that. But do you have any market data to share with us about just the patient profile and with me, if there was a super chance that it could slow down my rate of vision that's how I would be doing it. But everybody is different. What is the sense that the doctors are giving you? Do you think that they can handle the patient volume in their offices, right? For a long time, there was this desire to reduce patient volumes for wet AMD because the doctors found, their offices are always full. There's nowhere to sit in the waiting room. And so the less frequent injections became very important to have. What are they telling you about GA?

So we'll let David speak to the capacity. But I think that is -- that's not going to be an issue. I mean, David why don't you go ahead.

Yes. Look, so our market research, Tazeen, and it's fairly consistent that we've seen not just in conversations we've had with physicians, but through market research is they've got capacity of increasing another 40% to 45% inside their office. And we believe, looking at the data that for the next 2 to 3 years, they can take the influx of patients coming in and know how to manage that. When you talk to the physicians about that, they have to put their mind around a little bit. And again, go back to until we got this serious about having an approved label, most of these patients, they weren't really putting a lot of thought into. And they've had to go back and say, "Okay, now who are my patients and how do I put them in the system?" The physicians that have done that feel really comfortable they can get them though the process. And the market research tells us that, too. So hugely confident that, that's not going to be an issue. And on the compliance side, it really starts with how they get those patients started and how they start to talk to them about the disease. And the fact that we'll have a label with 24-month data in it, that shows increased effects over time will help with that story, right? So that helps that patient understand that I need to start it today. And the longer I take this product, the better it's going to help me, at least prevent me from going blind over time at a slower rate. So that's super important, and that's the other reason why the label will help us as well.

That is the ball that David is going to hit out of the park. Just one more little side note on the compliance as well because, as David mentioned, the increased effects over time, very important, we're going to talk much more about it in 2023. But also what we saw in the studies itself, right, our GALE extension study has 800 subjects in it. So 800 subjects, which was 85% of the patients that got to the end of the DERBY and OAKS decided to go into the extension and signed it for another 3 years of treatment. And it's not just the treatment, right? It's a treatment plus all of the data that we try together, of course, to understand the progress of disease. So we feel very good about compliance.

Okay. We have time for maybe one more question. So I don't want Tim to feel left out of the conversation. So this is going to be for you, Tim. In terms of cash on hand, with the decision to again push out the launch by a short amount of time, a couple of months or so, how does that impact your day-to-day operations, if at all? And where are you in terms of when you think you would need additional capital?

Sure. Thanks, Tazeen. So as a foundation, at the end of the third quarter, we reported $708 million in cash, and we guided that got us into the first quarter of 2024. That guidance didn't change with the delay due to the major amendment. Small differences in timing, but that guidance didn't change. So we're in a strong financial position today to launch GA. And if you think about capital raising and what that means for us, we've been creative historically, and we continue to evaluate all sources of capital. And we'll do what we think is right for shareholders. Specifically, I can't comment on what the timing or structure looks like. But in all likelihood, we'll wait until post approval because really no matter what the source of that capital is, the cost of capital changes and goes down with an approval. Ultimately, our focus is on becoming a profitable organization, and that's our aim over the next year.

Sure. Perfect. You'll be busy, is basically what you're saying. Yes, we hear you. Okay. With that, we're out of time today. So everybody, thank you so much for joining us. Tim, always great to catch up on the financial state of Apellis. Cedric, thank you for giving us a reminder of all the important things that are upcoming and David, it was good to meet you over Webex. And so we'll be looking forward to the updates. 2023 will be an important year for the company, and we look forward to speaking with you in the early part of next year, if not before that. In the meantime, hope you guys have a great holiday season and a safe and healthy and happy 2023. Thanks, everyone. Bye.