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

All right, everyone. I think we'll get started with our next fireside discussion. My name is Derek Archila. I'm one of the senior biotech analyst here at Wells. Very happy to have Apellis Pharmaceuticals and the team. Got Cedric, the CEO; and we got Tim, the CFO here for the discussion. Gentlemen, thanks so much for joining us.

Thank you, Derek.

All right. Great. Good to have you again. Well, I'm going to turn it over to Cedric to kind of give a kind of state of the business currently and then we can kind of dive into questions afterwards. But Cedric, I'll turn it over to you.

Thank you, Derek. So needless to say, it was a busy summer for us, right? But I'm going to start with what I think is really most important, which is that SYFOVRE off to a fantastic launch. And in the summer, a little bit drowned out by the noise, this amazing efficacy profile that we see with SYFOVRE. So as you may recall, one of the cardinal features of SYFOVRE in the treatment of GA is that the efficacy increases over time. And when you get to the point between months 24 and 30 that slowdown in extrafoveal patients is as high as 45%. So that means that if you go on treatment with SYFOVRE, after 30 months of treatment, you have slowed down the disease by almost half, right? I think in a disease like GA, that is really kind of extraordinary news. And importantly, it's news that within all the noise, of course, with what occurred over the summer is now starting to really become a focal point for physicians, for patients, and provides context for the other event that took place, of course. In the meantime, EMPAVELI continues to be a really important product in PNH. We also have our clinical trials in C3G ongoing and IC-MPGN with the readout next year where we think we're going to have -- be able to make a really important difference. I mean, we had Phase II clinical data that was remarkable in terms of its potential to control the disease, and that will allow us to build on that EMPAVELI franchise as well. And then our research as well continues to progress very well. We had little notice, but in the spring, we had an IND and are now in the clinic with an siRNA product that allows us to lower the levels of C3 and preclinically, our work continues to be very promising as well. So as an organization, all of you saw that last week, we had to reduce our workforce. For me, personally, one of the most painful things we had to do as a company, because you say goodbye to a lot of people that really helped us to get where we are today. But it was something important. The prudent thing to do, it was kind of refocusing the organization on its top priorities and landing us up for what is ahead, but it's rebuilding that company or continuing to build that company on a strong foundation of prescription behavior. I think that at the end of the day, I think the great win of the summer is that in July, we ended up in a situation where very understandably so, the retina community was faced with the type of side effect that causes panic and fear because of something that happened a few years ago, right? And navigating that panic and fear was important. It was important to tell everyone, hey, yes, there is this side effect, but it is extremely rare. It is sporadic in nature and it's not a side effect that's increasing over time. And we did all of that in the most possible transparent way with the retina community. And as a consequence, our drug, SYFOVRE, continues to be prescribed in very high volume to patients. That allows us, of course, to look into root causes, move forward, navigate these waters, and we'll provide regular updates to the retina community to make sure that they understand it. But at the end of the day, what drove the amazing launch that we had. And what drives this prescription behavior is the need that exists. I mean this is a blinding disease where people lose vision, people who want to do something about this, and risk of 1 in 10,000 of having a serious complication like this, really, once you wrap your head around it and you take the fear factor out that, oh, it may be much more than this or there's something we don't know, becomes entirely acceptable discussion point.

Got it. A lot to talk about. I actually want to start just in terms of the reduction in workforce. Was this something that has already kind of been -- kind of on your mind in terms of like looking at that and kind of the cost base of the business and kind of gaining the profitability? Or was this more kind of due to kind of the more recent disruption that you've seen kind of with the launch?

Tim?

Yes, sure. So it's a mix of things, right? But ultimately, it's incumbent on us, especially when there's uncertainty that gets created to make sure we're operating efficiently. And ultimately, that's what led to the decision, right? It wasn't any one thing that were certainly areas that we have been looking to optimize over time. That just made it more of a kind of a timely decision, right?

Got it. Understood. Yes. So going on to SYFOVRE, I guess, trend-wise, as you're saying, people are still prescribing it volumes. How are they looking? I guess how are they kind of trending since some of your more recent updates in terms of switching the needle and other things that you've been kind of communicating to the retina community?

Yes. So we believe that there is a rate of approximately 1 in 10,000 as mentioned before. And I think what's important, and that's why we provide these regular updates is that physicians, if they see that rate be stable, they'll be comforted. And that is because a couple of years ago, it started with 1 in 10,000 and then it was 1 in 1,000 by the time it was all said and done, in no time it was as high as 1 in 50 patients, right? And that was because with [indiscernible] at the time, we had a sensitization against the drug that was happening. So with every subsequent injection, things got worse. We don't have that, that rate is stable. It is where it is. So just in the status quo world, that will be totally fine. Having said that, when we then looked at the 2 ancillary kits that we provide, where one of those kits has a 90-gauge needle, the other has an 18-gauge needle we saw a remarkable association with the use of 1 type of needle. We also found that there were these structural abnormalities, these variations that exist within these needles. And those 2 factors combined led us to take the decision to take the field action that we did. Now proving a negative, this was very hard to do. Is this the cause or not, we do not know. But out of an abundance of caution, we removed the needle. And the best way to find out what's the cause is to now look in the next couple of months is that already very rare rate can be further reduced.

Were all the cases associated with those patients treated with that specific needle? Is that something you talk about yet?

Yes. So unfortunately, that is pretty impossible to establish, because most practices will receive both [indiscernible] and ancillaries, right? There are several cases where definitively, we could bring it back to the use of that needle. And then there were others and kind of to give you an idea about how we handle that. If we have a practice that has a case of vasculitis, we take -- we look at the number of kits available within that practice. And if there are 80% of 1 needle versus 20% of the other, then we split that 1 case of vasculitis into 0.8 and 0.2, right? There's no assumption on causality. It's just a probabilistic analysis of being associated with the use of 1 needle or not.

Got it. And I know you guys are still doing your investigation, but I know that was kind of like one of the first kind of variables that you saw that was different than what you saw in the clinical trial. I mean any other kind of learning since then? And ultimately, I think you said you were going to put out another update prior to the third quarter earnings. Is that still correct?

Yes, that is correct. So between now and earnings, we'll provide another update and focused, of course, again on giving physicians that comfort and knowing what's going on. And after say, our Chief Medical Officer, Caroline Baumal, has been extraordinary at doing that and creating that trust with the community. Okay, that's kind of the next step...

I guess when you guys talk to physicians, as you kind of see the rates stabilize and as you said, like you've now taken some actions here. How long before people will start to -- or people who have not started using SYFOVRE or have stopped will start again or start for the first time? Like how long do they want to see that rate be stable?

I don't think that there is a kind of an easy answer to that question, right? I mean retina docs are humans and they come in all shapes and colors. So I have some physicians that will never be -- there are physicians that still don't prescribe anti-VEGF, by the way, because they're not convinced of the benefit. So that will always be there. I think the key thing here is that the more experience you have, the more you understand the risk benefit of this drug. We just crossed the 100,000 injection mark, which is a huge milestone for us, right? I mean it provides you a very clear picture on what is the safety. I mean we know now what it is, right? I mean that -- and on the other side, we also know from the GALE extension study, what the benefit is that patients can expect. That is all very exciting in the disease that until a year ago, 6 months ago, right, was untreatable. That at the end of the day, will carry us forward.

I mean now that obviously, post ASRS, a lot of discussions, you guys are, again, in the field talking about it. Obviously, physicians are on notice that like they should be looking out for this. And ultimately, if they do see some inflammation, are they more quick to treat with steroids now? I know, usually, when they think of inflammation, it could be infection, but like have procedurally and just kind of like how docs are thinking about it now? They want to continue to use it because they think it's important. But have they put any sort of protocols in place with things or to go -- or start to see [ intervention ]?

The very simple answer to that question is no. I know that intuitively where everybody wants to go. It's 1 in 10,000, right? So there's just not -- you just cannot do anything about it in terms of a real mitigation strategy. You cannot ask physicians to go and worry about that particular scenario, and start taking steps that fall outside of the routine Infection, endophthalmitis, which has very similar outcomes in terms of vision, right? I mean, it happens once in every 3,000 to 5,000 injections. That -- there's no reason to be afraid of that. You just have to know it. And then if it happens and you're unfortunately within that position, then you treat it appropriately and you hope for the best outcome. It's part of the risk profile and you handle it appropriately. But for those very, very rare cases, are you going to bring in all these other patients for another follow-up visit with the cost and time associated with it? Unfortunately, it's not working [indiscernible].

Got it. And then is there like a specific characteristics around physicians, who have stopped using it versus people who like -- are like, for instance, like or high-volume docs still generally using it and maybe only smaller, I mean, community retinal specialists are not using it because they either never started or they stopped because of the safety concerns?

Well, I think with every drug launch, with every new technology, you always have kind of the pioneers. And then the people that are like, you know what, is going to take a little bit of time. And what you have now is -- I mean, the great thing to some extent of geographic atrophy is it's a slowly progressing disease. If you wait a couple of months, it's not the end of the world, right? So I think that kind of the urgency or the lack thereof is helpful. I mean, because we have huge practices doing large amounts of prescriptions, I mean, and they have had a great experience. I mean many doctors tell us a therapist, I love this product right? I mean it is -- so those are the things that will carry us forward and people will step in line because if you're a retina doc and you're not prescribing SYFOVRE, 10 times a day, you're going to be asked about it. 10 times per day, you have to extend to your patients why you're not doing it. And I think there are people that will do that the rest of their lives, but they're going to be a small minority. And then there are a lot of people that will tell their patients, listen, come back in a couple of months. I mean, there were these cases that were described, I just want to be ultrasafe with you in a few months, we'll revisit it. And in many ways, I think that the summer was within all of them, the misery occurs like a moment in time for that to occur, because you can tell patients, take your holiday, come back in the fall, and we'll see you again. So I think what's happening now is very helpful to us. It's happened with great transparency in a collaborative spirit with the retina community, with ASRS and others and prescriptions continue to happen in high volume, which is the key behind everything.

Got it. And maybe just in terms of, obviously, trends are a little bit all over the place just given some of the -- obviously, the safety and your updates. But would we expect any type of seasonality in the retina specialists like in the -- like latter part of summer, just like 3Q time frame?

In terms of prescription speaking?

Yes. Prescriptions, yes. More injections. Like again, do they go on vacations, the patients going to get things like that?

I mean probably -- so we don't have a precedent for it. So there's no way to know, but I don't know to...

We see it with other injectables, I guess.

You'd expect things to be a little bit slower in August as you would for a lot of these sort of people on vacation and so forth. So we have the ASRS, right, in the middle of July or late July. Then we gave an update on what the first 3 weeks in August look like. You can figure out what the demand vials were just by the -- that time period and the 2 updates we gave. And then the last 2 weeks of August or the last weeks of August. And what we're really looking for in terms of getting a little more certainty is going forward in September and October, there aren't really any holidays aside from the one we just had, any major ones. And of course, on October 1 is when we get our J-code activated, we already have the J-code, but it activates on October 1. So not only do we get a more normalized September going forward, we then get the new world normal, which is with the J-code. So we'll know a lot more by the time we have our earnings.

And then to the point on the J-code. So I mean, I know access has been pretty good. But I guess, is there like a certain percentage of patients that remained untreated largely because there's no J-code -- or the J-code hasn't been activated yet? Like what's kind of that maybe pent-up demand look like, at least you're hearing from some of the high-volume docs?

Sure. I think -- I mean -- so anecdotally, the way our conversations are, if you speak to 10 physicians, call it 2 are going to say, I'm not doing it until the J-code comes. So there is an impact, and it's a real impact. That's a pretty small number. There's an error bar there, too. But there are definitely patients, who are not being treated because of the J-code. And that -- we'll see how much of an impact that has.

Got it. I mean from that perspective, at least some of these patients, and we've heard this from KOL saying, x percent patients are not being treated yet, waiting for the J-code. Do you get the sense that, again, these patients are -- and these docs are setting appointments for them to start to come in like after the J-code? Like is that -- do you think that could be an interesting inflection point for SYFOVRE?

Yes, I don't have an answer for that. I mean -- all I can tell you is that for certain physicians, it makes life enough easier. Specifically, the smaller practices that don't have processes in place to deal with all the paperwork, they don't want the hassle. So the answer is I don't know about patients lining up for that. But for those doctors, the next time they see the patient, they're going to be willing to have the conversation, whereas they're not right now. I guess that's how I think about it.

Okay. I know there might be some noise, obviously, what's going on. But generally, what are you seeing from patients like obviously getting subsequent injections and ultimately kind of the cadence of monthly versus every other month so far?

Majority is every other month. And I think that's a regimen that is very much enjoyed by physicians and patients. In terms of kind of the experience of being on chronic treatment, we have patients in GALE that have been on treatment for 5 years, right? So -- and that has wonderful experience going through that for all of these years. So I think, again, it is a drug that needs to be given chronically. It is a drug that the longer you treat, we've seen now to 30 months continues to slow down the disease more and more. And that's the tremendous benefit to patients. So yes, every other month, I think, is very important in terms of prescription behavior.

I can add one point. After having spoken to a couple of our highest prescribers, almost unanimously, they say, I just can't see bringing my patient in every month. So every other month is a very important regimen.

Got it. And maybe we can talk also to some of your incoming competition with Astellas and Izervay, I guess, I mean, have you -- what are you kind of hearing from KOLs? Or what are you kind of hearing about that launch and again, kind of how people are kind of comparing the products now that post ASRS, I guess.

With SYFOVRE has every other month dosing, you have 45% slowdown. You have a safety profile based on 100,000 injections, right, between the clinical trials in the real world. So you really know what you're going to get. And our competition, we wish them well, but 300 patients, more or less 300 patients have been treated. We have data at 1 year, nothing beyond this. And we just don't know what the efficacy profile is going to be. But with every other month dosing with SYFOVRE in patients with extrafoveal lesions, we have better efficacy than monthly injections with Izervay. So it would be interesting to see how it ends up.

I would also add that in this population, efficacy is very important, especially over time, right, because it compounds. And in the same population, Cedric mentioned, you get 45% -- as much as 45% we showed in GALE. That really means something over time. It's really hard to treat a patient for years and years and years, if you're not seeing that extra dividend you received.

I mean what level of promotions do you think they're willing to do for their product? And do you think, again, is it helpful for just kind of the class, like again, this is still a very new indication, first drugs approved, like how do you think this kind of helps build the overall market longer term?

Look, duopolies can be very personal, because they're restation the win and physicians aware in it. So we're not worried about that. We think that there's plenty of demand for both products to be accommodated. Of course, you think it's much better for patients do SYFOVRE, but of course -- but it's good. I mean, again, a few months ago, we had nothing for this terrible disease.

So just -- I know it's still very early in the launch, but kind of given the trajectory and as it continues to resume here, as your thought on the overall market opportunity in GA, like has it improved? Do you guys think got better, are you more bullish now that you've kind of seen this early uptake versus prior?

Yes. What I'll say is that our market research team was like, well, maybe it's a little bigger of a population than we thought it was, which is kind of -- I don't know how often that happens. But I guess it happens occasionally. But they think they may have undershot the population by as much as 20% or 30% in the U.S., right? Who knows? But certainly, the demand has showed us that this population is very large.

And something that we suspected, which certainly is materializing is that a lot of patient with geographic atrophy were not being seen at all or consistently by retina doctors. So and maybe with the general ophthalmologist who says like, "Look, I can refer you to retina doc, but there's nothing to be done for you, right?" I mean that was kind of the -- again, the world in plus 6 months ago. That's changing, of course.

Got it. Can you maybe talk about where we are with EU for SYFOVRE? And I guess how you're -- again, key learnings and some things that you've done here in the U.S., how much is really applicable there just given the obviously different reimbursement schemes and obviously, different countries?

So the EU is something that we decided to do ourselves many years ago and decided to do right. And doing right means really being conscious of challenges to reimbursement that exists in Europe and approaching payers and educating payers about the disease and the impact of our treatment years in advance. That is something that was done exclusively well, in my opinion, by our European team. So building the groundwork not just for approval, which we are, of course, highly confident in, but also for reimbursement. Then as it relates to approval, I mean, as you know, we expect to be approved early next year. That approval process has gone exactly according to plan. It is -- we have an enormous set of clinical data available to us. The recent events in the real world are, of course, part of the dialogue, but we do not believe, will be realized. And we look forward to making this product available to every patient, who needs it.

Got it. There's definitely been obviously dialogue with everything that's going on with EU regulators, and you ultimately don't think it will impact timing or anything like that?

No, we do not think it will impact.

Got it. So in terms of like pricing in Europe, like how do you think that will look? Obviously, maybe you kind of get the reference in Germany, but ultimately, what's kind of your assumption around EU pricing?

So we haven't commented on that, and that's something you can kind of look to the anti-VEGFs for an analog there, but we haven't commented on our pricing. Our first country where we will launch is expected to be Germany. Reimbursement there is immediate. So we expect hopefully to have revenue as soon as we're approved and we're expecting approval in the first quarter of next year.

Got you. Maybe with the time remaining, we can shift to EMPAVELI and some other pipeline things. We spent good amount of time on SYFOVRE. But maybe just give us a sense of like your view now on EMPAVELI and kind of the current base business you have and ultimately, how do you continue to grow that? I mean PNH is a small indication, but where do you actually end up -- or where do you actually think you'll end up in terms of like kind of a peak opportunity within PNH?

Yes. So kind of the one metric that we always use with PNH is the compliance rate, right? I mean 97% compliance is what we have with EMPAVELI. So patients with PNH on treatment with that drug are incredibly faithful to that drug. And that is a reflection of how much better they feel, the difference in quality of life that it makes to them and also, frankly, the safety profile associated with this drug. I mean we are -- I don't know the latest that we have probably somewhere around 1,300 or so patient years of dosing, if not more. We should have seen by now that the C5s are proxy in many cases of meningococcal infection. We have seen 0, right? . So -- and also, once patients are used to sell administering this product at a home, which is twice a week, it takes 30 minutes. It's absolutely not something that they consider to be burdensome or an issue. So in the near future, we're going to get the orals come on board, of course, and that will be severe competition for newly diagnosed patients. It will also be competition to switch over patients, of course. But we believe that the patients who are on treatment with EMPAVELI, based on what we have seen are going to be very faithful to that. And I think and this is important, we are kind of in that phase where enough patients are on treatment to kind of talk about it with their peers. So EMPAVELI is here to stay in PNH, provides a tremendous opportunity with the only drawback being that is best convenient, of course, than taking a pill. But with a safety and efficacy profile that is now very well established and makes enormous difference for patients. So in PNH, that's where we are. The next big front here for us, as mentioned in the intro is C3G and IC-MPGN. These are devastating kidney diseases between the 2, approximately 18,000 people in the U.S. affected by that. And that is a disease where in young people, the risk of getting to end-stage renal disease is about 50% over 10 years. Also important is that if you get to end-stage renal failure, and you then get a transplant, you have a 50% to 70% chance of relapsing with that transplant. So there too, we will have the orals to compete with, of course, but especially in IC-MPGN, we're ahead of the competition. And if you think about, say, kind of the lifespan of a patient with that disease, if you are in the later stages of the disease, let alone once you are transplanted, convenience is far less important than having the best possible treatment. And the efficacy profile for EMPAVELI in C3G and IC-MPGN, I think, is going to really stand out. We know that from the Phase II clinical trial work, we also know this from many combustion use cases that we have seen in the real world that we have -- we're able to honor in the past couple of years.

Got it. And maybe just tacking back to PNH. So do you feel like that with the oral coming in, you're probably -- you're not going to see people switch off of the EMPAVELI, but like your ability to grow that in kind of newly diagnosed patients. Do you think that's kind of negatively impacted? Should this be more of kind of a flat to modestly growing business? Like how do you think about the profile now?

Will, of course, be negatively impacted, right? I mean if you have as a patient, you have a choice between an oral and a subcutaneous, the vast majority of patients are going to choose the oral product. I do think that we need to see in the real world what an oral product will do for patients with PNH, right? Because it's one thing to take pills for kind of "more innocent diseases" but taking a pill that you have to take twice per day for a disease that could be deadly like PNH, where the pharmacokinetics are kind of on a razor's edge, there are -- look, in all of my subjectivity, if I had the choice, I would not take a pill. But I think you will find patients that prefer kind of the comfort of, I do it twice a week. I don't have to worry if I forget for a day to take it. I have a catch-up period of about 1 week, if I'm late or I'm traveling, whatever it is. So there's 2 sides to this, especially in PNH that I think we'll be able to take advantage of.

Got it. Maybe just talk about -- again, I think you have kind of a different delivery for EMPAVELI that you've been working on and just an update there. And I mean, is there any push again to do other types of formulations with kind of a C3 [ asset ]?

Yes. So unfortunately, so this subcutaneous device, which we think is going to be very attractive to patients. It makes it really easy to self administer, got delayed over and over again. We got another delay recently. So we still don't know when that will be available to patients. It's unfortunately and unwarrantedly not consider the priority, I think, within that division. So a little bit on the impact side of that. Not material, but it's just a shame, because it's something that we think will be impactful for patients.

And that's just an extension. They haven't communicated any sort of issues or anything to you guys around that.

No. Yes, that's correct.

And maybe with the last couple of minutes here, obviously, you're the premier complement company, like kind of thinking about earlier stage pipeline and kind of the next thing beyond SYFOVRE and EMPAVELI, like what are you looking at like kind of early stage kind of complement programs?

Yes. So we've done -- as mentioned, we have an siRNA in the clinic that we'll be talking about data soon there, a very exciting program for us. And we'll talk later about what we're going to do with the siRNA program. And preclinically, we've done a ton of work within this favorite space of ours. The program that a lot of people may have forgotten, we have that I think is incredibly exciting is our collaboration with Beam, where we have 6 programs around complement. So for the first time, added the genes within the complement pathways. So it's very different from the monogenic approaches that have been pursued that the majority of gene editing companies. It's something that we look forward to sharing more on in the year to come as well.

I mean, are you only looking to be focused on C3 largely? Or are there other areas in the complement cascade that -- or the interest depending on the indications you might pursue?

We're definitely C3 centric, but also C3 agnostic within the complement phase and then we have also what we call a C3 plus approach. So synergistic pathways or additive pathways with complement are also things that we are interested in.

Got it. And just maybe last thing. I guess we started with the workforce reduction, we can end there, too. Like how much of like R&D and like that sort of component is impacted with the reduction in workforce?

Sure. So development was one of the areas that was impacted. We don't guide on expenses specifically. What I can say is that we announced that we have approximately $300 million in savings through 2024 that versus what we were kind of budgeting, right? And also that our expense rate will go down and from this year based on what we've done today and what we have in the plan. Certainly, if things change, European build-out and other things that could go up a little bit. But from where we stand today, R&D, you should expect that to be less than it was this year.

Got it. All right, gentlemen. Well, we'll leave it there. Thanks so much for joining us.

Thank you, Derek.

Thank you. Thanks, Derek.