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

Great. We'll get started here. Thanks so much, everyone, for joining. I'm Steve Seedhouse, biotech analyst at Raymond James, really a privilege for me to open this next session with Apellis Pharmaceuticals, and welcome to the Institutional Investors Conference 45th year. Over 300 companies here, of course, but I would argue the best one sitting up here no bio for biotech, of course, on my part. But maybe we'll take on Cedric. For folks new to the story, we're obviously following the story closely. I think it would be helpful outlook for 2024, where you're at Apellis Pharmaceuticals, how you drive value in the company, just to level set the conversation.

Yes. Thank you, Steve, and thank you for inviting us. It's a pleasure to be here first time, I believe. So a bit of background for those of you who are not familiar with the company. So we are a biotech company based in Waltham, Massachusetts. We have 2 approved products on the market. The first product that got approved a couple of years ago called EMPAVELI. This is a drug for a rare disease called paroxysmal nocturnal hemoglobinuria, or PNH, which is a disease of the bone marrow. In this indication, EMPAVELI is a drug that's on one hand. It's a life-saving intervention for these patients. On the other hand, was an improvement over the standard of care, called SOLIRIS, where patients on that treatment continue to suffer from severe anemia, something that we showed in our clinical trials we can solve for the vast majority of patients. So that drug has done very well there and is now on a path to hopefully a second approval. We have a Phase III clinical readout. So we have a Phase III readout this summer for EMPAVELI in C3 glomerulopathy and IC-MPGN. These are 2 kidney indications, something we're very excited about and that we can amplify the revenue potential for this drug as well. Our second approved product is a product called SYFOVRE. This drug was -- is pretty much at the 1-year anniversary of its approval. This is the first therapy for the leading cause of blindness in the elderly, called geographic atrophy, which is the advanced dry form of age-related macular degeneration, which is a disease, probably many of you have heard from. This launch in the first 10 months led to approximately $275 million in sales, making it one of the best launches in the last decade. It's been very exciting for us to go through all of that. As always, when you're a pioneer, you encounter a lot of unexpected things. We did that, too, but navigated those well and look forward to what's ahead for us. We then also this year are going to be talking a lot about what we have in the pipeline. We have an early program with siRNA. So what is that, single interfering RNA (sic) [ small interfering RNA ] is a way to lower the levels of our target in the bloodstream that is currently in a healthy subject clinical trials, something it is still away from getting a proof of concept level on from being approved, but we have very exciting data there that we look forward to sharing later this year as well. And we also have a very interesting and exciting programs that are preclinical, still that are about to go into including in exciting fields like gene editing, where we have a collaboration with one of the preeminent there called Beam Therapeutics. As a company, we have approximately 750 employees. And again, across all of these areas as well as a presence in Europe and some other geographies as well. Thank you.

Great. Okay. So we'll get to cycle of our questions, a lot of topics I want to discuss, I want to get break that out and we can do that as well with everyone in the room. Maybe, I think, I'm going to flip the conversation that you probably traditionally had, and I want to start with the C3G, renal disease program just because it's a catalyst that's coming up for the company. I think it's probably under the radar. Can you just frame that data update? I mean the way the trial was designed, I guess, can you clarify like in the primary analysis, what we're going to see, what's a win? You have some prior Phase II data that has shown proteinuria reduction. And maybe just in general terms, frame that catalysts and frame what you're hoping to see from that data and then we'll get into week.

Thank you, Steve. So kind of for our company, everything in the past year has been a little bit in the shadows of course, of the launch of SYFOVRE being such an important product, but EMPAVELI and this readout that we have in these 2 new kidney indications is something that we're really looking forward to. So brief words on C3G and IC-MPGN. These are indications or diseases that are driven by mutations in the complement pathway, which is where our drugs are active. What you should imagine there is typically adolescents that get diagnosed with these diseases, where their kidney function starts to deteriorate over the course of approximately 10 years, 50% of these patients will end up being on hemodialysis. So it's a very bad disease affecting young individuals. The prevalence of this disease is approximately 3x larger than the initial indication, PNH, without an incumbent to fight against. What does that mean? There are approximately 5,000 patients in the U.S. across these 2 indications, 8,000 patients in Europe. Of these 5,000, we believe that as many as 1,500 patients from where we have visibility on it are patients that are transplanted and that is important because once you are transplanted, these mutations that drove the disease initially are not gone and will put your transplant organ at risk as well. Why do I mention that? Because we have done a lot of work already, of course. And as you do before you go into a Phase III program, and some of the most exciting data were on the histopath images. So looking under the microscopy and what you see in these kidneys. And what we saw there was very convincing and very exciting in terms of the prospects for this drug in the sense that we saw dramatic changes in the architectures of these kidneys, giving us a lot of hope that we will be able to really stabilize these diseases for these patients. The transplanted segment of these patients is even more interesting because if you think about it, once you have a transplanted organ, protecting that organ is like having a nugget of gold in your body, right? I mean the value proposition is very strong. And the uptake for something that can protect the transplanted organ is typically very rapid as well. So this is something that we really look forward to. Then to your point, Steve, on the endpoint, the way in which we run these clinical trials is we try to show a 50% reduction in the proteinuria levels of these patients. So when these kidneys are sick and affected by the disease, protein is leaked into the urine, and that is an important marker for how well or poor these kidneys are doing. So the study is powered to show a reduction in -- or the primary endpoint, I should say, is showing a reduction in proteinuria in power to show a 50% reduction, which most nephrologists would agree, is a clinically meaningful improvement. There are also important secondary endpoints such as stabilization, on what we call the glomerular filtration rate and other elements that give us confidence that this drug will do what we hope.

Do you have an understanding of regulators of how critical those secondaries are to improve a pathway here? The clinical biopsy is one of the secondary thing already have.

So the biopsies were done in a separate study, the one that we published early November called the NOBLE trial. The reason why there was a separate study is that taking a biopsy in a patient with a native kidney is very painful and complicated. In a transplanted kidney, where the nerves are no longer present in the kidney, you can take several biopsies. So the biopsy and histopathology data was shown in 4 ml, of course, the part of the package. As it relates to kind of an agreement with regulators in the kidney, it is generally complicated because proteinuria is not a direct reflection of what eGFR means. This has been kind of internal debate around this. But we have, of course, discussed this in advance with the regulators, both here as well as in the other countries, where we are running this trial, and we believe that we need a primary endpoint, probably with supported evidence from secondary endpoints, but not I think down necessarily to statistics, but that will be sufficiently more improvement.

I want to come back to some aspects of the trial and maybe Tim to bring you in here. So assuming success here and assuming an amended label for EMPAVELI that includes, I mean, from a standpoint of a sales force or investment or just future planning, is there anything -- is there any big lift here to...

Yes. It's not -- I mean these are orphan diseases, and this is a pretty concentrated base of physicians. So it wouldn't be a major increase. We do have an existing sales force at least in the U.S. for PNH, and there might be some overlap there. So it's not a massive investment for us.

Okay. Correct me if I'm wrong, I think the target enrollment at least on ClinicalTrials.gov maybe the Phase II, it was 90 patients something, but you've enrolled more than that, you have enrolled maybe 120 or 124. What was the reading for that? Was that just driven by demand? Or was there a statistical reason for that?

No. So very good pickup, Steve. So we -- it was 124 subjects, and the reason why we overenrolled is we wanted to have more patients with IC-MPGN. So again, there are 2 diseases here, C3G and IC-MPGN. IC-MPGN is less prevalent, but we wanted to make sure that we have the best chance possible of getting them separately in our label. And we ended up enrolling 27 out of the 124 and [indiscernible] looking for these patients to make sure that we imaged it.

Okay. So I guess the primary analysis will be on the overall population, but then there will be obviously important subgroup analysis on those distinct. Okay. And then would -- in the primary update, are you going to have any of the open-label data that would -- is coming later on in the study? Or will this just be on the blinded period, I think, 26 weeks?

This will be on the blinded.

Okay. Okay. The other thing I want to ask about this, so there's a weight-based dosing paradigm, I believe, in this kidney study, and that's if I'm not mistaken, that's not the case for EMPAVELI and PNH commercially, it's just one dose. What's, I guess, the reason for that in the kidney disorders?

[indiscernible] population. So we want to be able to dose adolescents as well. This is -- I feel that we're going to be able to make such a big difference in these indications. We received more requests for treatment now for C3G and IC-MPGN than we do for PNH. And the drug is not even past Phase III level approved yet, right? So that gives you a sense of the unmet needs and how important it is and how convincing this data, for example, where again, this affects adolescents. We enroll patients as young as 12 years of age. And of course, the dose needs to be adjusted for that.

Okay. This program is also under the Sanofi collaboration. So are there any milestones or anything to note associated with the data or approval? And then just maybe remind us of the structure of that collaboration that would influence the revenue opportunity?

Yes. Sure. So we did this collaboration with our systemic franchise, and they have -- so we have the rights to our systemic drug called Aspaveli ex-U.S., EMPAVELI in the U.S. They have the rights to that entirely ex-U.S. And so just as an example, when we got -- when they got approval in Europe for PNH, which was in April of 2022, we received a $50 million milestone. When they got approved in Japan, we got a $5 million milestone. The structure of the deal was a $250 million upfront. It included $80 million, and this was -- we're a growing company and financing challenges of the day and so forth. So they give us $250 million upfront with $80 million in development milestones. We also disclosed for cold agglutinin disease, which is an indication that we just discontinued in conjunction with them. We had announced that there's a total of $915 million in milestones. 100, we also just announced in our 10-K that when we discontinued CAD, $120 million of those went away. So that gives you a sense of the scope and scale of the new indication as C3G is a good example of that. For all revenue ex-U.S., we receive double-digit royalties, high teens to high 20s. So a very good deal for us.

And I mean just on EMPAVELI and the outlook here. So ALS or you just mentioned CAD? So there's been a couple of shots on goal here in the past and then, obviously, C3G coming up. I mean do you have a sense of where you go next? Or is it really about the pipeline like the siRNA sort of the next-gen assets in terms of priorities after this?

Yes. The story is for EMPAVELI continues to evolve. We have to be a little bit cognizant of that, of course, but we're still very much within the window where we could do something to maximize the revenue opportunity for that drug. That's something that we are excited about.

So we'll put back to SYFOVRE, obviously, the bellwether program. You said you had 90% market share. I think it's a little less than that in new patients, but still dominant, despite, obviously, all of the challenges that you faced since going commercial. I mean can you just level set this conversation on SYFOVRE and when do you attribute really your ability to take dominant market share to if you had to name a few variables?

It's very simple. I think you see. So this is, SYFOVRE is a drug that when you administer to patients with geographic atrophy, can slow down the progression of that disease by as much as 42% after 3 years of dosing, right? So geographic atrophy, if you'd imagine is like having a wildfire in your retina, where you start with a small patch and then it literally burns out and ultimately will destroy large spots of your visual field. The way in which this -- our drug was tested or any drug that gets approved in this disease is to be able to slow down the rate at which that fire rages. So needless to say, 42% is almost highly meaningful to these patients. But it takes time, right? I mean in the first year, it is closer to 27%, 28%. And over time, the effect amplifies, probably a little bit because the further you go out, the more the cells are protected. When we launched this product, what really stood out was the unmet need that exists in this disease. I don't think anyone can imagine what it's like to lose vision until you're actually in those unfortunate shoes. And the launch was -- I hate to say, but out of control almost, right? I mean in the first quarter where everybody was getting treated left and right by everybody. And then in the summer, in July, rare events were discovered of a safety concern called vasculitis. So now what is vasculitis? It's a form of intraocular inflammation that in rare cases can have a very negative impact on the eye, and I'll tell you in a minute how rare that is. But the reason why that was sensitive is because a couple of years ago, there was a drug on the market that had something similar that started with a few cases and then exploded with just a massive amount of [indiscernible] that ended up affecting between 1 in 50 and 1 in 100 subjects. So when we saw this happen in July of last year, we felt that the rate was approximately 1 per 10,000 injections. That was never an issue to start with. The question was, will it stay there? And the answer is we now know definitively, yes, it does. So this is a very rare event that occurs in approximately 0.01% of injections. And because of that, the physicians are very comfortable using this product in patients. It's just a matter of having that discussion with the patient and moving on from there. That has resulted in September and then especially in the fourth quarter, with really impressive growth. So in the fourth quarter, we had $114 million in sales, which one analyst exactly got on the dot. It's really impressive. I mean [indiscernible] just on the dot in the middle. And representative, I don't know what percentage was probably about 50% growth compared to the third quarter. So it was a reflection again of that unmet need, the fact that physicians are becoming comfortable with this. And now the opportunity for us ahead is to continue to build on that success and let the competitive dynamic play out. So this is what you were referring to, there is only one competitor on the market. And between the 2 of us, we will own this market for the next 4 to 5 years. For those of you familiar with biotech, it doesn't happen very often. Usually, I have 5 or 10 products competing for the small [indiscernible]. This is only 2 products. Now our competitor has approval so far only for one year of treatment. So in the summer, we will find out if they get approval for treatments beyond that. Their efficacy is stuck somewhere between 14% and 17% slowdown compared to 42%, which we have begun when we get into the third year. So there is a clear efficacy differential there that most physicians are acutely aware of. The main question that still needed to be resolved is will they also have the problem of these vasculitis rare events. And right now, it looks like they do. So I think that is something that in the next couple of months will play out favorably for us. In the second half of this year, things are going to be, I think, very clear both in terms of how the competitive dynamics pan out, in terms of what future growth and peak sales will look like. And one last little element that's important to remind you is that with the European Union, we are going through the motions, but we receive what is called a negative CHMP opinion. So the initial indication from Europe has been that they do not want to approve this product. And you could say, wait, why? I mean you have such a beautiful efficacy profile. Well, the missing piece for us was that we could not show a functional benefit, not because there wasn't one, but because it is very difficult in this disease to show it. If you want to test this, if you look at the screen and you look through a little hole in your fist, you can read all these letters like you would at a physician's practice, right? But if I ask you to run through these corridors and have a live [indiscernible] people, right, that is what life would look like. So that's corrected visual acuity is your ability to look through your fist and read these letters, but in geographic atrophy in our disease, that little tiny pinhole is protected. So it's not a good endpoint. And that nuance is complex to understand for most people, of course, and it's kind of what held us there. We have many other things where we have shown a functional benefit, but it was not the primary endpoint in our trial. So that is something that we need to work through. We've got 2 new reviewers assigned and in the spring, we will find out is, we can get behind this without the need to run an additional trial. So whether we get approved or not, both have a very valuable path forward, of course, with the unmet need that exists combined, of course, with the approval and the successful launch in the States.

I mean you've mentioned before that efficacy is really the hang-up for Europe and just sticking on this point of the European process, I just find it hard to believe that the retinal vasculitis stuff that you also mentioned, and your ability to get clarity on that and have additional data out in the public domain, I mean [ the raptor ] everyone has seen them. Do you not think that, that would play a role in influencing this next decision? I mean the landscape and that on the safety front has evolved and changed. And I would argue improved for SYFOVRE between now and the initial review cycle. Do you see it differently, is it all about efficacy?

Yes. So that is very true. But at the end of the day, our discussions were all centered around where is the -- yes, you saw a lesion size reduction? Does that mean that the function on the vision of these patients is impacted? And if you -- and we have all the trends that we need to really definitively in our opinion, make conclusions around this. I'll give you an example. We have analyses where you show function in the treated eye compared to the sham-controlled eyes, but also in the same treated eyes compared to the untreated fellow eyes in the same patients, right? It's hard to imagine that being a random effect. But if you're kind of -- if you look at it from a pure statistical perspective, unless it is prespecified in a statistical analysis plan in a new trial, you don't have to accept that is true. So that is kind of the back and forth, but that has very much been the center point of the discussion, not the safety piece.

Back on the competitive dynamics, just on market share. Do you have a sense of what your market share is like by segments here? So I know like full view versus non -- so the region -- where the lesion is affecting the eye, maybe good vision versus bad vision at baseline bilateral disease versus one eye affected. Do you know if you have different market share in certain segments based on the way the trials are run?

A little too early to speak to that. Again, our competitor did not run a trial on patients, where the central pinhole is involved, right, which is about 60% of patients are so far advanced that they couldn't even read these letters anymore. We included those patients in our trial, our competitors did not say you would assume that retina doctors who use our drug for those patients. But it's unclear that, that distinction is made properly in the overall world.

Okay, Tim, so your competitor in this space is not only providing near-term guidance, but they're providing long-term revenue guidance, okay? So there's a number out there that people can triangulate to, but just in general, I mean, for Apellis, the company, and how you think about revenue expectations, but also cost expectations and you're at this pivot point of turning profitable here, from potentially in the coming year. Those are my words. I don't want to put my words in your mouth, but this is an opportunity. I mean you can speak on earnings calls, but also if you want to just elaborate on like, how are you seeing the cash runway and financial stability of the company here as you transition to a point of profitability, would you provide guidance sometime soon?

Yes. We've been pretty circumspect about that. We always took the view that in a launch period, not knowing dynamics like seasonality and so forth that maybe it's typical for us to -- we've always said, probably at least 18 months from launch, so that puts us potentially next year, but we really haven't committed. And we'll think about that. And we're also thinking about guiding on the cost side, but we still haven't done that. What we have said, however, is that from a cash perspective, we just did a small kind of funky little financing unwind of a hedge that gave us some capital, which puts us in a position where we could confidently say that at least under our current business plan, we think we can fund our operations. So in fact from a -- do we ever truly need new capital perspective? The idea is we can operate the business we currently have. So that's the most guidance we've given, and we're certainly going to consider more granularity as time goes on and we get through our first full year of revenue with SYFOVRE.

Does that contemplate your FDA approval to that obviously?

Either way.

Okay. Can I ask about the -- so speaking of long-term revenue expectations here? And what -- I mean, at this point, it seems clear that SYFOVRE is headed towards blockbuster status. And the question is just how many -- is it $1 billion or $2 billion or $3 billion or more long term. And when you think about that, right, what that implies about how you value the asset at this point. I just -- I wanted to ask about long-term competition in this space. There's been changes at the FDA level and maybe an evolution in how this is going to play out for future people. There's different endpoints now being used in Phase III programs that are starting. In this case, making -- genericizing the market, I think it's complicated, right, because doing PK in the eye is a challenge. So can you even have a biosimilar generic competitor, they have to run an efficacy study, I imagine. And these are all things people are talking about. Maybe you can speak to how the competitive dynamics in long term here are complex and how you see it all playing out. And by the way, you have 2 minutes to cover all that.

Well, I'd see if I could give any context, right? I mean so I think it's important for patients, right, that we stimulate the innovation and we -- so I would hope that flexibility shown by all the regulatory organizations to get the therapies that are better. But the reality is that the way things look right now, it's exceedingly hard for anyone to develop a drug in this disease. It was hard against no competition or no established standard of care. It's especially hard now, right? I mean if you -- based on lesion size, again, I mean, I gave the numbers earlier, running a non-inferiority trial against something like that. Like SYFOVRE is going to be taking a lot of patients and a lot of time. The last indication from the previous leadership that you would have to run a superiority trial, which I don't even know where you would start with that. So I think it's going to come down to your point, more innovative endpoint that could be involved, but that takes years to develop and validate. So I think we are, fortunately for us, in a very kind of exclusive and unique position, but I hope for patient's benefit that the field gets opened up more.

How do you take that?

Okay, so the other problem is that most late-stage drugs are complement-based, and we control the central component of complement, which means they're going to do a partial blockage of something we control all of. When you overlay that to a superiority study requirement, which is the current guidance, it looks -- it's very hard to intellectually picture what you do there.

From the Apellis standpoint in the pipeline and maybe you have assets, maybe siRNA, something that would play a role here. I mean do you think about extending the GA franchise? Or is near and mid-parameter really just about maximizing SYFOVRE's impact?

Well, near term is definitely above SYFOVRE, right? But we -- I mean, we don't stop. We think about all the things that we could do to make life better. There may be a way to parse out these very rare cases of vasculitis and predict which patients are exposed to that. That was -- I don't think it would make a big difference, but it would be helpful, and it's important for those rare subjects that are at risk. We are thinking about innovative ways to establish that functional relationship that is better than what currently is around. So we view that as a contribution to the field in addition to what we do. And we are thinking about combinations with SYFOVRE that could make SYFOVRE even better drug. Something else where we have a lot of ideas that will come to fruition in the not-too-distant future.

Okay. We'll continue the discussion in the breakout room. And I just want to thank everyone for joining. Thanks, Cedric and Tim from Apellis for being here.