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

Good day, everyone. Thank you so much for joining the 23rd Annual Needham Healthcare Conference. My name is Joey Stringer, and I'm one of the biotech analysts here at Needham & Company. It's my pleasure to introduce our next presenting company, Apellis Pharmaceuticals. Joining us today from Apellis is CFO, Tim Sullivan; and David Atchison, Senior Vice President, North America Commercial. For those of you joining us on the webcast, if you want to ask a question, you can do so at any time. You can do it by submitting a question using the chat box at the bottom of your screen. So with that, we'll go ahead and get started. Tim and David, thank you so much for joining us today.

Thank you.

Thank you.

Well, we'll jump right in. SYFOVRE, it's off to a great start, $275 million in 2023 sales, $114 million in fourth quarter of last year, pegcetacoplan metrics. Question on our minds is revenues going forward. We know you're not guiding at this point, but just curious what would be the impetus for you to start providing revenue guidance? And would you have to get an understanding on certain trends or dynamics first?

Yes. Thanks, Joy. So thank you for having us. So regarding revenue guidance, it's something we think about, but last year was a launch year for us, so unusual in that regard. In addition, it was in and of itself sort of an unusual year. So I think at the very least, we'd like to kind of understand how the full year unfolds for us in 2024, and then we'll think about possibly guiding.

Yes. And getting into more of the launch metrics here, and you provided some -- you had some seasonality from Medicare some weather-related delays and -- on your last earnings call, I guess how should we think about quarterly seasonality going forward? Are you expecting sort of a typical 1Q and 3Q a little bit softer than 2 and 4? What are your thoughts on that?

Yes. So look, it's a great question. Thank you, Joey, and thanks for having us. So like we talked about coming out of Q1, we did anticipate some seasonality because of the Medicare reverifications, which happens every year, right, for patients that are covered by Medicare. And that coming after January 1 into February, we anticipated some of that. We also had some weather, we had some storms that came through. And one of the things you'll see in reverifications and kind of seasonality, the anti-VEGFs, typically, have seen even, for example, EYLEA only sees about 5% growth in that first quarter when typically you would expect more than that. just as a result of some of the seasonality. I anticipate you'll see that continuing year-over-year, right, because that's when reverifications come in. I think the rest of it, Joseph, is really dependent based off of the other quarters you're talking about, certain things where you've got lots of people that are traveling vacations, certain things that happen like spring breaks and that kind of stuff. But I can't tell you that, that's going to have the same kind of impact that you'll see during a situation like we do with reverification. So I think typically, Q1, the rest of it, I think, just kind of depends on what happens in the daily and monthly kind of things that happen with people travel and that kind of stuff.

Okay. Yes, that's very helpful. And we're just over a year since SYFOVRE launched in the U.S. How are the persistence rates looking? And have you seen any trends in patients who are discontinuing treatment at all?

So I think it's a great question. I think it's a little bit early to answer that with specific numbers. Here's what I can tell you, if you've got a patient that started on products, the month that we launched last year in March, which is when we put product in the channel, the majority of our patients are being treated every 6 to 8 weeks. So remember, we've got every month and every other month dosing in our label. And if they're going every 6 to 8 weeks, some of these patients just now coming into March and April are only getting their 6th dose that they started a year ago.

Yes.

Well, we believe that persistency and the patients returning to get continued injections at every 6 to 8 weeks has been consistent, but it's really kind of early to see the data. Anecdotally, the physicians say that the patients have really stuck to it, but we don't have enough data to really present anything specific at this time.

Got it. Yes, it's a good point on persistence may a little bit longer time to kind of get a better picture of that. And I guess a follow-up to that. You kind of touched on it on the compliance rates. You mentioned every other month dosing. Do you have any data or are you seeing any trends on potential missed injections or anything there? Or is it -- how is it looking in terms of...

Yes. Look, it's -- again, that's data, that's probably a little bit early for us. I think some of the things that played into the early part of the year on reverification, that kind of stuff, storms, snowbirds, those type of things. Probably, you'll see some of that if you talk to enough physicians or give you some information on that. Our data is a little bit too early to tell you what the compliance rates completely are. And the other thing is the data is a little bit hard pulled together. So we need a little bit more robust data to be able to do that. But that's kind of where we sit with that discussion at this point in time.

Okay. Now there are two proved drugs for GA, you are year into the launch. There's another one that's been on the market for 6 months. Just in general, are you seeing an increase in GA diagnosis rates? And what do you currently estimate the diagnosis rate is?

Yes. So look, I think we're going to step back for just a second and talk about some of the data that we had discussed in our launch, which we thought the market in the U.S. alone was about 1 million patients, right? One of the things that we had have learned since then is that about 50% of the patients that have been diagnosed tend to sit outside of the retina practicing or injecting offices, mostly because those patients came in and if they were diagnosed, they -- the retina specialist said, "I don't have room for you in the clinic right now because I can't help you". Right? So go back to your general ophthalmologist or back to the OD when we've got something, we'll let you know and you can come back in. So I think that plays a big part of it. And we believe the market is probably somewhere in the range of 1 million to -- 1.4 million to 1.5 million patients today. The other thing you'll notice too is, and we learned this in our work before we launched. A lot of patients may have actually -- the physician may have said, you diagnose, I think you got GA, but nothing went into the EMR system because there was no treatment [ memo ]. So we also know that there's patients out there that have been diagnosed that now need to get referred back in based off of knowing that they've got the disease. So a sizable market for sure. And we think it's -- we're probably pushing 1.5 million patients in the U.S., which is significant for sure.

Yes. And I guess depending on how you look at market share in the early innings, SYFOVRE has -- I think if you go by miles shipped commercial sample, you have 77% as of the end of last year. But if you look at sales, it's 90-plus percent. Those are certainly impressive numbers. So what's been the main drivers behind the early market share dominance for you guys? What's the...

That's a great question. And I think just for clarification, so one of the things that we do look at that we think is -- now that we're far up into launch is probably a more reliable market share number is the number of injections, right? Which is the 90% that you were talking about, we are approximately 90% still today. We are definitely the #1 used GA product in the space. And we think SYFOVRE will continue to be the #1 used GA product moving forward. I think a couple of dynamics here, right, that play into it. So we -- when you take a look at the number of doses that are out there, we've got well over 200,000 injections that have happened. And you'll look at the competitive view on market share, they're still looking at vial shift, which we don't think is accurate, right? That's why we've shifted over to a higher volume where we've got accurate data with injections and sales says we're around 90%.

And just curious for newly diagnosed GA patients, what percent are on SYFOVRE versus IZERVAY right now? And how is that -- has that changed?

Yes. So look, I think a couple of things here. We definitely have the majority of patients still coming to us as first start patients, first use patients in the space. And then some of the questions that you are -- that have come to us today around, well, how does that play out moving forward, we continue to think that we're going to have the lion's share of the market. Based off the fact that our messaging and all of the things that we're talking about in the field and with our positions is really about the efficacy of the product. You got to remember, this product has efficacy up to 40% in -- 42% in non-Syfovial patients through our GAL data in year 3. That's the highest percentage reduction growth in lesions in any of the data sets that are out there. So that's where we believe we'll continue to land, and it's based off of the efficacy messaging and the position that we have with the brand and just the sheer efficacy that we've got with the products.

Do you have any color on how many patients have switched from, say, IZERVAY to SYFOVRE, over the last 6 months? Or maybe just more broadly, any color that you can provide on patient switching potentially between the two drugs? And what are the main reasons why patients would switch?

Yes. Look, so a couple of things. I don't -- it's difficult -- it's data, that's difficult for us to see completely. One of the things that we look at is kind of three buckets, right? So you have the bucket of physicians that we talked about last year and some of our market research that where using a lot of SYFOVRE did not stop when we had some of the challenges that we had during the summer and then continue to treat new patients. Then you have some of these offices in the middle that were using SYFOVRE, and they stopped treating new patients with SYFOVRE, made an adjustment and started bringing it out IZERVAY patients, right, starting to treat those patients with IZERVAY. I don't think there's a lot of offices that I'm aware of or a lot of physicians of I'm aware of that completely stop SYFOVRE. They usually kept the patients on it because they're stable and they felt comfortable, they are okay. But they did service some IZERVAY patients, right? And then you've got this bucket, this third bucket, where they haven't done anything yet. Nobody had jumped in on either brand, frankly, when IZERVAY launched and we were going through a few things in the summertime. And we're starting to see those offices continue to take off for us. Obviously, there's some IZERVAY that is being used in some of those accounts as well. But what I can tell you, that's very positive, is that we have double-digit new accounts still coming on every week since launch. That means there's a naive account out there someplace that's ordering product for the first time, and there's double digits at that happen every week even through last week. That gives me a lot of confidence that we'll continue to see superstrong growth with the product and patients being put on as first-start patients for sure.

On your last earnings call, I think in our chat here, you talked about patient estimate numbers and you gave an update, I think, on your last earnings call, 1 million GA patients, you've kind of increased that prevalence of 1.5 million. Just can you provide any additional color around where this increase in prevalence is coming from? Maybe what are the underlying assumptions behind that? And then kind of as a follow-on, can you generally describe what these additional 500,000 patients are? Are they early stage GA patients? Are they expected to progress to a GA diagnosis?

Yes. So it's a great question. So we through various channels of information that we have, including some market research, that's part of the process that we went through to truly identify if the market was bigger than 1 million patients. We always anticipated that it probably was. And there's also new data and publications and epidemiology models out there that would suggest that's bigger. I think the other thing that also has happened is you now have ourselves and you have a competitive product out talking about geographic atrophy. So there's two things happening here. There's the dynamic of, "Oh my gosh, I got patients in my office, I could inject today. And I'm not going to identify them, treat them and know more about them. And then I've got the dynamic on the outside, which we talked about a little bit GO, general ophthalmology and OD offices, where a lot of those patients sit that need to be referred in. And then quite frankly, it goes back to some of the reporting that happened before there was anything available. Physician, I don't have anything to help you. I know you have a disease that's called geographic atrophy or dry AMD, but there was no coding. There was nothing in some of those charts and these offices have gone back and done that work in the last year to really identify the right patients. So there's a whole bunch of dynamics that have played out here that I think tells us how we've gotten to that -- that sizable market move to 1.5 million patients.

Got it. That's very helpful. Switching last couple of questions on SYFOVRE here to, ex-U.S. developments, are there any updates you can speak to in your reappeals process for, say, SYFOVRE and the EU, as the conversation around data shifted at all?

Sure. So we don't have any specific updates regarding the appeals process other than what we talked about already publicly and our current guidance is that we'll get another CHMP opinion in the second quarter. In terms of data and things that we are looking at differently, obviously, we get some feedback from them and we can tailor some of our responses to address those specific concerns. So the focus has narrowed somewhat on those points. But as we always have said, this is an uphill battle, and we're fighting it.

And in terms of next events in that EU appeals process, Tim, you mentioned the final CHMP decision end of April. Then to my understanding, there will be a final EC decision in early July, will the EC decision be final? And is there any chance of appeal, be it beyond this?

Okay. So just to start out, I think our guidance has been Q2, not any specific month in terms of the next CHMP opinion. And they do have meetings at the end of each month. So we haven't guided which one that is. And then in terms of only those Q2, but in terms of an appeal after that, it's sort of -- I think at that point, there really isn't any administrative avenue other than this first appeal. And I think we would have to consider our options should that be negative?

Okay. Fair enough. Makes sense. Last one on GA. There's a competitor that has a Phase III, is planning to start a Phase III trial. And where the primary endpoint is vision protection-based BCVA letter loss. They showed an effect on -- in the Phase II on the preservation of vision, but not on lesion growth. So I guess my question to you is what are the puts and takes on a potential competitive threat to SYFOVRE from some of the drugs that does show improvement in vision loss versus one that shows improvement on lesion growth.

Sure. So I guess I would start out by saying that we have shown, at least on a post-hoc analysis, some effect on what we call functional vision. So just to step back in terms of geographic atrophy and what is measuring functional vision, BCVA is typically considered a poor measure of that for geographic atrophy because geographic atrophy is characterized by these lesions that often start -- most often start in the periphery and then move towards the phobia. And BCVA is a very specific measure of foveal acuity. So the way to think about it, for those who may not know is when you look through a straw, you or I look through a straw, we have 20/20 vision. We'll still have 20/20 vision and be able to read a selling chart. Now -- if you -- I ask you to look through that straw and walk across Fifth Avenue during rush hour, that's a mortal decision, right? That's the difference between functional vision and GA and BCVA. And so what's important to know, we think very highly Annexon, they kind of remind us of appellate when it was a precommercial company. They take big swings. From the perspective of conventional wisdom, it became sort of an accepted fact that BCVA, you wouldn't really show in long term -- we show a benefit on BCVA until, call it, 2, 3, 4, even 5 years out. And so functional vision as measured by BCVA was sort of put to the side by FDA and NIH when they came up with the idea that lesion growth was a good surrogate marker. And ultimately, I think the thing to remember when you're doing a Phase III study or any study in geographic atrophy is that if you can't sufficiently slow lesions, you're not going to save photoreceptors and photoreceptors are what see. So the photoreceptors sit on top of the RPE layer and these lesions as they grow, that's the RPE layer dying. That's what you're really looking at. And so if that continues at any kind of a pace, you're not going to save photoreceptors over time. And so there are really two -- and so that gets to the idea as BCVA, something that is predictable at 12 months. And the predictability, I think the best data we have on that was IZERVAY's Phase III study, the GATHER2 study, where they had a very similar endpoint, actually the same endpoint, which is the time to BCVA -- 15-liter BCVA loss, right? And they showed post-hoc, a benefit of 12 months that had a p-value that was positive, again, post-hoc. But after 24 months, it disappeared entirely. And so that goes to show that, that probably were a random event. And with respect to Annexon's data, it looks like they got all of their benefit from month 12 when the sham dropped precipitously. So again, it's definitely an approach, but ultimately, I think it's too soon. We believe it's too soon. And I think FDA and others have suggested it's probably too soon to see a BCVA benefit in geographic atrophy at 12 months. So we believe in lesion size as a good surrogate for that period of time for functional vision and I think FDA agrees and -- yes.

Okay. Well, that's a very useful discussion on SYFOVRE and the GA program. I want to switch to EMPAVELI, you have a data readout coming up in MPGN and C3G. Just briefly, can you give us an overview for each of these indications and some prevalence numbers?

Sure. So C3G and what we'll call it primary IC-MPGN is what we're studying. Those are debilitating kidney diseases, and they're caused by an uncontrolled complement activation and breakdown of C3, which leads to low C3 in the serum and C3 deposition in the kidneys, and that leads to kidney damage, inflammation and other sequela. IC-MPGN is slightly different from C3G in that there's also immunoglobulin disposition on the kidney biopsies. So it's not something you typically would know is too different by other measures. So your phenotypic characterizations. And so approximately 50% of people who have IC-MPGN or C3G, they'll suffer from kidney failure within 5 to 10 years, requiring either dialysis or a kidney transplant. And then for those patients who do get a transplant, the recurrence is over 80% and 50% of those patients will lose their renal allograft at some point. So it's a pretty devastating disease. In terms of prevalence, there are roughly 5,000 patients in the U.S. as many as 8,000 in Europe. And of the total, somewhere between 15% and maybe 25% of the total population is post transplant of that sort of 5,000 and 8,000 and probably, again, 50,50 ICMPGM and C3G in terms of that. that number, so 2,500 and 2,500 in the U.S. And in our study, again, we mentioned we're only studying the primary form of IC-MPGMs. The other portion is so roughly 75% or 80% of the IC-MPGM patients are secondary to some other infection or immune condition.

And for these patients, the ones that are diagnosed, where are they getting diagnosed and how and by whom specialists, maybe additional color on that.

Yes. So some of the conditions -- so these are things where the -- these are diseases where the phenotype is something you can see quite clearly, you'll get only blood in your urine, edema, gout, hypertension, fatigue and ultimately, they get tested, their blood test would show some proteinuria increase and so forth. So it could be anything from your -- generally would probably be your primary care physician or somebody who -- if you went into the hospital for one of those -- for one of those conditions.

Okay. And then in terms of the trial design for Phase III. Can you go over that endpoints and the clinical meaningfulness of those endpoints?

Sure. So the primary endpoint is UPCR, which is essentially proteinuria. And that is -- the trial is powered to show at least a 30% decrease in proteinuria versus the versus the standard of care. And patients are allowed to be on standard of care in addition to EMPAVELI. And the study is -- it enrolled 124 patients who are 12 years of age or older. And they have to have either primary IC-MPGN or C3G. And so roughly 20%-ish of that study is IC-MPGN. And it's also the only study to have both native kidneys and kidney transplantation patients as well. And the patients were randomized 1 to 1, et cetera. And the readout is a 26-week -- readout with the 26-week open-label period following that and then the ability to go into an extension study.

And in terms of the key secondaries, do you have any thoughts around -- is that going to really help drive uptake for -- in each indication and maybe some rationale behind that in terms of beyond the primary endpoint here.

Sure. So there are several key secondaries. Probably the more meaningful one would be eGFR. So if that's stable or improved compared to baseline, that could be helpful. One of the key endpoints is a composite of the reduction in uPCR versus baseline as well as eGFR versus baseline. So that's a more holistic picture, and that can be helpful. But overall, obviously, the primary endpoint is the most important.

And in terms of a little bit bigger picture strategy here. So EMPAVELI obviously, already approved. In PNH, no group therapies for IC-MPGN and C3G. So if you were to get that label expansion and be first market in these indications, -- what would the EMPAVELI pricing dynamic look like?

Yes. I think Joe, we still have some work to do on that, of course, because we're still before we can see actual information in our Phase III and what the label model look like. But the price -- we've set the price for EMPAVELI, it's a franchise systemic type of franchise for us. So you would anticipate it to be priced roughly in the same place where we currently are in [indiscernible].

Got it. And Again, more of a commercial question. You have the PNH commercial infrastructure in place. Let's say, if you were to get label expansion in both indications, how much of the existing sales force for PNH would you be able to leverage? And how much more would you need to add to achieve the healthy market in those two indications?

It's a great question. I actually look at this beyond just the sales force, right? I look at all of the teams that are actually out there. We've got medical teams, sales force, account managers, everyone who kind of touches these accounts where we've got EMPAVELI patients for PNH today. I look at the same thing in C3G, IC-MPGN, there's a couple of things you got to think about just -- and you guys probably wouldn't know this, so I'll give you a little rundown, internally, operationally, a lot of things don't have to change. We're set up on a on a pharmacy shipment perspective, patients are treated at home if they're at home. We've done a lot of work to make sure that there's access for patients in oncology clinics, all those type of things, for that are PNH patients. We would do some of the same work here if the product needs to be available in a center where they've got a lot of C3G patients. But again, all the other operational pieces are kind of in place, which is really good for us. With some additional tweaks and nuances that we'll have to manage around what the specific patient needs here. From an organizational perspective, it will be dealing with two very rare, ultrarare diseases. So we do think that you can expand out the efforts across all of the teams that we've got to a certain extent, and then we can make sure we're focused on the franchise for EMPAVELI and not specific to one disease state or the other. That would be kind of what we want to try to think about. But again, a lot of this can't really be finalized yet until we actually see the label and what our market totally looks like and where we're going to be sometime in Q4 after we have our Phase III readout.

Got it. Makes sense. And maybe a pipeline question here. Beyond SYFOVRE and some of the indications for EMPAVELI that we've talked about. Are there any indications or disease areas that you're looking at in terms of interest level to pursue and are you thinking about organic internal growth? Or would you consider BD opportunities beyond SYFOVRE and EMPAVELI?

A couple of different questions to answer there. Right now, we're focused on what we have in-house. So internal innovation and executing on our commercial plan, right? We've got -- obviously, we're still in the -- you'll call it, the launch, if you will, the extended portion of the launch for SYFOVRE, and we have a really important readout in C3G and IC-MPGN this summer that we're very confident in for EMPAVELI. And we didn't talk about our Noble data, but -- but we've seen disease treatment in effects with EMPAVELI that we've never seen before in this disease. So we're really excited about those and we're focused on those. That said, from an internal perspective, we have a really cool early pipeline that we're going to be talking more about over the coming months and year. And yes, so from the perspective, I guess I'll move over to the organic versus internal growth, I guess that sort of says, at least at this point, subject to something we aren't aware of right now, internal growth is our focus.

Okay. Very helpful. Kind of a couple of more questions here. These are more focused on financials. So in terms of debt, how much debt does Apellis have now? And maybe looking more near term, how much is due by the end of 2025?

So we have two components that are debt or debt like. The first one is the convertible security. There's roughly $94 million in face value of convertibles that we still have outstanding. So those are more or less equity at this point, but they are technically a debt obligation potentially but that's small. And then we also have the SFJ obligation, which is in total, if we were to pay it over time, comes in at about $360 million. But the thing about that obligation is that we do have fixed milestones over the next 24 months that are actually over the life of the payment period that are substantial, especially in the next 21 months really and that amounts to about $200 million. So one of the things we're looking at is potentially figuring out a way to change that into a more longer-term facility or something. So it's something that does have a reading on our cash flow over the next 21 months. But we've said before that we have the cash to cover our operating expenses. So it's a would be something that would be balance sheet management really.

And in terms of current cash position, what are your thoughts on cash runway? And any potential milestones outside of the ones you've already mentioned that we should be aware of?

So the cash at the year-end was $351 million and -- what we did was, as we mentioned on our earnings call, we unwound the capped call that was associated with our convert or at least most of it. And that brought in about $100 million in nondilutive capital. So that brings you pro forma to about $450 million in cash. And we said that, that's enough to cover our operating expenses. So from a cash milestone perspective, there may be one or two little things with Sobi, but they would be minor. And we really wouldn't incorporate that into our runway from a broader perspective.

And a follow-up to that, a little bit more granular in terms of OpEx. What does that look like? Or how should we think about that over the next 24 months?

Well, all we've really talked about was what it's going to look like at a high level in 2024. As you know, we had the reduction in force in August of last year. We haven't significantly hired beyond that. And we don't have any plans to do any massive hiring this year as well. That said, we may be adding on some pieces here and there to our infrastructure. But we have said that 2024 will have a lower operating expense than 2023 did. That's the only guidance that we've given. Outside of that, we haven't guided beyond. But I think the big swing factor, obviously, is whether or not we get approved in Europe. And right now, we're calling that option value. But what we did was we built out some infrastructure in Europe. And obviously, we continue to support that infrastructure.

Do you believe you have a clear path to sustainable profitability here, Tim. What does that look like?

Well, I guess, by deduction, if we have the cash to cover our operating expenses, I think we should and of course, the SFJ payments aren't things that flow through our income statement. So that actually is -- should tell you that there is a reasonable probability that we will be able to get to GAAP profitability and that it's a pretty clear path.

Got it. And then maybe last question from us, it's sort of related. Just general thoughts on financing strategy and what options are on the table here?

Well, I think options are a great word for that. We have options, and it's -- but any financing is an optional concept for us. It's not a need to have, which is candidly very different from how we lived our lives over the course of the life of a Apellis. I've been at Apellis for 10 years. And to be able to say that financing is optional. That's a nice thing to do. It's not, hasn't been how we've lived our lives over the course of the history of Apellis.

Well said, Tim, as a reminder to anyone listening on the webcast, you can submit a question using the chat box. It looks like we've got them all, Tim and David, we are up in time for this session, want to thank everyone for joining us on the webcast. And thank you, Tim and David, for participating. Everyone, have a good day.

Thank you, Joey. Appreciate it.

Appreciate it.