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

My name is Colleen Kusy, I'm one of the analyst here covering biotech at Baird. My pleasure to have with me the management team from Apellis Pharmaceuticals, including Co-Founder, CEO, Cedric Francois; and CFO, Tim Sullivan. So Cedric, Tim, thanks for being with us this morning.

Thank you.

So for those who are less familiar, maybe to start with a brief company overview, and then we can hop into Q&A.

So Apellis is a company that went public in 2017, so it's an old biotech company. We have had a great fortune of getting 2 products approved, 1 in 2021 and then last year in February of 2023. The first drug is a drug called EMPAVELI, which first got approved for an indication called paroxysmal nocturnal hemoglobinuria, PNH in short, where it was designed in the clinical trials to show superiority over the standard of care at the time called SOLIRIS or ULTOMIRIS. And the concept there was that within the complement pathway, which is our garden where we play biologically, that by going centrally [inter] cascading having a broad effect of control over a complement that we could improve on the benefits that SOLIRIS and ULTOMIRIS are providing to patients with PNH. And to put that briefly into context, anemia is a big problem, arguably one of the key problems in that disease. And on patients with a baseline hemoglobin level of approximately 8, we showed an improvement of close to 4 grams per deciliter in that -- in our Phase III clinical trial. So in PNH, it has completely kind of changed the way that disease is perceived, better understanding and of course, a new standard of care. Then in February of last year, we got approved with SYFOVRE for geographic atrophy. Geographic atrophy is the leading cause of blindness in the elderly in the western world. It is a disease where like a forest fire, people start losing retina, typically around the age of 75. I mean, it's really a disease of aging, of course, and we're in an irreversible process. Ultimately, you end up being blind. It is a degenerative process, neurodegenerative process, for which no therapies were available. And SYFOVRE was the first therapy to be approved for that indication. SYFOVRE is now approximately 1.5 years on the market. I said one of the best launches in recent memory. And again, has kind of completely changed how that disease is now finally being handled in the retina community. And then notably, just a month ago, we had another Phase III clinical readouts for EMPAVELI again, our drug in PNH where we evaluated it into indications called C3 glomerulopathy and the immune complex membranoproliferative glomerulonephritis, IC-MPGN. And in these 2 indications, we had a readout that, frankly, exceeded even our valid expectations in the sense that we had a readout that was arguably so good that patients -- most patients probably who go on this therapy in a timely fashion, do not have to face transplantation or hemodialysis anymore. Without a doubt, the best-in-class data ever shown in these disease indications, and we look forward to now hopefully next year, make EMPAVELI available to these patients as well. So 2 drugs, both we believe, on a path to blockbuster status. And a pipeline that we haven't spoken a lot about in the middle of the whole commercial deployment in the last 2 years, but we're very excited about, too, that we'll be talking more about in the second half of this year and early 2025.

Fantastic. So yes, let's dive into geographic atrophy. So yes, as you said, 1.5 years into launch, the first drug approved there. How is the market of GA been similar or different to what you expected now that you're a [ 1.5 year in ]?

So first of all, it is a very unique place to be both in terms of the physicians that take care of patients with retinal diseases, to retina specialists as well as in the model of reimbursement that is used here in the United States, which is a buy-and-build model. So essentially, the retina doctors buy the product from us and then get reimbursed themselves from the payers, right? So that whole system is a system that the retina community is used to, thanks to the anti-VEGF therapies that are on the market. So the reason why this launch went so well is that the retina community was ready to use this product, knew how to use it, how to get reimbursed, how to administer it. And in a disease where I think, quite frankly, most people, including us, again, probably unestimated how meaningful it is and important is for patients that have this disease to be able to slow down the progression. So yes, very rewarding and several steps in front of us still, of course, I mean, European process for approval, which has had its take-ups. A couple of other things, and then we look forward to next year to really making this available to patients globally.

Great. And so the -- you've put out some additional functional data in the last number of months, including some presentations at ASRS, kind of what has that data shown? And has that impacted physicians' perception of SYFOVRE and therefore, their use?

Yes, this was really exciting for us, right? So what we have very clearly shown is that we can save retinal tissue. To put that in perspective, in patients with kind of the more important lesions, we sit outside of the center of the vision. In those patients, you can slow down the disease process by as much as 42% in the third year of dosing. . So very meaningful reductions in lesion size growth. We also have shown using an instrument called microperimetry, that the retina that is saved can see late, so perceives late, to kind of key components of you safe tissue and this tissue is actually tissue that works. What is much harder to do is to then actually measure the functional impact at least over a period of 1 or 2 years, where you say, okay, how does this impact reading, for example, how does this impact measurements that have so much variability and so many interdependencies that is hard to get any type of statistical signal out of these measures. So that is something that was difficult for us because [indiscernible] kind of went back to that fact, saying like, "Oh, sure you safe tissue, but it doesn't do anything for patients, which is, of course, not true. And then in the third year of dosing because we have an extension called the GALE extension study, we then for the first time on these microperimetry measures on prespecified end points start seeing statistical differentiation from champ. So really exciting, all kind of pointing in the same direction of what we had hoped would happen.

And have you seen the physician perception change with this new data? Or do you think there's still education that needs to happen in terms of the functional benefit?

There's definitely still education to be done, right? I mean this is still in a very early launch. I mean, we're only 1.5 years into it. And I'd say 1/3 of physicians have -- are really embracing this as a new modality. The other 2/3 are maybe less enthusiastic, maybe on the sidelines still, in many cases, kind of seeing what's going to happen the evolution of this. So there's a lot of patients and a lot of physicians still who need to be educated, who need to understand what the impact of these drugs are. And we look forward to doing that.

And on the safety side, so there is events of vasculitis that came out last summer, and we continue to see some rate of that today. How is your understanding of the events of that changed? And kind of where do you think the perception of the safety profile is today? .

Yes. So the great fortune we had was that these rare safety events did not stop physicians from prescribing our drug, right? So that again is a reflection of the need that these patients have and the desire to be treated. But what that did is it allowed us to build such a huge denominator that we have a very clear understanding now of what that safety inventory means, right? And the bottom line is that it is limited to the increased risk, is only there, we believe, in the first injection. It is at a rate of about 1 in 4,000, which is similar to the risk effect getting infectious and ophthalmitis. And you have to remember, I mean, doing an injection in the eye is not something that you can do hundreds of thousands of times without ever running into issues. That risk of an intravitreal injection and getting an infection is approximately 1 in 4,000 every single time. So the added risk here is only on that first injection. About half of these patients have partial or even full recoveries as well. So understanding and having the knowledge now to communicate that to the retina community is something very valuable to us, and allows us to start focusing on efficacy.

Okay. And have you seen physicians change how they use SYFOVRE in light of the vasculitis? And how have the kind of use patterns changed?

Yes. I think the again, as always is the case, I mean, people get their bearings start in a certain place and then from there as they become comfortable, start branching out. I think typically, the patients that in the past 1.5 years have mostly been enrolled in treatment with SYFOVRE are patients that have advanced disease, may have lost 1 eye already, another eye that is at risk. . Now in the future, right? I mean the goal is to go earlier and earlier. I mean I can tell you, I have geographic atrophy in my first day, I want to get treated the second it shows up. Because what we see with this drug, which is so exciting is that the longer you treat the more you slow down that forest fire. So you really want to go as early as possible and not use this as a last resort.

And on that topic, how do you think about the segments of the GA market? Who are the most likely that are on treatment now? And how big are those separate segments?

So I think we think that approximately 15% of patients with GA that are actually being seen by retina docs, have or are receiving treatment with either our drug or the computing drug. The -- that is -- and I mentioned only the ones that are being seen by retina doctors because we believe that as many as another equal number of patients are not being seen by retina doctors. . So if you take that into account, it's probably close to 7% to 8%, right? So really only scratching the surface. And again, a lot of room for growth and something where -- on one hand, work with the retina community to educate them. On the other hand, we are also working with General Ophthalmologists and awareness outside of the retina practice.

And have you seen those referrals from outside practices start coming in yet?

Yes. So that is absolutely happening. Again, early days, but exciting trends there.

And so on the more recent side of the launch, you've had a competitor come into the market now with a permanent J-code. Can you just kind of qualify for us the type of headwinds you're seeing in terms of new patient starts with the new competitor?

Yes. So Izervay is a drug that targeted to complement pathway downstream from SYFOVRE. So SYFOVRE controls within the complement cascade, both C3 as well as C5 activation Izervay only C5 activation. We believe that, that is reflected in a differentiated efficacy profile, which is really important. So Izervay a drug that has a couple of advantages that physicians may have there as a perception. It is -- how should I say, it's more -- it's less viscous because it's less concentrated things that make it easier for physicians. But the key thing here is that our drug is differentiated on efficacy. So when the J-code came out, to your point, there was a bit of a loss on the first injections. But what we see now is the messaging and now that the balance has been struck between the 2, the momentum shifting back towards SYFOVRE.

And what's been kind of driving that shift over the change of the recent months as that settled in?

So I'll just say there have really been 3 factors that have been kind of headwinds for us that -- the first one would be the J-code, right, which has happened with us as well. We saw a jump in new starts with the J-code. The second one is contracting, right? So there was some aggressive contracting that was going on that started in the second quarter. And then also, I guess the last thing would be the general message around safety. So those 3 things really contributed to kind of what we felt as headwinds in the second quarter. And those things don't disappear in the third quarter, right? Those are things we're still working through, but we are seeing positive signs. And so what we've done to address that and what we're doing overall is to look at the entire market, growing the whole market. also focusing, as Cedric said, on our safety, which we have as much as 42% slowing in the nonsubfoveal population, which is double what the hope was before we got our data. So we have an exceptionally strong message. We also have our DTC campaign that we are stage, I guess, 2/3 of that is coming. And then also focusing on the ophthalmologists and that pull-through to the retinal specialists. So we have a lot of -- a number of different plans in place to help grow the market.

Makes sense. And in terms of the patients that you have on treatment, can you talk about the compliance that you've seen so far? And has there been any kind of hiccups in the time that patients are hitting the 1-year mark?

No. I mean complaint has been very good, similar to anti-VEGF, which is pretty remarkable, right? I mean with anti-VEGF, you get the benefit of seeing the immediate impact. Whereas with complement inhibitors, of course, it's kind of a long game, right? Where you don't immediately see the impact, but in the longer run, you benefit from saving retinal this year.

And then so for the remainder of the year, how should we think about seasonality other factors that will impact the launch trajectory?

There really isn't anything we can grab on to from the anti-VEGF market that shows us seasonality in sort of this portion of the year. And again, this is our first year in sort of a -- I don't want to say it's a normalized year, but it's our first kind of semi normal year. So we can't really point to any seasonality per se. I mean you, of course, see things like big stretches of August where people are doing the back-to-school thing and whatever and doctors may not be. We have a few conferences, we're going to one tonight. So there's that, but nothing you can really point to as sort of material.

Understood. And would you expect you'd be in a position to provide revenue guidance in '25?

We've never been asked that before. Look, we're definitely not going to be providing revenue guidance this year, and we're going to reconsider that for next year, but no promises yet. .

Understood. And then on the European side of things, yes, as you mentioned, some hiccups in that review. Now we're nearing the final review coming this month. Maybe talk about what kind of drove the slight shift in time lines, I think it was originally 4Q now we'll get that decision in September.

Yes. So the European process has been interesting, as you know. We went through an initial review where I'd say, the reporters negative opinion was driven by the fact that there was no statistical evidence for that functional impact. We then went through an appeal process. That appeals process has got interrupted. The clock was reset. We went back to the previous reporters, who again gave a negative opinion, but we had a very good so-called AHEC meeting, which is an ADCOM equivalent in Europe, where we basically had teams under support. We also had then the prespecified endpoint that you mentioned earlier on function that came into the equation. So we'll see what's going to happen, but reversing a decision at the EMEA is a very, very difficult thing to do. So we executed as well as we could and we'll see what happens.

Understood. Is there anything that we're able to glean from the reporters this time around that could inform the outcome?

No, we'll have to wait.

Understood. And assuming you guys do get approved on -- I understood uphill battle, but talk about a little launch readiness in Europe.

We've been preparing for a long time. Tim?

Yes, we've had -- we actually -- we hired some people because we actually thought we were going to launch EMPAVELI in Europe. And so we actually kept some infrastructure then. And over the course of the last, really, 3 years, we've built out what is a launch-ready kind of structure and field force to some extent or based on where we would go first, in Germany, for example. And then you move to country to country. So we've built that out in preparation for a launch. And we've kind of been at the starting line for a while now. But we have the infrastructure there. We don't need anything. It's really just a matter of waiting to see what happens.

Great. And if this were to be now in this decision in Europe, is that kind of the final no? How should we think about the finality of this?

Yes. That's the final no at the European level.

And now moving to EMPAVELI, So systemic PEG [indiscernible], which I know, historically, we've been spending lots of time on GA, but now we have another indication to talk about. So you had the Phase III VALIANT data in C3G and IC-MPGN that we kind of -- that you referenced before, kind of put that into context versus the other drug that's out there.

The competition in C3G, IC-MPGN. Yes. No. So to put it in context, proteinuria, which is the surrogate primary endpoint that everybody relies on because it's one that's that has a more immediate impact compared to eGFR. That standard applied to C3G was evaluated by the competing drug, which is an upstream complement inhibitor that is administered orally, FABHALTA, and showed approximately 30% improvements in proteinuria after 6 months. . In our 6-month evaluation, we saw a 68% improvement in proteinuria, which was associated with an improvement on eGFR as well, normally statistically significant at 6 months already, which was unexpected and most importantly, combined with the C3C deposition, which is the histopathological hallmark of this disease, melting away like snow for the sun after approximately 1 month already. So between all of these findings, I mean, it was -- I mean, every nephrologist that we have shown this to us like wow, almost hard to believe. But it is.

That you make it up.

Yes. And again, I think something that we've done well in the past is we decided to take a broad patient population. So C3G, IC-MPGN, pretransplant, post-transplant, adolescents, adults in all categories, we showed the same benefits. So very excited about hopefully finding very soon. and making this drug available towards the end of next year.

Great. And yes, I think the feedback I received to is on eGFR, a little surprised that you would even see something so quickly at the 6-month mark. Can you kind of talk about the response that you're seeing there and how confident you are at that separation will continue?

Yes. So to understand why eGFR is complicated is that the background is the slow decline in eGFR that you have in the normal disease state. And so what you need to do is stabilize eGFR and then wait for that stabilization to differentiate itself from the slowing plan. So typically, that's something that can take 2 or 3 years to -- with most drugs to start manifesting itself, which would create very long trust, which is why proteinuria came into play. So in this case, to have already an inkling of something happening at 6 months is very encouraging.

Okay. And so the -- yes, as you mentioned, the proteinuria is the approval endpoint, kind of how confident are you that the FDA will accept the 6-month data? And how do you think the eGFR data will play into the review?

Yes. So FABHALTA specifically was asked to submit the 12-month data when they had their pre-NDA meeting. So we don't know what the FDA will ask of us. All I can say is that we did have an end of Phase II meeting in which we agreed on the endpoint, and we have done and exceeded everything and everything, anything that was asked of us. So hopefully, it will be sufficient to be allowed to file with the 6-month data.

The other thing is with eGFR data that goes away after 6 months because of the placebo patients. So there is no more data they can get really other than anecdotal.

Okay. And as you mentioned, you enrolled a pretty diverse set of patients in this study. Do you feel as though you have enough data to support approval in both C3G and IC-MPGN on the study?

Yes. Well, again, I think considering the strength of the data and kind of the uniformity of the benefits. Our hope is, of course, that both indications will find themselves in the label. .

And as you mentioned, FABHALTA is an oral versus a subcu injection for EMPAVELI. How would you expect EMPAVELI to compete against an oral in this indication?

Yes. So I think this was probably a way -- a lot of people were skeptical as we got towards the readout because the benefit of convenience was considered to be disproportion, but something that I believe in indications like this are less important than the benefit that you get from the drug, right? Now you could say when you're early on newly diagnosed, you may be tempted by the convenience. But when you start facing the risk or the threat of hemodialysis, let alone when you're transplanted, that is a very different set of circumstances. And so I think what we have seen, not just in C3G and IC-MPGN, but also in PNH, is that the benefit of having an oral product when you have a very serious disease, is limited to a certain extent by the differentiation of efficacy.

Okay. And when do you plan to present the VALIANT data?

So we submitted a late-breaking abstract to ASN, which hopefully will be accepted and then we would present at the end of next month.

Okay. And what's the guidance on the next interactions with the FDA and the filing time lines?

So we haven't guided. We will file early next year, and depending on what type of review process we get. If all goes according to plan, we may have an approval in the second half of next year.

Okay. And so based on these data then, how does this change your view of other indications that EMPAVELI might be [indiscernible].

Well, the really exciting aspects of what we saw in C3G IC-MPGN was the depth of the effect. And that is a combination of 2 elements. Number one, the power of Pegcetacoplan. So I cannot -- I mean, there is no -- I challenge anyone to show me data on a better complement inhibitor on this planet than Pegcetacoplan. We've now shown this differentiated against other complement inhibitors in 3 indications, not with small differences, but big differences. And the reason why that's interesting is that why Pegcetacoplan is so good, it's still a little bit of a mystery even to us, right? But probably it's because the complement cascade is antiemetic in nature. And we attacked that complement cascade not at one point, but at 4 distinct points by going after the convertase activity. And so what you do is really buffer the effect of this antiemetic cascade. So it's kind of like when there's overactivation for whatever reason that may be, rather than at 1 point trying to stop the flood from overwhelming, you have 4 different points, so you can slow it down and stop it in the end. And that's something that is reflected in the data that we have, of course. So that's point number one. Point number two is that clearly, there is a concentration or at least an engagement with the target and a bioavailability in the glomerulus that is quite pronounced. And that is something that we can now explore in other renal indications, again, with a special place of love for the post-transplant segment.

Okay. And so on the earlier stage pipeline, so you'll have some Phase I data later this year for APL-3007, your siRNA silencing asset targeting C3. What can we expect from that Phase I readout? And what should investors be looking for?

Yes. So it's a safety study, of course. It's the initial dose escalation. We haven't disclosed yet what we're actually going to do with the siRNA which we're very excited about. And again, in due time, we'll be talking about that. But the key thing is make sure that the drug is safe. Evaluate how much C3 reduction we get in the system. And then based on the data that we have the evaluation as to whether this makes sense in the monotherapy setting or in combination with EMPAVELI to create next-generation products.

And then the Beam partnership was something you announced a few years ago. Any updates that we can be expecting in the future?

Yes. That has been a very exciting collaboration for us. We've generated quite a large mass of data by now that we haven't spoken about yet, but that too in the next year, we'll start sharing a lot more on.

And is there a certain indication that you think that would be most applicable in? Or are you keeping things broad at this point?

Right now, we're not discussing any details, but much more to come.

Understood. And then on the balance sheet, you've made some strides this year to clean things up, kind of talk about the current size of the balance sheet and how you're feeling about your cash position?

Yes. So sometimes, one day, you actually have to grow up as a company, and this, I think, was the moment we kind of grew up a little bit. Because this was what took out our major cash flow item from a capital structure point of view that went beyond operations. . We had big amortization payments for SFJ Pharmaceuticals debt, which was great at the time when we put it in place, but it needed to be changed out. So we did deal with Sixth Street, is $375 million debt deal. And as you look at our operating expenses sort of non -- taking out the noncash operating expenses. When you look at the total, it's more or less like our revenue. And so the expenditures that we have now beyond that are interest expense and then working capital, which is the payables, right? We sort of finance the channel a little bit, right? That's just the nature of the beast. And so from the perspective of trying to make ourselves independent as a company, which not every company really wants to do what we're doing. And we decided to go with Sixth Street, which is an exceptional group. And we have an interest-only loan from them, this $375 million, the term is until 2030. So that was a great deal for us, and that's the moment we were able to say we think we can build this company independent of the capital markets.

Great. And so another kind of recent advanced since Adam Townsend had been -- role has been expanded from Chief Commercial Officer to include Chief Operating Officer as well. Kind of what drove that slight change with the management team?

Adam has done a fantastic job. Again, I think it was part of kind of taking on a larger role within the organization. It's, of course, operational in nature. We have all of the proper barriers between med affairs and the commercial deployment. And in the U.S., David Acheson is doing a fantastic job taking on the commercial role.

Okay. And then so just in the last minute here, we've covered a lot today. But if you can kind of summarize for us why investors should be paying attention to Apellis over the next 6 to 12 months?

Well, we are a company that is on a path to profitability with 2 potential blockbusters in the making that are going through great launches, a new indication for EMPAVELI coming around the corner and a pipeline that sets us up to enter into a real new era for us. It's quite surprise.

Thanks for having time on it. Fantastic. Well, thank you for that summary. Thanks for being with us today. With that, we're out of time. .

Thanks, Colleen.

Thank you so much.

Thank you.