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

Good morning, everyone. We're back at it again, London Jefferies. My only advice: Stay inside. It is like sleet hailing outside, so stay within the Fairmont. I always love this conference. And I'm always really grateful for the attendance, so I'm glad you all can join us. And we have the pleasure of the Apellis management team hosting us -- being able to host the Apellis management team today. On kind of a interesting time with the news from Astellas this morning, I will hand it off, Cedric, maybe for some introductory remarks. And then we'll get into the one-on-one.

Yes. Thank you so much. Thank you all for joining in this beautiful London weather. And thank you for the invite. So yes, we had obviously very interesting news this morning that we can talk about more later, but first, a quick overview of the company. So we are a company that is deeply entrenched in everything that complements can do in autoimmunity. We are focused specifically on complement factor C3, where we developed 2 drugs that are currently on the market. We have, of course, SYFOVRE, the first approved drug in geographic atrophy which has now been on the market for approximately 1.5 years; and then EMPAVELI, which is a drug that is already approved for paroxysmal nocturnal hemoglobinuria, where it changed the standard of care, and a drug that recently in August had best-in-class data in C3 glomerulopathy and immune complex membranoproliferative glomerulonephritis. So we are a company that is in that transition phase of having 2 drugs that are potential blockbusters, with the commercialization footprint in the U.S. that has gone very well both in rare diseases as well as in the retina and then, of course, our ex U.S. partnership with Sobi. Financially, we are on a path to profitability. And so that is the outgoing state for us going into 2025. We're very excited also about the developmental work that we have ongoing with an siRNA program where we lowered the levels of C3 systemically by more than 90% and where we will be talking more in the next year about in which indications we will be developing that as well as a couple of what we believe are really exciting preclinical programs that will come closer to the clinic at the end of next year.

Awesome. Let's get started. And obviously, news this morning from Astellas CRL on the every-other-month dosing profile. Now it seems like it's not having to do with safety. It does seem to be a statistical analysis that the FDA kind of has an issue with. I know obviously we're looking from the outside in, but Cedric, do you have any early thoughts on what could be the issue with that clinical profile and the stat analysis that the FDA is looking at?

Yes. So look. We don't want to speculate on what our competitors do or what exactly went on in the [ halls in Bethesda ], but from our perspective, I mean, SYFOVRE is the only drug that is approved beyond 1 year of dosing. It is the only drug that can be given 6 instead of 12 times per year, so makes a huge difference in terms of convenience for the patients. And it's the only drug that has increasing effects over time, so the longer you treat, the deeper the slowdown of the degenerative process is going to be. The second aspect there, which is the every-other-month dosing, is really important not just from the standpoint of the convenience for the patients but also from the standpoint that the cost per vial is quite similar between the 2 products. So if you're going to have a drug that you have to give, by label at least, every month, it could be as much as twice as expensive, more or less, compared to the other drug -- to our drug SYFOVRE, which is something that we'll have to look into with payers.

Understood. And my kind of early suspicion is it might have to do with the nominal p-value with the every-other-month dosing. Let's put it this way: If you were CEO of Astellas right now -- I mean I feel like the option would have to be -- I think, if you were going to have data to kind of rectify the concerns with the FDA, they probably would have submitted it by now. I would think you would have to run another clinical trial in order to get that type of language on the label. What's your take? I mean, is this probably going to require another trial for Izervay in order to secure that every other month on the label?

Yes, again, it's not something that we're going to speculate on. I think that -- I mean generally, usually, interactions with the FDA, if the data are there to avoid the CRL, it typically gets included, so...

And let's just think more practically. Because I think, if you go to AAO, they certainly talk about the importance of every other month. Our survey work suggests it's about 80% to 90% of dosing, but I think the pushback some people might say is, okay, they don't have it on the label, but doctors are going to use that, anyway, for Izervay. How does that calculus change when you actually don't get it on the label and you receive a CRL? From a payer perspective and also from a physician perspective.

Well, they are important unanswered questions, right? So I think that there is certainly off-label prescriptions that are happening, right? I mean with physicians prescribing the drug, the competing drug, every other month, similarly to what SYFOVRE is being prescribed, but I think in the past year the question was, well, let's see what -- I mean you could kind of operate in a vacuum. That vacuum is certainly no longer there right now. I think there was at least an important adjudication which, by normal time lines, you would expect is going to take quite a bit of time to rectify itself, where physicians, I think, are going to have to question whether prescribing every other month is the right way to do that with a drug that hasn't been tested in that setting. So again, I think, something important for patients, for physicians to understand; and something that, of course, for us competitively is important.

Understood. Now I think there were certain aspects of the Izervay launch that I think surprised me as an analyst but then I think may have also surprised your team: a, their aggressive discounting out of the gate. B, I think their language around safety was a bit -- they led with that more than just the clinical profile. Now that you have every-other-month dosing, you have a significant at least near-term benefit versus your peer. What does that change in terms of your commercial strategy, a, in terms of willingness to play price; b, in terms of your aggressiveness in investing in the launch over the next year?

So we're very excited, right? I mean this is a market that is -- wherein the surface has just been scratched, right? So fewer than 10% of patients have actually been treated. There's an enormous unmet need. The desire of patients to be treated is very large. And there's a lot of physicians that have used a lot of products that are very enthusiastic about SYFOVRE and what they see in patients in their practice, so that real-world evidence is coming to bear as well, so I think that kind of the forecast and looking forward to the next 4 to 5 years is really exciting. I mean it's a market where SYFOVRE will really come in its own, where it has all the data that were needed to establish the benefit of both posologies not over 1, not over 2 but over as many as 4 to 5 years, right, in the GALE study, so these are all important elements. And I think we invested very heavily in having a package that would be as complete and robust as possible to physicians, and I believe that we're going to reap the rewards from them.

Understood. Now you've gotten the question on, hey, can Cedric guide, right? Like -- and it's a tough question because you have to deal with the J-code, their new pricing strategy, kind of the evolving safety landscape. It's a tough ask. Especially, it's also kind of year 2 of your own launch, but as we go into 2025, it does seem like you have a better handle on what's going on with retinal vasculitis. You have a better handle on what your competitor has from a label perspective. And then you are seeing volume growth, but sales maybe hasn't inflected as much. What is the appetite to potentially start guiding for 2025? What visibility have you been able to get in the back half of the year?

Well, look. We did give some guidance for this quarter. We talked about low single-digit vial growth. We talked about flat to modest revenue growth for this quarter given the uncertainties that we had faced in the prior 2 quarters, some of the dynamics you mentioned. And also there were some uncertainties this quarter. We knew, obviously, that our competitor would have a label update potentially. And those dynamics, we knew, would change over the longer term, so we -- I think we were pretty fair in giving that for this quarter. Starting in 2025, we're obviously considering guiding. It's something we probably would like to have a little bit of time under our belt to see how these changes take effect, but we're obviously considering it.

Okay, under consideration but not necessarily committed, understood. When we think about retinal vasculitis, I mean, if you're covering Apellis or if you're investing, it's kind of a ritual to file your FOIA request at the right time every month. We are starting to see -- but they're low cases [ sparingly ] for Izervay. When you had interactions with the FDA and the calculus for the agency of including a warning on retinal vasculitis on the label, it seems like you would lean more towards caution simply from a safety perspective. Is there a threshold of retinal vasculitis cases that you would have to see in the class where you would think the FDA would look at it more from a class label perspective and not necessarily just your product? Any color there would be helpful.

Well, I think it's important to bear in mind that, any type of intravitreal injection, if you do them frequently enough, in some cases is going to lead to this phenomenon, right? So it has shown up in the labels of all other anti-VEGF products, including Eylea, Eylea H dose, including Vabysmo. And I think there's just -- there was a sensitivity. There is a sensitivity that exists in the field that was driven by what happened a couple of years ago with Beovu. And for us, we kind of fell in that situation to have to deal with that, but I'm incredibly proud of what we did in the past 1.5 years in terms of creating clarity around how rare these events are, the fact that it's a first injection phenomenon, having that transparency with the retina community, which I think we're reaping the benefits from now. And now the discussion is much more focused already, and I expect that to continue in 2025, on the benefits and the efficacy profile of the drug, which is where we will win.

Now I think in -- over the last year and as investors have started to understand the retinal vasculitis cases, I think the question that's been put to your team is, hey, you're at a rate where it's not increasing. You've removed the Beovu option, but there is still that perception on safety. And there were kind of 2 ideas that I think have been posited by investors, and you've talked about it as well: a, potentially developing a blood-based biomarker to prospectively identify patients that might have, let's say, a [ PEG allergy ]; and then number two, "Hey. Why not run a trial with, let's say, RCA where it's like, 'Hey. I'm going to give half a dose of SYFOVRE and then a full dose?'" So -- because maybe it's you're priming the patients, giving a lower dose. And you'll have -- even if you do have vasculitis cases, they're going to be less severe. What is the appetite within Apellis right now to do some of these kind of safety studies or to develop this type of blood-based biomarker, versus, "Hey. I really need to spend on EMPAVELI and look at label expansion into other indications outside of C3G?"

Well, I think it's -- I don't think it's about the appetite. It's about putting patients first, right? That's the -- so I think, to put things into perspective, if you take the risk of vasculitis on the first injection combined with the risk of infectious endophthalmitis over the course of 1 year and you relate that to the bad outcomes that you can have for patients, that is safer than giving a drug once a month without a first injection risk or vasculitis. So it is a kind of the -- again the background here is that you cannot do a lot of intravitreal injections without running into any type of issue. And I think that was probably a little bit forgotten, but it's now becoming much more -- the whole, I'd say, drama is getting out of the balloon. And the focus is now much more on the efficacy profile of the drug, which is again something very exciting for us and something where the real-world evidence is coming out showing the same and better data than what we have shown in DERBY and OAKS.

So I would add. There is -- there have been a lot of discussions around this. Obviously it's been a focus internally, but there's -- it's not so much a desire. It's a feasibility issue but such a rare event that it's very hard to create a study that will actually show anything, so...

Understood. Now I think the question we often get from investors is like, "Okay, PE-backed practices. There's going to be strong uptake out of the gate," but in a community center setting, will this market ever grow to the extent that people really want -- and I feel like, in order for this to really become a multibillion-dollar opportunity for your team, that's going to be critical. I feel like uptake in that community center setting, that broader ophthalmology setting has been slower out of the gate. What have you seen in the back half of the year? And as you think about 2025, are you confident you're going to start seeing significant inroads in that population?

Yes. I think again the unmet need arise, and the desire to be treated. And I think, with most new categories, new drugs, especially with something that slows down the disease rather than being able to immediately see the impact of it, these things need to find their setting and their place. There's a lot of patients waiting to be treated. There are some physicians that are against anything to do with complement in GA, but that's a minority. I mean there are also a lot of physicians, again the ones that I mentioned, that have used the product a lot that are enthusiastic about this drug. And then you have a whole class of physicians that sit in the middle, and they're basically waiting for things to settle a little bit, right? This is not a disease of urgency. It's a disease where you can take a couple of months, I mean, maybe even take a year, and kind of wait things out before you become a big adopter. And so again, kind of the peace and quiet that comes with having done 420,000 injections and really understanding the profile and the data that's emerging, that's our friend. And that's what we're, of course, seeing.

Understood. Now I cover Regeneron as well. And it's funny to kind of see the game of telephone between Roche's commentary on Vabysmo and then high-dose Eylea. You talk to Regeneron. They're like, "Oh, we're getting a lot of patients who are coming off Vabysmo." And then I'm sure, when Peter Welford will talk with Roche, they'll say, "We're getting high-dose Eylea patients," but I think the point here is that, in wet AMD, patients try everything, right? And I don't know if that paradigm has existed yet in GA, but it seems like logically that should be where this is headed, where it's not a binary outcome. You're going to end up having a lot of patients who end up trying both drugs. In terms of your patient starts for SYFOVRE right now, how many of them are patients who have maybe previously tried Izervay? And how do you think that dynamic of retreatment with another product evolves over time? Should we be thinking about this from a binary view?

Yes, there's not the big switchover market right now that there are physician-- sorry, patients switching from one product to the other in both directions, but the majority, from what we see, stay pretty faithful to whatever it is they start with. Now of course, with our competitor having a limitation to 1 year of dosing and, I think, most importantly limitation to monthly dosing, that is something that could change that dynamic, but we'll have to see.

Okay, understood. Now obviously sales maybe didn't increase as much in Q3, but you did see volume growth, right, so talk to me about that dichotomy, right? What's going on that's leading to reduction in revenues, but then you're still seeing volume uptake? And how should we think about that calculus for 4Q? Are we going to see volumes uptick and revenues uptick together? Or are we still going to have kind of this disconnect?

Sure. So that was a function of our gross-to-net increase for the quarter. And there are a couple of components to that -- well, there are 3 really. One was some discounting that we did in the fourth quarter of last year that ultimately reduced our average sales price, which kicks in a few quarters later. That's what happened in the third quarter, so that was the first piece. The second piece was some contracting we did do specifically in the third quarter, so those 2 were additive. And then we had some onetime events that were kind of catch-ups for launch learnings, we'll call them. They're sort of onetime events that won't happen going forward, so we were within our guidance on gross-to-net. We had previously guided something between 10% and 20%. We were at the top end of that for this quarter, this third quarter. And going forward through 2025, we guided to sort of low to mid-20s in terms of percentages. And you're not going to see as big a jump as we did in the third quarter just because of the timing and the launch and the onetime events. So you'll see more gradual degradation, but it is a fact of life that the ASP will degrade over time. And that's just a function of how things work, so you will see, going forward, vial growth and revenue growth will not match that exactly.

Now in terms of pricing generally. I know, when Izervay kind of initially came out with a discounting strategy, you said, "Look. We have a better product. We have a better efficacy profile. We don't necessarily want to play price." I think, as we got towards the middle and back half of the year, it's like, okay, there is still some discounting that's occurring. As we go into 2025 and beyond and now you do have visibility on maybe the clinical profile of your competitor, what are your thoughts on pricing dynamics evolving from a gross-to-net perspective? I mean, are we going to continue to see secular declines on ASP or maybe more stability?

Yes, it's a great question. I mean we did -- as I said, we guided on our gross-to-net, which is the main function in the degradation of ASP. The main output you'll see is the gross-to-net, but I think right now what we will do is -- we just found out about this and we sort of have a little bit more -- a few things to digest. It's one of the reasons we don't want to commit to guidance just yet for 2025. There's a lot to learn. And I think we all agree that, to the degree we can minimize the degradation of our ASP over time, that's a good thing for us. And it's a -- right now it's a duopoly of sorts. And there isn't a really great rationale for having aggressive discounting, so yes. I mean more to come.

Okay, well -- and obviously you can't give guidance, but let's put it this way. You'll often hear from investors, "Akash, I've never seen a launch flatten out and then return to growth." And there are some examples there, but they're rarer, right? It's rare to see a launch flatten out and then actually return to growth. Like, I think Neurocrine is a good example, during the pandemic. With what you know right now, are you confident that, let's say, SYFOVRE can return to meaningful growth in 2025? Let's just put it that way.

Well, let's start off with the fact that, from a base revenue perspective, we're at a $600 million run rate not too long after the launch. I mean this has been an incredible launch, just to start. Now this temporary change was -- or the flattening, we'd like to think it's temporary. We hope it's temporary. And we obviously believe tremendously in the long-term potential of the drug. And that's one of the reasons we've held off kind of giving any real thoughts around 2025 and beyond, but we have, as Cedric pointed out at the beginning, a drug with a highly differentiated profile. We have increased effects over time. We have the largest data set, 2 well-controlled studies that have pretty much identical output. We have increased effects over time; dosing, posology. We can go 6 months -- or 6 times a year or 12 times a year. 6 times a year is actually pretty darn close to the 12 times a year in terms of efficacy. These are huge advantages. I think the main difference between these 2 drugs is efficacy.

Right.

Right.

And that, over time, is what wins in the market. And we believe strongly in the long-term potential of SYFOVRE in what is a very kind of underpenetrated market right now. So the long-term kind of wins, I think they're in our sail.

Understood. I hosted the Madrigal team last week, and they made a comment that was kind of interesting to me. They can really -- I -- they're like you're not going to get ads for Rezdiffra unless you're coded to have NASH. Like, with AI and technology and identifying patients, I don't think investors realize how much you can prospectively identify the patients who might have NASH or, let's say, C3G. Obviously it's a very rare disease, but there should be pretty high unmet need, particularly in that adolescent patient population. What work are you doing right now to identify patients out of the gate that would need this drug? And given the data is public now, what are you seeing from physicians coming to you and saying, "Hey. I'm interested in your clinical profile. I'd love to get my patient on that drug?" Any comments would be helpful.

Yes. So thank you for that question. So the data that we had that was revealed in August is the best Phase III data I have seen. And what really stands out with that data is that the kidneys, when you look at the histopathology -- after 6 months, in 70% of these patients, these kidneys look normal, right? So there's no more signs of the disease. That is really what stands out there, so for us, what we're doing now is preparing this to be available to any patient that may need it. There are about, we believe, 5,000 patients with C3G and IC-MPGN. Every single one of these patients, we believe, deserves access to this drug. It's a matter of finding these patients, finding the physicians that treat these patients. And that, a lot of effort goes into that right now, right? So building awareness and identifying where we can make that product available to patients.

Would you agree that there might be a bolus of demand for certain patients who are early stage who haven't necessarily gotten on dialysis yet? Or it's like no. "It's such a rare disease. It's going to take time for us to identify that." That shouldn't be necessarily the expectation.

No. I mean look. We have an expanded use access program. We have a compassionate use program. We get lots of requests already, right? I mean there are patients that are in high unmet need. And we see the same thing there as we see obviously in our clinical trials, so I think, in terms of finding these subjects and making it available, the highest unmet need probably sits with the transplanted patients, so out of these 5,000 subjects, 1,000 to 1,500 patients have a transplanted kidney. The vast majority of these patients are going to relapse and need another kidney afterwards, right? I mean several patients with historical C3G, IC-MPGN have had 3, 4, 5 transplants. I mean it's, I mean, disastrous when you have to go through that. Those are patients -- and it's a very well-communicating physician corps, as you can imagine. Those are patients that we believe will be very quick to get on this therapy. And then beyond that, it's I think a matter of working through the advocacy groups, so targeting the patients themselves, to your point; and on the other hand, the physicians that treat them. And through the coding work, et cetera, we can identify those.

Understood. Now on EMPAVELI, I think you'll hear from investors who might be more skeptical. They're like, look, the dosing profile is maybe not optimal, but I tend to think -- you just talked about the C3 siRNA drug. And I feel like where this is headed is you establish the commercial infrastructure with EMPAVELI. And then if the siRNA drug ends up working, and I wouldn't be surprised if that ends up having a better dosing profile, there's a very natural switch to occur. Is that the way we should be thinking about it? It's kind of this one-two punch with EMPAVELI with a mAb approach, higher dosing but then an siRNA with a much better dosing profile over time. And that's why you guys are invested so much in expanding C3G indications.

Yes. So I think what has really stood out with pegcetacoplan is how remarkable this drug is at controlling the complement cascade, right? I mean it's shown a best-in-class profile in PNH, in C3G, IC-MPGN, in macular degeneration, I mean. So it is the mechanism by which pegcetacoplan controls this enzymatic cascade that we believe underlies that efficacy profile and, quite frankly, safety profile as well. So with siRNA, we want to work on the convenience [ now ]. So we want to find a way to maintain the efficacy and the safety of EMPAVELI but improve on that convenience. Having said that, I want to point out that doing that twice a week -- it takes about 30 minutes to do, while you can do other activities. It's put a self-administrator, right? It's not really a big deal. And if I'm a patient with C3G, IC-MPGN; and I have to look forward, in 10 years, to be on hemodialysis, I'm going to do whatever I can to avoid that. And when you hear the patient testimonies, when you actually get diagnosed; and you have edema and you are exhausted, and you're like, "These are highly symptomatic diseases," you don't mess around with that. And these are young individuals, right? I mean -- so I think there too, kind of the emerging profile for us, I think, is easily going to supersede the convenience of having to take a pill twice a day versus having to, twice a week, do subcutaneous administration.

Understood. I know we're out of time. I'm getting the look. Let's end it here. It's great hosting you. Thanks so much, Cedric and Tim.

Thanks, Akash.

Thank you, Akash.