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

Okay. Good afternoon, everyone. I'm happy to have Apellis as the next fireside chat. So we have Cedric Francois with us, CEO; and Tim Sullivan, CFO. And recognizing that you are a broader C3 complement inhibitor company, I am stating the obvious that this is an ophthalmology conference. And so maybe we can just start out and level set and talk about your ophthalmology franchise, the commercial prospects, the pipeline pursuits, and then we'll just launch into questions after that.

Yes. Thank you so much, Annabel, and thank you for inviting us here. So I'm Cedric Francois. Tim Sullivan, our CFO, is here with us as well. And yes, ophthalmology and specifically the retina is where we are developing a real presence. We have, of course, our commercial product, SYFOVRE, which was the first approved product for geographic atrophy and leading products on the market for that indication. Geographic atrophy, for those not familiar with the disease, is an irreversible destruction of the retina that happens progressively. It can best be compared to a wildfire in the retina that where continuously retinal tissue is lost and which ultimately leads to blindness. And with SYFOVRE, what we were able to do and show it definitively in clinical trials is to meaningfully slow down the progression of that tissue loss that happens during the course of this disease. We can slow down that disease by as much as 42% after a couple of years of treatment. And we now have as many as 4 years of continuous treatment available to us and data on that to show what we can do for patients. It is the largest data set of data in the retina in this disease that has ever been generated. And it has so far in the United States, been used in more than hundreds and thousands first eye treatments. So really meaningful data set behind us, not just from our clinical trial experience, but also from the real world. In total, we have more than 600,000 injections that have already been performed. And so we keep on learning, again, not just from our clinical trials, but also from our real-world experience about the difference that this drug can make in the lives of these patients affected by this disease. So that is as far as the commercialization is concerned, SYFOVRE has been on the market for a little over 2 years now. So still relatively early in the launch, only about 10% of patients with geographic atrophy so far have been treated. So we have a long way to go in order to address what is the need in this particular disease. But we don't stop there. We have a lot of further developmental work that we are working on. Most notably, we have an investigational program with an siRNA product where we have decided to combine the intravitreal injection that we do with SYFOVRE, which is an injection that is given either monthly or every 2 months in these patients, and it is intravitreal, so it has to be done by a retina specialist. But to combine that intravitreal injection with a subcutaneous injection that can be given in the office, same visit, and where we will assess in a Phase II clinical trial that is literally about to start screening now in the next few weeks to find out if we can further slow down the retinal tissue loss that we see in these patients, so beyond the 40% that we are currently seeing and then to also assess whether we can do that injection every 3 months instead of every 2 months. So a very exciting developmental program where the science behind it is to combine, on one hand, controlling the enzymatic activity of complement in the eye as we do with SYFOVRE with a subcutaneous injection that systemically in the whole body brings down the levels of C3, which is the target of SYFOVRE by approximately 90%. So essentially target the complement pathways from two sides, from inside the eye, but then also from the vascular side in the so-called choroidal layer.

Great. Thanks for the overview. So before we get into any of that, since you are one of my few commercial companies that these are rare these days. Maybe just starting off with the macro issues of tariffs. We thought we were obviously in the clear with far being excluded and then coming to 10% for 90 days and 50%, then 10% again. And now MFN. How do you manage your business with all this uncertainty that literally changes like the wind? Maybe you can talk about it in terms of where your manufacturing is and how in a worst-case scenario, this might impact you?

Sure. Well, I'll start with the trade and tariff piece. So we're evaluating our exposure and looking at mitigation strategies for all of these potential eventualities or realities across all these scenarios. So we think we're in a very good position because most of our drug is made in the U.S. However, we do have our drug substance, which is made in Switzerland. We've announced -- we've disclosed that publicly. And one of our drug intermediates, our polyethylene glycol is made by NOF in Japan. So those are the kind of two things that we have disclosed, but more to come on the tariff thing. We'll see where it lands. And obviously, we think we're in a pretty good position overall. Then, of course, like you said, we had the surprise on MFN. And actually, we're fortunate in that we're uniquely well positioned in that regard to -- in terms of our two commercial products, there's SYFOVRE, which is -- doesn't have a reference price ex U.S. that has any discount to the current U.S. price. So in that sense, SYFOVRE is in a good position from an MFN perspective. And then from EMPAVELI, the EMPAVELI perspective, we don't actively price EMPAVELI or it's called Aspaveli ex U.S., that's Sobi. So that may limit the exposure depending on how these policies are applied. It's a bit of a wait and see, but we don't, at the moment, think that if there's a little bit of thought and nuance applied to this legislation that we'll have any exposure. So we'll see.

Okay. I can say for the first time, it's a good thing that you didn't get approved in Europe.

At least not yet.

Yes, at least not yet, right. All right. So we all know the GA market is quite large and the market is less than or just around 10% penetrated. Growth has slowed though. So maybe you can help us understand the pushes and pulls there. Where are the headwinds coming from? Is it that you had an initial bolus sitting at the retinal specialists? Is it competitive pressure from IZERVAY? Is it something else just patients maybe possibly coming off treatment and the patients coming on treatment sort of netting it out. So help us understand the slowing growth. And of course, we know you're never going to be as fast as the launch, but we still have a long way to go here.

Yes. Thank you, Annabel. So there's two sides to this question, right? I think there is the competitive dynamic with our only competitor in the market and then the growing of the overall market. So competitively, last year, our competitor, as you know, went out very heavily on a safety message. But as time and evidence grew, we learned much more about the safety being more similar. And then at that point in time, the efficacy really standing out for SYFOVRE. There's also, I think, really importantly, the differentiation on the ease of use. So SYFOVRE is a drug that is approved for every 2-month dosing, whereas our competitors is only approved for monthly dosing. And that is a point that got made very clear by the FDA, of course, with the CRL that came out in November. What that means is that we have been the market leader in this segment from the beginning, obviously, initially as the first approved product. But then throughout the middle of last year, our competitor had, of course, the tailwind of their newly approved J-code, the messaging they were doing. And on new injections, so newly treated patients, we started to lose terrain as low as 40% and 60% in their favor. But then as the efficacy message started to resonate more and more and the differentiation became increasingly clear, especially with the long-term data that we have, we started to regain and we are now all the way up at the end of April, as we disclosed in our earnings call, up to 55% on first injections versus 45% for our competitor. So really a 15% bounce back, which the other party loses. So it's really a 30% switchover that happened. So moving very much in the right direction, as you would expect, based on the efficacy profile. What is also noteworthy is that the overall market share has remained stable around approximately 60% for SYFOVRE versus 40% for the competitor. And that has a lot to do with what we believe is better maintenance on therapy with SYFOVRE compared to our competitor, which may have something to do with the fact that our competitors' drug has to be given more frequently, obviously, creating more burden for the patient. So that's as far as the competitive dynamics are concerned. Then as it relates to the overall market, I think several of the elements that you mentioned are, of course, accurate. You have a bolus of patients that are waiting that are ready to come on board. And then I think you have kind of the natural adoption that needs to happen with a new treatment a new mode of action, a first treatment in a disease. And the growth that you see there, actually a nice proxy to use is what we saw with the anti-VEGFs, where the growth was also not huge all the time. It was a gradual but progressive adoption that lasted for years and years and years where that increase continued. So going back to the overall market, where approximately 10% of patients have been treated between the two products. When you take physicians that have actually properly adopted the product, they treat between 30% and 50% of their patients with geographic atrophy with a complement inhibitor. So in that delta, between 10% and 50%, right, I mean, that is where people should consider the overall market to ultimately end up. But there are, we believe, approximately 1.5 million patients in the U.S. in search for treatment. And again, it is still the early days in terms of the adoption of this new modality in geographic atrophy.

Great. Great. So I want to talk about the programs that you've implemented to bring patients in because a number of these patients are not sitting at the retinal office, retinal specialist office, they're at the ophthalmologists, they're at the optometrist. You have started some outreach here. How has that resonated? Are they -- are the patients that are being seen in those practices advanced enough to even get a recommendation to go see a retinal specialist. So is that materializing? Is that something valuable for you to bring more patients in that outreach to optometrists and ophthalmologists.

Yes, absolutely. So that is something that we are explicitly working on. So the general ophthalmologists see a lot of patients with geographic atrophy, where especially before when no treatments were available, the ophthalmologists generally would tell these patients, look, I can refer you to retinal specialists, but there is really nothing to be done about this condition. That, of course, now has changed. And so that outreach is important and it's productive and both us as well as our competitor are doing that outreach. You also mentioned the optometrists. There are a lot of optometrists and increasingly so with new modern technologies available that can make that diagnosis assess the severity of the diagnosis and then make the referral to a retinal specialist. So we make a lot of efforts compliantly, of course, to make sure that these routes of communication are available to the retina community so that these patients have the maximum access possible.

Okay. And have you seen any other referrals start coming through?

Yes. Yes, we see referrals happening part of the growth of this overall market.

Okay. Can you just give us an idea of the time that it takes, I guess, from patient identification, referral to a specialist to when treatment starts?

Yes, it can take several visits. So I think this is something else to bear in mind, not just in the context of the time of diagnosis or identification to treatment but also kind of the general growth of the overall market and why it takes time. Geographic atrophy is a very serious condition, leading to irreversible vision loss and ultimately to blindness, right? But the speed at which this happens is gradual and takes time. So sometimes there is maybe a bit of a -- not the same level of urgency that you have with the sister indication of wet AMD where patients can very rapidly go blind, right, to go from a point of like, yes, I want to be treated or the physician recommending treatment to actually finding that treatment. So we generally see several visits associated with education around the disease, education around the drug product between the patients having that initial information and visit, whether at the ophthalmologist, optometrist's office or with the retinal specialists and then ultimately receiving treatment.

Okay. And is there any specific project that you're working on to whether it's education, whether it's DTC, whether it's outreach, nurse assistant, do you have a special program in place to draw them in?

So we have a lot of programs in place right now to make sure that these patients are brought in. But I think a couple of important ones to point out are, first of all, in the first quarter, as you may recall from our earnings call, there was a gap in a co-pay assistance program. So what does that mean? Approximately 20% of patients with geographic atrophy cannot afford the co-pay of approximately $400 per injection that is needed if you don't have special insurance. There was a foundation. This is an independent organization that would assist physicians and patients to cover that co-pay for a treatment. Now that program, if you want, or that foundation covers both geographic atrophy treatments, but also anti-VEGF treatments. So it is a very expensive program when you cover everything. And the companies that typically were funding these organizations withdrew out of those co-pay assistance programs. So what we saw in the first quarter, not just at Apellis, but across all of the anti-VEGF and geographic atrophy companies is that there was a big problem with as many as 20% of patients to be able to afford these co-pays. Now it turns out that getting access to that foundation money was very easy to do and that a lot of these patients that were getting that assistance could actually either afford it themselves or had assisted -- sorry, Advantage plans, Medicare Advantage plans that would allow them to afford these treatments. And for us to help the physicians and the patients navigate that reimbursement landscape is something that is very productive in terms of kind of helping these patients be treated. So that is one that is very important. The second one is we make sure that patients that go on the website, they may hear about the drug through our Henry Winkler DTC campaign or from friends, they can go on the website and actually identify physicians that prescribe SYFOVRE. So something else that is very useful and helpful to patients so that they end up being treated. And ancillary to that, we have several elements that help patients and physicians understand the benefit of treatment with SYFOVRE. I already mentioned the full 4-year data, what does it mean to be on treatment, not for a couple of months, but for a full 4 years of treatment, how much retinal tissue can you actually save? And when you see that in terms of real estate on the retina, it's a lot, right? So these are things that really help us quantify the magnitude of the benefit that these patients can receive. And finally, and this is an exciting project that we are working on right now is we have a way for patients and physicians to know over time whether the drug is working for them or not. So these are imaging analysis that we can run that we are doing, that we are now working on making available to physicians in the office so that if you are on treatment for a year and the physician can tell the patient, hey, look, the drug is working for you, and this is how well it will help a lot with these patients being motivated, but physicians understand how good these drugs work and moving us forward.

And these tools for being able to analyze that, is that already readily available at the physicians' practices? Or is it a tool that they need to go out and acquire?

No. It is a tool for which the science has now been established. And we could establish that science, thanks to the enormous amount of data that we have generated over the years. So now it is an engineering job to bring that tool available to the typical SD-OCT machines being Heidelberg and ZEISS that you will find in a regular retina practice.

Okay. Got it. And then just back to the question of the co-pay assistance. So I think the first quarter, it didn't seem like there was going to be much resolution in sight. Are you now finding -- this is a new finding that you're able to now find out that these patients might have access through this Medicare Advantage plan. So how did this all come about? Because originally, we thought there wasn't really going to be much resolution, there was going to be sort of like a resetting of what the growth was from this point. So maybe you can just lay that out a little bit.

No. Thank you, Annabel. So the reset happened, right? And I think that to kind of -- to understand the impact that this lack of funding had is to think about what the reaction of a patient could be. The first one is okay, I'm a patient. I -- it's painful for me, but I can afford and I want to afford the product, and I will pay for it. The second one is I happen to have a Medicare Advantage plan that covers the cost, and I am going to now go through the path to access that money and be able to get treated. So these patients end up getting treated maybe with a missed month or 2, but ultimately going back on treatment. The third option is that the physician and the patient jointly decides to continue with samples while other solutions are explored. That too can happen. And then the fourth category are physicians and patients that decide, you know what, we're going to take a treatment holiday. Hopefully, there will be a resolution for this. And this is the segment, obviously, that we want to most closely monitor because we want these patients to come back and to resume treatment, right? So these are the dynamics that need to find a place of settlement. What I want to point out, which is very encouraging to us is that when you take the actual injections that happen to patients. So between trade injections, and sample injections. If you combine those two, all of the injections together, we see continued growth in those injections. There was actually close to 4% growth in the first quarter on those injections in spite of everything that happened. So if you think about it, 4% growth in spite of the patients that ended up not being treated at all for a couple of months because the physician and the patient decided that they wouldn't even use a sample, for example. So again, in the second quarter, we see that trend continue, and this gives us a lot of hope for the growth of the overall market, but also for our competitive position, which continues to gain.

Okay. Just moving on from -- I guess, still talk about competitive dynamics a little bit. Have you noticed any new dynamics since IZERVAY has gotten its new label with the 2-year data without the restrictions, have you noticed any change yet? Or do you feel that it hadn't made much of a difference?

We have not seen that make a lot of difference in terms of the trajectory that we have been on. So we sometimes get the question, well, I mean, we use a certain data set, our competitor uses a certain data set. We come up with different numbers. That is all fine. I think what is more important is the trajectory quarter after quarter. And the competitive gains that we see week after week, month after month since, I would say, the late third quarter. And that clearly favors us very heavily. I think what the CRL did importantly and whether the CRL got resolved or not, that is the notion that now is firmly staying with the retina community is that the monthly treatments with our competitors' product is the only approved way to treat these patients. I think before the CRL, there was a notion that, you know what, maybe every other month works as well. Well, it does, right? And I think that repudiation and to some extent, maybe kind of an acknowledgment, right, of the difference between the two drugs is something that has certainly favored us.

Great. So I think you've sort of touched on your next chapter with siRNA and how to extend the duration of treatment. So just how -- what is -- is there -- aside from that, are you concerned at all about any of the other development programs? What kind of moat do you still feel like you have around you as far as the competitive landscape and others in development here?

No, we feel -- look, we feel very comfortable and confident with where we stand in the long run competitively as well, bearing in mind that it will take many years, right, before any competitor comes on the market, assuming that other products work. Within the complement pathway and most of the competing products that are in development also act on the complement pathways, we have now time and again shown that control of the complement pathway with pegcetacoplan is unmatched in terms of potency and efficiency at controlling the complement pathway. So for competing products that go after complements to come out positively or even non-inferior vis-a-vis SYFOVRE, at least scientifically, is difficult to conceptualize. So this gives us great comfort. This is also why we believe that rather than creating a new product against SYFOVRE, combining it with a very easy to administer product subcutaneous in a physician's office, we believe, is the best way to create that edge. And we are firmly convinced that when the data comes out from this clinical trial, we will be on the cutting edge, not just as the market leader, but also with the most exciting developmental program.

Great. So, Tim, I'm going to give you the last word. Cash to profitability still?

Yes. I mean we've reiterated this several times. We had $358 million at the end of the quarter, and we believe that with our combined product sales, our ex U.S. royalties is enough to fund our business to profitability. So...

No time lines yet, though?

No time lines yet.

Okay. All right. I'll let you go, but thank you so much for taking the time today. I appreciate the overview.

Thank you.

Thank you, Annabel.

Okay.