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

Good morning, everyone. Thank you so much for joining us. I'm Salveen Richter, biotechnology analyst at Goldman Sachs, and we're really pleased to have with us today the Apellis team. Sitting next to me is Cedric Francois, CEO, Co-Founder and President; next to him is David Acheson, Head of Global Commercial; and then Tim Sullivan, CFO. To start here, before we dive into specifics, can you just provide us a snapshot of your business and the outlook for the second half of the year?

Yes. Thank you, Salveen, and thank you for inviting us again. It's wonderful to be here in Miami. So Apellis is a company that is focused on a pathway of immunology called complements. It's a very old part of our immune system that is involved in multiple pathologies. We have 2 commercial products on the market. One is called EMPAVELI, which is approved for paroxysmal nocturnal hemoglobinuria and has a PDUFA date for 2 additional potential indications July 28, so about a month away, and C3 glomerulopathy and immune complex membranoproliferative glomerulonephritis, we're very excited about that launch coming up. And then, of course, the approved product in SYFOVRE, which was the first approved product for geographic atrophy, which is one of the leading causes of blindness in the Western world which has been on the market for approximately 2 years now. So both of these products, we believe, are on a path to blockbuster status. We have a very stable business where we are on a path to profitability and a pipeline that is maturing as well where we have several INDs coming up in the next year to 2 years.

What do you think is underappreciated by the Street right now with regard to the company?

I think that the Street over the past year has understandably taken a bit of a cautious view of us in the sense that we were finding our bearings on the commercial trajectory for SYFOVRE, which is now getting in a much more stable state than it was probably a year ago. And then I think people are trying to understand what the growth trajectory will be for EMPAVELI with C3G and IC-MPGN representing really meaningful opportunities with approximately 5,000 patients in the U.S. alone with a high unmet need, where we believe we'll be able to make a very big difference. So I think it is more a question of kind of assessing what the growth trajectory for Apellis will be in the next couple of years. But we'll get answers to that in the very near future.

And when can we expect the company to provide product level and expense guidance to inform Street expectations?

Sure. So we do already give expense guidance on some level, which is that in -- we said in 2025 on a cash basis, our OpEx will be relatively flat versus 2024. From a revenue perspective, we've had, as Cedric had alluded to, some unusual things happen with respect to the co-pay assistance organizations and other things that have affected our ability to kind of digest what's going on in the market. But I think once we do that, we'll obviously consider when is the right time to give revenue guidance on SYFOVRE. And then from EMPAVELI's perspective, it's not typical for us to give guidance like in advance of a launch. I think that's something we'll figure out when to do over time. And maybe it's the best thing to do them both all at once. So we'll figure that out, but we're evaluating that.

Maybe starting here with SYFOVRE and the market dynamics. So when we look on the back of the first quarter here, there was an impact because of the funding shortages at the co-pay assistance program. So good days. How are you kind of, I guess, absorbing and managing this co-pay dynamic on the forward? And maybe talk to us separately about whether there are certain patient and physician subpopulations right now where you see stronger uptake for SYFOVRE versus others?

Yes. I will have David answer the second part of the question. But I think it's important to maybe give a bit of background on the funding gap that occurred as it relates to these co-pay assistance programs. So approximately 20% of patients with geographic atrophy were going to a physician's office. And when they would go on treatment with SYFOVRE had these foundations available to help and assist with paying what is approximately $400 in co-pay that is required for a treatment with SYFOVRE. So when that fell away at the end of last year and the beginning of this year, 4 categories of patients kind of were artificially created by that situation. The first one were patients who, sure, they were receiving that assistance, but when confronted with not having it available still found an ability to pay it out of their pocket. So that's category number one. Category number two were patients who may have had an Advantage plan that would cover the co-pay or maybe didn't have it, but could get an Advantage plan to help cover the co-pay. But it's important to bear in mind that the foundational money was easier for physicians to have access to than the Advantage plans. So again, faced with the foundation of being there, a lot of patients were and are finding their way into using their Advantage plans properly to afford that co-pay. The third category are patients who really do not have that recourse, but where the physician and the patient jointly decide to rely on samples or on our assistance program that we have ourselves to be able to provide free drug to these patients. And then the fourth category, which is really the one that we want to keep a close eye out for are patients where the physician says, look, this is not a disease where we have to worry that much about a short treatment holiday. Why don't you go home, come back in a couple of months and let's see if this situation has been resolved. So I give that as background because, David, now you can speak a little bit more perhaps on how we navigate that and how we are seeing this, find a new place of settlement.

Yes. So a couple of things. Thank you for the question, by the way. We're really focused post some of the things that Cedric had talked about on making sure that we really educate the offices around how to navigate with the good day situation and the foundation situation. At the same time, we're really focused on the population of patients that we believe continue to be opportunities to be treated. We believe the market is quite large and that we've just scratched the surface on what we can do for patients. One of the things that we will see is that we've got physicians who have really taken off with the product and they use a lot of product with patients today, and we're starting to see bilateral use. And originally, if you go back to when we launched, you would see physicians that were taking the patient that was already blind in one eye, potentially could get there with the second eye. We're now starting to see them start to treat earlier and bilateral use is becoming much more prevalent, which is very good. For the physicians that are still a bit on the sidelines or starting to come into treatment, we're really trying to get them focused on our long-term data and one of the things that you'll see out of the GALE data that we have is that we've got tissue preservation data that is now available. One of the things the data will tell you is treat early and then treat the patients over a period of time, and you'll see a significant difference in the lesion growth and the reduction in the lesion growth and tissue preservation. So really focused on all of that in the offices that we're in. And as far as navigating some of the other things that Cedric talked about, we specifically have our teams to make sure that when these patients are being treated, that can go in and talk about, here's the best way for reimbursement, here's how we make sure the patient has access for reimbursement. Sometimes it's just a misunderstanding on the plan design. And then we have a group that goes in that's on the reimbursement side of the business that helps educate on that. So we're trying to hit it from all fronts, really focus on the right patients that are coming in and make sure they can get reimbursed on the backside.

Help us understand, there's some, I guess, in certain cases, some physicians or patients that want to understand the impact on visual outcomes in the context of the side effect profile here or what played out, the rare risk of that. But can you just speak to your efforts to build physician and patient confidence with this viewpoint of where the benefit takes them over time?

Yes. So this is truly the greatest opportunity for us as far as SYFOVRE is concerned because if there is one point that I think people need to internalize -- or 2 points is, first of all, only 10% of patients more or less have been treated so far, whereas you should expect once the drug has been properly -- is being properly used by the majority of physicians, that probably between 30% and 40% to 50% of patients with GA should be treated. The second point, the more salient one, I believe, is that now that we have a full 4-year data set of seeing what SYFOVRE can do for patients with geographic atrophy is that SYFOVRE works really, really well in not just reducing lesion growth but we now also have very clear evidence as it relates to the functional impact of this drug. So what it does for vision. The element that kind of against the background of the fear that existed around safety in the past couple of years was kind of lost sight of, pun fully intended here, is that best corrected visual acuity, right? I mean the ability of a patient to be able to read a letter chart in the physician's office is a very poor indicator of the progression in this disease, which takes place in the periphery of vision, not that central point that you need to read these letters. And we now have an ability to visualize the impact on function through the work that we did, which shows how bad this disease is for these patients and how much function they lose over time. So there's no doubt that this is -- there's a lot of education that needs to happen there. These are very new technologies even for retina doctors. But the impact is really important. There's a tremendous product that is there for patients. And we have a lot of opportunity to bring this further in the awareness of physicians as well as patients.

So just frame for us here your longer-term outlook. So you talked about going from 10% to 30% to 40%. But what are these levers now you have to pull to drive further market expansion to get there? So one clearly is co-pay and the other one is, as you just mentioned, education based on the 4-year data, et cetera. But what else do you need to do here?

Well, I think that people should expect kind of a steady cadence and a steady slow growth, but there are catalysts that can really accelerate. And specifically, catalysts that will go back to the point that I made earlier. I will give one very specific example that we are focused on and that we aim to bring into the real world as quickly as possible. Currently, if you're a patient on treatment with SYFOVRE and you are seen by a physician after a year and you ask the physician, is this drug working for me? Then the physician does not have a good tool to be able to give that feedback to the patient. So there's a lot of trust that it does kind of happening there. We have the tools and the science available to us to give that feedback to the patient and the physician to say, look how the curve bends. We also have the ability to take an OCT image, so an imaging tool, and translate that into what an image really looks like for that patient. So we can literally take a picture, a stock picture or a picture of the family of the patient, and we can pixelate that picture to reflect exactly what that patient actually sees. Super powerful technologies that create connections between the physicians and the patients that allow them to understand the impact that the drug is having on the progression of the disease. And the faster we can bring that -- actually this is an engineering job. The faster we can bring that on to these OCT tools inside the physician office, the more impact we will have on the adoption of the drug and an appreciation of the positive impact that it has on the progression of the disease.

One other aspect that's playing out is clearly competitive dynamics. Maybe help us understand where everything is right now with regard to Astellas' Izervay and your drug and how that's being parsed out in this market?

Yes. So we're very happy there as well. I mean, the clear differentiation on efficacy is being appreciated more and more and increasingly so by the physician population, something that we've always said and that we expect it would happen and that is materializing right now. Look, in the past couple of years with kind of the -- not the safety overhang, but the fear that this very rare side effect that can occur was more prevalent than it may be or whatever. We now know that is not the case, right? I mean -- so the last confirmed case of vasculitis dates back already to November of last year. And I mean, these are very rare events and physicians appreciate that. I mean, so now the discussion is really shifting towards efficacy, and on efficacy, we have such a powerful story. I mean, it's the great -- the largest data set ever generated within this disease, not just in the number of patients, but also longitudinally, where over the course of 4 years, you see that the dramatic impact that treatment with SYFOVRE can have on these...

In your experience, just speaking with physicians, what is the determining factor when they're deciding to use SYFOVRE over Izervay or vice versa?

Again, efficacy, efficacy, efficacy. It is the -- if you are going to treat a patient with geographic atrophy, you're going to have to do intravitreal injections, which are procedures that inherently come with a risk profile, right? I mean, it is rare, but once in a while, the procedure itself can have side effects for patients. So when you expose the patients to that procedure, you want to bring a therapy that's really going to benefit them the most and that is where SYFOVRE truly shines. And what we have seen, I would say, I'm looking at David, probably since about August, September of last year is a gradual takeover of SYFOVRE vis-a-vis its competitor, where on new patients that get treated, we are gaining month after month. Around that time, in the fall of last year, we were at a disadvantage. I mean our competitor was at about 60%, we were at 40%, and we have been gaining back. We are now on new treatments at about 55% for us versus 45% for our competitors. So we are the leaders again on new treatments. On overall market share, we have continued to be the leader through this whole process, north of 60% versus 40% for our competitor. And you could say, well, why did it stay stable there if on first injections you were losing? Well, we believe that there's better adherence to SYFOVRE as well. And that adherence probably has a lot to do with, number one, again, probably the differentiated efficacy, but also the fact that being able to treat every 2 months by label is, of course, a huge advantage over having to come in monthly. And even if some patients may get treated off label with an unproven every-other-month posology, there are a lot of patients that are properly treated every month and that is a huge burden on these patients. So that differentiation on adherence and compliance is also something that clearly benefits us.

To speak -- let's turn over to EMPAVELI here. So can you just speak to the competitive landscape here and the differentiation of your asset versus the Novartis asset?

Yes. So here, too, for EMPAVELI, again, the readout that we had in VALIANT is probably one of the better Phase III readouts that you will see in the sense that it was so consistent across all of the phenotypes where the product was tested. We saw the efficacy in C3G as well as in IC-MPGN, in adolescents as well as adults, in pre-transplant as well as post-transplant, in C3-depleted patients as well as the C3-competent patients. I mean, across the board, the same efficacy profile for all of these patients. And efficacy, in this case, really refers to not just 1 but 3 parameters that physicians look at in the context of an efficacy profile for a drug in a kidney disease or a glomerular disease. Number one is, do you have an impact on proteinuria and we have, by far, the largest impact on proteinuria ever seen in these conditions. Number two, is there a stabilization of eGFR, and we see that stabilization already statistically at 6 months vis-a-vis placebo. And number three, and this is arguably the most important one, is when you take biopsies from these patients, you can see the C3 deposition that takes place in the kidney, like it lights up like Christmas tree. After 6 months of treatment, already in 70% of patients there is no more trace of disease in these kidney. You cannot see -- I mean this -- the disease is no longer visible to pathologists that are used to seeing these images. So we've kind of coined the term the trifecta of efficacy because that is exactly what we got. And it's nice to see because that term, trifecta for efficacy, is now finding its way into the treater universe as well. So physicians are using that term, we're happy to see that, because it reflects the benefit that is -- that we believe EMPAVELI will have for patients with this disease.

And just frame for us how big the opportunity is here? I think it's hard just given it's a rare disease to really fully size this market. But what is your internal work suggesting?

Go ahead.

So we've done -- the way in which our business intelligence unit did the work on this is we estimate there are approximately 5,000 patients in the U.S. alone with either of these 2 conditions, split approximately 50-50 between the 2. That number, 5,000, is based on going back 8 years into the past and having patients with at least 2 diagnostic codes, the last one of which had to have taken place in the last 3 years. So it's quite a rigorous standard, as you can imagine. I think it's worth pointing out here that if a patient does have a diagnostic code, let alone 2, it means that this patient is in all likelihood asymptomatic patient, which, again, is not important for the identification, but also for the desire to be treated. If you then think about those 5,000 patients, approximately 20% of these patients are transplant patients. Probably up to 20% of these patients can also be in the pediatric segment. And so again, kind of providing a unique opportunity because of all of the phenotypes that were tested to address all that is available there. Competitively, I think it is worth mentioning that we only have one competitor who recently got approved, who does have the advantage of being oral in administration, but where the data is clearly differentiated favorably towards us and that is being recognized by prescribing physicians. And again, that breadth of indication setting, right? So our competitor only tested patients with C3G, only tested adults and only tested the product in a pre-transplant setting, so not post-transplant. So we have, kind of I say, an ideal setup for a launch, where competitively, we are differentiated on efficacy, but where in addition to that, we have tested the drug in a large segment of patients where our competitor has not been tested and has not been approved. So where we will be competing is probably in 1,500 to 2,000 patients out of 5,000.

Maybe speak to the commercial footprint as well? Are you ready to go here post PDUFA?

Yes. So we -- everything is in place commercially. We actually have our teams that are out there today. They started in April, and they're working on profiling the accounts and specifically understanding where the patients are located and the treaters are located. And we're learning a lot of things that can help us as we get post the approval time frame to really launch successfully. And I think that we've got access in these offices because they want to talk to us about the potential opportunity of an approval, along with our medical team that is able to talk about the data when asked. So it's been positive so far, and we're learning a lot. We've got about a little less than 60 days before PDUFA time. So they're busy.

Is there anything else that you want to highlight within the pipeline here that you're excited about? And I know you have the siRNA program targeting C3 as well?

Yes. So I think that in terms of developmental programs, this is a program we're very excited about. So in a nutshell, what we do there is we have created an siRNA product that brings the systemic levels of C3 down by approximately 90%. So what that does is it provides -- so in the bloodstream, C3 goes down by 90%, and it provides a stoichiometric advantage to SYFOVRE, which is injected in the eye. So we know that the C3 levels, not just in the bloodstream, but also inside the eye go down very meaningfully and give SYFOVRE that extra edge to be able to further slowdown lesion growth. We believe that's especially important on the RPE cell layer -- on the photoreceptor cells we know that the effect is in all likelihood already complete. But on the RPE cell layer, our ambition is to have a much more meaningful slowdown of the growth of geographic atrophy but also the ability to potentially treat patients every 3 months instead of every 2 months. And the way to envision this is, let's say, I have 100 patients on treatment with SYFOVRE that I treat every 2 months. I can now bring these patients in every 3 months, have a much more important impact if all goes according to plan and the drug gets approved, a much more important impact on the slowdown of the lesion. And all I have to do is have a technician or a nurse give a quick subcutaneous injection when they come in for their intravitreal injection as well.

Tim, maybe you could just remind us where you stand from a balance sheet perspective at this point. In light of these -- recognizing you have these launches playing out, too.

Sure. So from a cash perspective, we ended the quarter with just under $360 million in cash on the balance sheet. We do have our outstanding debt obligation with Sixth Street, which is $375 million in senior notes. And then we have an outstanding convert that's around $93 million, $94 million in -- on the balance sheet. So but in terms of our -- where we stand from an OpEx perspective, our net revenue and our net operating expenses aren't that far off. We do have to fund working capital, and we do have some interest expense. But with some modest growth, we think that we can achieve profitability. And we've really already built out what we need from a commercial perspective in nephrology. We already have what we need in ophthalmology. And obviously, we have the ongoing business in hematology, but there's a lot of overlap with the nephrology business there. So really, from our perspective, we have everything we need to execute on the business plan going forward without the need to go to the capital markets. So we feel very good about our balance sheet.

One last question for me. As you look at SYFOVRE, right, we're clearly going to be monitoring your launch here for -- in these other new indications. But with regard to SYFOVRE, given what played out in the first quarter, do you feel that, that has stabilized as we look to kind of second quarter revenue and beyond? Like is the -- have you kind of fully absorbed good days to some degree that, that is at least level set, and then you can grow from there?

Yes. I mean, from our perspective, we think that we just sort of had a rebasing, I guess. So it's a little bit obscured because we have that inventory issue that was -- is fairly common at year-end for this buy-and-bill model in the retina. I mean, Regeneron had that also. So we -- if you normalize for that, you would say our revenue was in the sort of $145 million to $150 million range for the quarter. And what we saw was with the good days impact, we saw a big increase in samples and sample use and we estimated that the impact of that was around $10 million in lost commercial revenue for the first quarter. And the rate of that, that we were seeing has more or less continued and it's something that we were expecting. So basically, the base that we talked about, that sort of $145 million to $150 million in normalized quarterly revenue would be the new baseline off of which we would grow the business from here.

Got it. Thank you so much.

Thank you.

Thank you. Appreciate it, Salveen.

Thank you.