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

All right. Good morning, everyone. Thanks for being with us for Baird's Global Healthcare Conference. My name is Colleen Kusy. I'm one of the senior analysts covering biotech at Baird. This morning, I'm pleased to have with me the team from Apellis Pharmaceuticals, including CEO, Cedric Francois; and CFO, Tim Sullivan. Cedric, Tim, thanks being with us.

So maybe kick things off for us, if you would, just with a company overview, kind of where Apellis has been at and what's on the near-term horizon?

Thank you, Colleen, and great to be back here for, I don't know, how many years now. It's always wonderful. So Apellis is a company that's focused on the complement pathways, specifically on complement factor C3, which is central in that cascade and allows you to have that unique and broad control of the complement pathways, regardless of what the source of activation is. It is a target that we know particularly well, in which we are, let's say, fair to say, the global leaders in this particular field, and where we currently have 3 approved products that we have on the market. We had our initial approval in 2021 for EMPAVELI in paroxysmal nocturnal hemoglobinuria, which is a blood-based disease where, because of a mutation red blood cells, are prone to destruction by the complement pathway, and where EMPAVELI has been a life-changing option for these patients for the past 4 years now. We then had our second approval, of course, with the first approved therapy for geographic atrophy, the leading cause of blindness in the elderly, that happened in February of 2023. So we're now a little over 2 years into that launch, with SYFOVRE continuing to make headways there and making an enormous difference in the lives of these patients. And then, of course, just last month, the approval of EMPAVELI in C3 glomerulopathy and immune complex membranoproliferative glomerulonephritis, IC-MPGN. I practiced a lot in case -- where we're really excited about what this therapy can do for patients. Among all of the things in C3G and IC-MPGN, what is worth thinking about is how after only 6 months of treatment in the clinical trial that we ran in the Phase III, already in 70% of patients, there was no more trace of disease on histopathology in these kidneys. So a really unique opportunity to make a difference there as well. In the meantime, our development is also moving forward. We have 2 Phase III clinical trials for FSGS, focal segmental glomerulosclerosis, and delayed graft function with that same product EMPAVELI, where we're going to take advantage of this unique target engagement that we see in the kidney to explore other kidney indications where we believe we can make a difference for patients. And then we have the so-called 3007 program, where we believe that SYFOVRE being the unique and real disease-altering product that it is in geographic atrophy, we believe we can still improve on the efficacy there as well as provide a treatment that is less frequent by combining our every 2-month intravitreal injection with a subcutaneous injection that allows you to go to every 3-month dosing, and bring the slowdown of the atrophic lesion growth from 30% to 40% to a much more meaningful number. So really exciting work there as well. And in the meantime, our preclinical pipeline is advancing, and we have an IND right now in front of us with a gene editing program around the neonatal Fc gamma receptor.

Fantastic overview. So let's start with EMPAVELI. So actually a change from the recent years where I feel like we -- the GA was the first focus, but obviously, a lot of progress has been made for EMPAVELI in the C3G IC-MPGN space. Congratulations on the recent approval. So talk to us about the label you secured in the U.S. and how you think that positions you in the market relative to the recently approved oral competitor from -- in Novartis' Fabhalta?

Yes. Thank you. So the VALIANT trial, the readout of the VALIANT trial was pretty much beyond anything, anyone had expected, including ourselves, reminded me a little bit of PEGASUS, when we read out in PNH, so EMPAVELI has a way of doing that for us. But what was -- in this trial, we kind of followed the philosophy that we always do, which is to create a product that has broad appeal to all patients, and to really understand where this product has the highest impact. So not only did we study patients with C3 glomerulopathy, but also with IC-MPGN, we studied patients pre-transplant, post-transplant. We studied not just the adult, also the pediatric population. And what was remarkable is that across, we call it the trifecta of readouts, which is proteinuria reduction, stabilization of the glomerular filtration rate, eGFR, and then the removal of these deposits in the kidney. So across all 3 of these markers, we saw this remarkable outcome in all patient populations that were studied. So that is something that really stands out in a disease that you have to remember there, we believe there are approximately 5,000 patients, which we believe is a conservative estimate in the U.S. alone. These are typically younger patients, and half of these patients over the course of 10 years, when left untreated, will progress to end-stage renal disease, which means hemodialysis and ultimately, if you're fortunate, kidney transplant, in which case, unfortunately then, a relapse almost certainly is the outcome there as well. So really a terrible disease, but having the breadth of these outcomes across these populations and kind of the profound impact which provides a best-in-class opportunity for us is what we were looking for and what we got. I do want to touch also on the twice week subcutaneous infusion because it is actually something that patients very easily get used to. In PNH, obviously, we have gathered an enormous amount of information. I mean, we have about -- we're somewhere between 2,500 and 3,000 patient years of dosing now. It's very easy for patients to learn and get used to that subcutaneous infusion. So it's a device called Enable. It's practical. It's not hard. And worth noting here, we've heard this from nephrologists mention it to us, is that you can forget or not have the opportunity to do that subcutaneous infusion on a particular day, and catch up a day or even 2 or maybe even 3 days later and go back on your schedule. So if you're traveling across the ocean or whatever it is, you don't have to worry too much about having a lapse in your pharmacology, whereas, obviously, with the twice-a-day oral product, we all know that compliance can be an issue. So...

And is this the on-body injector that you're talking about?

Correct, yes.

And so walk us through what our expectations should be around the early launch in these indications. Is EMPAVELI in PNH a helpful benchmark? Or how should we be thinking about this launch?

Yes. I think, look, our field-based team has done, we believe, subjectively an amazing job at landscaping the patients that are out there, raising awareness not just with the physicians, also with the patient community, making sure that access is there, explaining the differentiation of the product and what it means for patients to go on treatment. And again, that number of 5,000 patients in the U.S. is one that we feel is conservative and a number that we can feel very confident about. The early launch is going as we had expected and hoped it would. We're not yet providing any form of guidance. When we get to earnings, kind of the main metric that we will share will be patient starts and an update on what our payer interactions have been, but all of that is on track.

Understood. And remind us on the expectations around a bolus of patients in the early part of launch. I know you have some patients coming over from the clinical trials and how quickly does that happen?

Yes. So we have early access patients, approximately 50, and we believe that the majority of those patients, before the end of the year, will be -- will have switched over to the commercial product. We then also have the so-called VALE extension study from VALIANT. Those subjects, as they exit the VALE study, will have opportunity to go on commercial product as well. So that is 124 patients, but across all geographies, right? So about half of those in the U.S. And that study is still ongoing, of course. And then a bolus of patients, there are -- with a serious disease like this, there are always patients waiting, of course, to be treated. You go through that phase and then we believe there will be a steady stream of new patients coming on therapy.

So just to clarify one thing, the VALE patients won't be coming on this year, right? They're going to be in '26 and '27?

Yes. And with the broader label that you've secured versus the other recently approved drug in Fabhalta, would the focus be on kind of the differentiated patients that fall only under the EMPAVELI label? Or do you think you -- is the thought to target broadly C3G and IC-MPGN?

The thought is to target broadly, right? I think that there are, of course, the elements that we already discussed, but there are other elements that are really important and why efficacy is so important in this disease. Again, there is that threat of having to go on hemodialysis that kind of alerts in front of you. The longer you can delay that, maybe potentially never having to face that, that is a prospect that is very appealing, right, and one that we believe, with the data as we gather it, as we'll get more from VALE, we'll be able to put more clarity around. I think that is something that really stands out and speaks a lot to the physicians. There's also the fact of concomitant medications. We haven't spoken a lot about that yet, but we -- there was not an endpoint in the trial, of course, but publications and more knowledge will be gathered around, hey, these are patients that when they got diagnosed, were highly symptomatic. That is why they received the kidney biopsy. And a kidney biopsy is what leads to the code, which goes into our assessment of these 5,000 patients. If you're highly symptomatic before, of course, this approval, these patients would be on treatment with very strong immunosuppressant drugs, steroids and all the consequences that, that entails, including, of course, a lot of these patients that become diabetic, but also severe immunosuppressants like CellCept, tacrolimus, other calcineurin inhibitors. These are things that if you can wean them off in the patients, provide huge benefits to the patient's quality of life and expectancy as well. So these are all elements that will come into the picture, but this is a field in medicine where efficacy is really, really important and where the differentiation for EMPAVELI is stark.

Fantastic. And I know in the GALE extension study, you've been able to publish a whole wealth of data from that long-term extension. So for the VALE study that you have going on in C3G and IC-MPGN, what are some of the expectations for additional data that we might learn from that extension study?

Yes. So I think the exciting thing there is that will be -- it's, of course, no longer [indiscernible] controlled, right? So -- but we will be able to track on a historical basis, how is the eGFR stabilization over time. Do these patients continue to respond as well as they did in the beginning. And we have no indications of tachyphylaxis, for example. These are all things that will kind of continue to build. And I'm happy you bring up GALE because it's amazing to see -- and that's, of course, for those not familiar with GALE, that's the extension study that we did for SYFOVRE in patients with geographic atrophy. We have now 4 full years. I mean, in about 800 subjects. I mean, it's an extraordinary database of information that we can tap into to really understand what's the impact, the safety efficacy profile of the drug is, and continue to speak about these products with the physician community.

Great. And so building off the success in C3G and IC-MPGN, you're also expanding development of EMPAVELI in other kidney disorders, as you mentioned earlier, Cedric. So in delayed graft function and focal segmental bone marrow sclerosis. So maybe talk about why those made sense as the next indications to go after? What gives you confidence that EMPAVELI will work? And lay out some of the time lines for those 2 programs?

Yes. Thank you, Colleen. So when we got the data from the VALIANT study, again, as I mentioned, what stood out was the exquisite target engagement in the glomerulus. So we know that the drug gets where it needs to be and that it controls C3 as well as anyone could hope for. So what we did then is to really explore which are other glomerular diseases where we can have an important impact, where the competitive positioning makes sense, where the unmet need makes sense, where access makes sense. And from going through that, that is really where FSGS and DGF rose to the top. So with FSGS, we're talking about its primary FSGS, so approximately 13,000 patients that could benefit from a good therapy. The second indication, DGF, delayed graft function, for those who are not familiar with that, is transplanted patients that get a kidney. And this is not related living kidney donations, but diseased kidney transplantations, of which there are about 21,000 per year in the U.S. About 1/3 to 1/2 of these patients will suffer from delayed graft function, which means that you don't get good creatinine corrections. The kidney is just not working as well as you would hope after the transplantation took place. We believe that by controlling complement, we can have an impact on that and really hopefully avoid delayed graft function. To put that in context and to provide numbers, 21,000, that is going to be a treatment for 3 months. So every 4 patients with DGF in terms of what it means for us, from a bottom line perspective, equates to one patient with, for example, FSGS or C3G.

Because FSGS will be a continuous...

It's a continuous treatment, correct.

And then so what are some of the time lines for those 2 programs?

So both of these studies are scheduled to start before the end of the year, the Phase III clinical trials, that is all on track. We're not providing guidance yet on when they will read out, but hopefully, they will enroll fast. And when we have more details, we'll provide that.

And when would we learn about the trial designs for those 2 studies?

So that will -- so the delayed graft function trial is currently on ClinicalTrials.gov. So the details are available on that trial. For FSGS, not yet. We are still kind of following what is happening with another competing FSGS program that is currently going through to the tracks with the PARASOL project and then an AdCom and a PDUFA for a competing product in January. So we kind of want to make sure that we understand the regulatory path as well as possible, and then we'll be more public about it.

Great. And so now switching gears to geographic atrophy. So we're about 2.5 years into the launch for SYFOVRE in GA. Just talk about the state of the GA market today and how you view the competitive position for SYFOVRE?

Yes, huge opportunity, right? I mean, when SYFOVRE came on the market, and we think back of kind of the initial phases of the launch, the reason why the uptake was so enormous is because of the unmet need. There's a paper that came out that was published by the Mayo Clinic before we launched actually, where 85% of patients with geographic atrophy would like to receive treatment for that condition. It is a very bad disease in the later stages of life. Now these older patients will also heavily rely on their physician to give them guidance. That same paper points out that 90% of patients will listen to their retina doctor as to what they should do. Currently, a little north of 10% of patients are on treatment between the 2 approved products that are on the market. So you can see the gap that needs to be filled there. That gap really comes down to, I think, 2 important elements. One is the ability to communicate better to the physician community how -- what the impact is of this disease on patients. There is one particular element about geographic atrophy called best corrected visual acuity, which is not a very good term because -- we've all gone to an optometrist or an ophthalmologist and read a Snellen chart. And if you can read the small letters, you will be defined as having 20/20 vision. Now you can look through a straw and have 20/20 vision. And now imagine running through life looking through that straw. That is the reality of the lives of many patients with geographic atrophy. And when that straw goes away, they will find a way somewhere in the periphery to have a little island, and many patients with geographic atrophy, if you know some, will look sideways at you because they are using that little island to be able to see your face, right? That's a terrible reality. But I bring this up because the progression of the disease or the impact that any therapy has on the disease cannot be measured by looking at best corrected visual acuity, right? You really need to understand what happens with the light sensitivity across the retina. And that is where we have made enormous progress to be able to actually, qualitatively and quantitatively, image and represent what the light sensitivity loss is and the impact of therapies on that for patients. So we now have an opportunity in front of us to grow this segment, to make these patients be more seen, to provide that treatment. But as we've indicated, of course, it's going to be a slow ramp, low to mid-single-digit growth on an injection basis in the quarters moving forward. But again, I think it was a unique opportunity for us to make a real difference in the lives of these patients and make them feel seen by their retina doctors and also their family members.

And so some of that exciting -- those developments on better defining the patient experience, when can we expect that to kind of roll out more into the -- into clinical practice?

So the good news there is that the science has been established, right? So the wonderful thing about that 4-year database that we saw is that this is really what allowed us to mine the information that we had, to establish this brand new way of looking at what function in the eye really represents. So there's no new trials that are needed, no new work that needs to be done. It is really a matter now of creating the tools for a retina physician in their practice in a very easy way to see what goes out, what has been going on with the patient, understand the impact beyond best corrected visual acuity and then understand what drug treatment can do. Right now, if you see retina physician and you are on treatment, there's no way of knowing whether the drug is actually making a difference. If we can crack that code, I think it will make -- it will have a really big impact.

Great. And so talk about some of the pain points for physicians that they have about using SYFOVRE. And how are you going to address those? Is it chair time, safety, efficacy, maybe just understanding what the patient experience is? What are some of those pain points?

Yes. I think it's a little bit all of the above. If you would ask me, the one element that is difficult for everyone involved is that the sense of urgency with the retina physician is probably not there the way we believe it should be there. And that has a lot to do, of course, with the fact that, yes, it is a slowly progressing disease. But once you lose retinal tissue, of course, it's not coming back, right? So whatever you lose is lost forever. And again, being able to kind of put the quantitative and qualitative elements into that is going to be very important. So again, I think there's really a lot of opportunity for us to work on that. The other element that I will mention, which we have seen coming up more and more now in retina conferences, is that the real-world evidence is really standing out. So what I most enjoy about Apellis and SYFOVRE particularly right now is that these data are presented, not just our data, other people's data as well. We have an enormous amount of academic presence. Our competitor, for example, has none, because it hasn't had for many conferences and will not have anymore because there are no more data. That is really something that is absolutely key. At the American Society for Retina Surgeons Conference in Long Beach in July, we had 5 podium presentations from us and 3 independent presentations. So 8 in total, I mean, well over an hour of time entirely dedicated to SYFOVRE. And if you had seen what went on there in terms of kind of understanding the impact that the drug has that not just what we report and what we have studied, but what large practices that do use the product now see, that is obviously going to carry the water for us.

Yes, absolutely. We were at a retina meeting in July and I can just picture the line chart, right? And then you see it bending after treatment with SYFOVRE, and that's not data we have.

Exactly. And to your point, being able to, on an individual patient basis, show the nick in the curve and show that, that's the -- so it's an imaging challenge ironically right now to be able to provide physicians and patients with more feedback on what's going on.

And I do feel like retina docs are big imaging nerds in a lot of ways. I think that would speak to them a lot. So they would love to see that. And so over the last few quarters in 2025, you and other players in the retina space have noted some headwinds due to lack of funding at a third-party co-pay assistance organization, Good Days. Can you just describe how that's affecting SYFOVRE this year? And kind of any chance we see a change in that funding?

Sure. Well, that's had a significant impact. We -- I think we disclosed that it was -- we estimate it was about a $13 million impact in the second quarter. And currently, as we understand it, Good Days is still closed to new patients. So we don't expect that to change going forward either.

And then -- I know you provided some guidance around expenses. And I know you said earlier in the presentation, kind of low single-digit growth for SYFOVRE this year. But kind of what do you think you need to see in the market to be comfortable about providing potential SYFOVRE guidance for '26?

It's a great question. Part of the issue is that we will be also in the middle of a launch. So guiding on one product and then not on the other is a little awkward. So this is the first, I would say, 2 quarters and hopefully, a year, where we're in a steady enough state where we can say, okay, we kind of understand where this market is. We may understand some seasonal stuff. The one thing that remains an unusual headwind is this patient co-pay assistance issue. But I think we're getting much more comfortable that we can kind of give more in terms of understanding because we understand more. I'm not sure if we're going to give guidance, but we'll let you know.

Understood. And on the Good Days headwinds, is that something that -- we know the headwind now, and that's kind of the new reset? Or do we think that will be additional headwinds in future quarters?

I think we should assume it's -- it's an incremental to where it is. No, I think this is the new normal.

And now shifting gears again to your development efforts in GA. So you already talked about APL-3007, your siRNA program. You recently started Phase II study in GA patients. Talk about the rationale for this development program and maybe some of the potential risk of systemic complement inhibition in the GA patient population.

Yes. So this is a very exciting program for us, obviously, because -- I'd like to explain to people geographic atrophy like a lawn, where you have a hole in the middle of the lawn, a bottomless hole, that is your geographic atrophy lesion. But outside of that hole, you have an area of earth without grass, that's the so-called RPE cell layer where the photoreceptor cells have died. Beyond that, you have a full lawn with grass on top of it, sick grass, mind you, but grass. When you treat a patient with SYFOVRE, the grass is immediately 100% protected, and we can image and visualize that. The hole, however, continues to grow slower and slower and incrementally slower, I mean, up to 30% to 40%, as you know. Now when the hole catches up with the grass, then the grass starts dying again, not because the grass is not protected, but because it needs the earth to be supported, right? And I mentioned that because we have that near -- approximately 100% efficacy for SYFOVRE on the grass. If we can get closer to something similar on the earth as well, that would have a dramatic impact. And what we do with the subcutaneous injection, which will be synchronized with the intravitreal injection. So it, in office, is going to be very easy to administer like a subcutaneous auto-injector. If we can get that effect to be larger and go from every 2 to every 3-month injections, that would provide a huge benefit. And the way in which we do that is with siRNA, we lower the systemic levels of C3 by 80% to 90%, and we provide a stoichiometric metric advantage to SYFOVRE in the eye to have that added benefit. Now we know that with approximately 10% of free-floating C3 in the body, that the safety is actually very good. And we know that from EMPAVELI in PNH, right? So I'd say the magic behind pegcetacoplan is it doesn't try to get rid of all C3, it stabilizes the enzymatic activity of the cascade. That is really the key thing. And when 80% to 90% of C3 is bound by pegcetacoplan systemically, you have this exquisite safety profile. I mean by this time in the real world, we should have seen more -- probably more than 10 cases of encapsulated meningococcal infection, we've seen 0, right? So that has probably something to do with those elements still being there in place when it is most needed. So I think that really stands out because you combine SYFOVRE with something that we believe is going to be very safe systemically, providing that comfort obviously to retina doctors who are not used to systemic treatment, and combining that with what will hopefully be a remarkable efficacy profile.

Great. And then so you recently signed a new deal with your ex U.S. partner, Sobi, to bring in $275 million upfront and so just talk about the benefits of that deal for you guys and kind of what that highlights for their excitement for the program?

Yes. Well, first of all, we felt like we were being a little underappreciated at the time and particularly our C3G and IC-MPGN program. But what that did was that -- those preapproval and it sort shined a light on the value of that program because that was simply just monetizing the royalty -- the ex U.S. royalty, which as we had disclosed prior, was high teens to high 20s from Sobi, our partner. They obviously know the asset, then they know the market really well, and they're the ones who chose to buy it. And we -- it was a very competitive process. We had 8 or 9 players interested in that royalty. And ultimately, we were able to do an optimal deal with them. And so in a sense, that really showed the value of that program at a time when we felt it wasn't being appreciated. And then the second thing was it was a capped royalty deal. So all of the upside for us is still there beyond that payback, which is -- which, on an NPV basis, we -- in our calculations, we got 95-plus percent of the NPV of that. So phenomenal, and the NPV is higher than what we got, obviously, so we're excited about the deal.

Great. So now I know we just have a minute left or so. So now with that deal and the other programs, you're funded to sustainable profitability. Kind of what do you feel like is most underappreciated about the Apellis story today? And kind of why should investors be paying attention to Apellis over the next 6 to 12 months?

Lots of exciting things coming up, right? I mean this was very much a rebuilding year for us as well. I mean we also, internally in the company, went through kind of important managing transitions as well. It's a lot of fun to work at Apellis right now because we have so much to look forward to, obviously, in the launch of EMPAVELI in C3G, but also in what we believe is the opportunity in SYFOVRE, right, where we went through a lot, needless to say, but where it is -- it's an amazing drug for patients, right? I mean we know that from the data that we see, and that's a unique opportunity. And then to have all of the developmental opportunities that are going to become much more real, whether it's the Phase III clinical trials and having a view on readouts there, whether it is the early program, the preclinical programs that are going to go into the clinic as well. So to do that with the cash position that we have, I think it's the perfect foundation for a new future for us.

Fantastic. And with that, we're out of time. So thank you so much, Cedric and Tim.

Thank you, Colleen.

Thank you, Colleen.