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

Good afternoon, everyone, and welcome to the Apellis session. It's our pleasure to have CFO, Tim Sullivan; and Chief Commercial Officer, David Acheson, with us today. And it's at a time when SYFOVRE, I would say, is reaching a more mature phase, but you've got a new product or a new indication for EMPAVELI, which is hopefully bringing some life back into sales growth. So why don't I just let you have the floor for 5 minutes or so and give us an overview, and we can just launch into questions.

Yes, sure. Thank you. So thank you for having us Yes. So Apellis today sits in a unique and strong position. We have a foundational technology built on targeting the complement cascade, specifically targeting C3, which we believe, at least in the way that pegcetacoplan or active ingredient targets complement and C3 is the optimal way to control complement dysregulation. And that's the foundation of both of our drugs, which have led to 3 approvals in roughly 3, 3.5 years. So the first approval was for paroxysmal nocturnal hemoglobinuria with our systemic pegcetacoplan, which is called EMPAVELI. Our second approval was for SYFOVRE, which is for geographic atrophy, and that was approved about 2.5 years ago. And then recently, we had an approval -- a second approval for EMPAVELI in C3G and IC-MPGN. So I guess that's 4 indications total. And that launch has just recently taken place. So we launched officially in the beginning of August for that indication. And we had our preliminary results or our results for the third quarter, which was a partial quarter for that launch, which we announced at the end of October. So -- and we're very excited about actually both of these products. You're right in the sense that SYFOVRE is at this point has a certain level of maturity. It's 2.5 years into the launch, but it has had an unusual ride over those 2.5 years with launch dynamics, profile of evolution dynamics, competitive dynamics and then, of course, the patient reimbursement dynamics. Despite that -- all of that, it has a run rate of approximately $600 million, and we believe in the next year has significant opportunities to grow. And then also for EMPAVELI, which has had a kind of $80 million, $90 million run rate in the paroxysmal nocturnal hemoglobinuria indication has recently launched, and as we talked about C3G and IC-MPGN, which is an exciting launch, and that launch has been going very well, and we announced that we had 152 start forms, which are the equivalent of prescriptions in the first quarter, so in the first 2 months of launch. So we feel very good about that number. And we're very excited for what the profile of our company looks like in 2026, where we have to further commercialize these 2 drugs, which we believe both have blockbuster potential.

Okay. Great. So why don't we just start with the most recent event, which was your third quarter. The stock took a bit of a hit on that readout. And maybe you can talk to us about what you think is misunderstood right now with the results of that quarter and what we should be thinking about going forward?

Sure. Yes. So in the third quarter, our stock did take a hit, and I think there's a difference between kind of the signal and the noise. So the noise is kind of what are created expectations that don't have anything to do with us. And and the signal is what we're actually doing. And so what we're actually doing is executing on the plan in the context of SYFOVRE with all of the various market dynamics we talked about, we thought it was -- we've always, I think, been very clear and honest about what the expectations were this year for SYFOVRE. And there's been some noise, not by us, but other people, including our competitor where they've had some guidance that has been taken down since. But I think we've been pretty credible in how we've talked about and viewed the market. And I don't think anything was extraordinarily surprising about our third quarter with SYFOVRE nor our expectations for the fourth quarter. Specifically with the launch of C3G and IC-MPGN, I think by most measures, the 152 new start forms was a strong launch and a great success. And we've never backed down from saying it's been a strong launch. We did give some guidance that we would have 225 start forms by the end of the fourth quarter, which in that context, on a run rate basis would have had us beating consensus for next year just on those patients alone. So -- and our guidance was those 225 start forms or more. So in that sense, we feel like that launch has been going well and is going well and have no -- nothing but strong expectations for that drug over the launch.

Okay. Great. Just to stick on SYFOVRE. It's been flat for a couple of quarters, and we obviously know that there's a headwind with the co-pay funding and some free product out there. But what are some of the components that you're going to implement to try to revive that growth or get past the headwind of the free product?

So -- yes, the headwind of the free product is really unfortunate for patients, and it has been something that we've talked about and now is, I think, getting to be better understood. I think we -- even we didn't have a full appreciation for the impact of these -- of this generally in the market and for patients specifically. So you can imagine, and we've talked about this, the increase in free goods that we've had over the first 3 quarters of this year approximates $40 million in what otherwise we believe would have been commercial product. And if you annualize that, it's in the low to mid-50s in terms of total dollars, which is substantial. But more importantly, these are patients who, in many cases, are either getting samples, but there are many that are not getting drug at all, right? There are many patients who -- for whom these physicians are not even talking to the patient because they're saying to themselves, like I'm not going to go through the process and not be able to give them drug or I'm not going to go through the process and just get them on a constant flow of samples. So that's -- that remains a headwind, and we don't have any sort of prediction on when that will change. What we do have is we have a number of things that we believe will drive growth for SYFOVRE, the market overall and for SYFOVRE, in particular, over the next year. And those include some of the basic things like efficacy messages and differences that -- such as this morning, for example, we announced in our 5-year GALE study, we saved 1.5 years of lesion growth. So it's hard to frame how important that is to certain -- sometimes these retinal specialists look at something like this type of drug, and they say, okay, how interesting is this when I get 15 letters of vision back when I give a wet AMD patient in anti-VEGF. Well, in fact, if I put it to you a different way, and I say, okay, imagine you are going to be in a wheelchair in 5 years or in 3.5 years, but now it's going to take you 5 years, everyone is going to be like, okay, that's a miracle, I'll do that. So really, I think one of the things that's upon us is to reframe is to go out with our efficacy message and reframe the thinking. And we've found that, that has been effective on a regular basis with physicians. We've found traction in that. We found efficacy to really move the needle now that a lot of the other noise has sort of faded into the background. So that's our job to do that. We also have the prefilled syringe, which is -- sounds like a life cycle management tool, and it is to some extent, but it's also something that physicians clamor for. And many physicians have said, yes, we want to have that for our office because it takes a lot of risk out of the system for endophthalmitis. It also takes a lot of the workflow -- makes a lot of the workflow simpler and easier and faster. And that has a much bigger impact than one might think. One of the reasons that Vabysmo has done so well is that it has come out in a prefilled syringe. So we think that's a big life cycle item for us. We also have our OCTF program. And we're not guiding on when that's going to come out, but we're going to make, I think, significant progress on that in the first half of next year, and we can talk more about it later. But that effectively is a way for your standard OCT to give you a sense of function in geographic atrophy instead of having to use a microperimetry device, which is much more cumbersome and most offices don't have them. So this will allow a doctor and a patient to have a dialogue and a measurement about how -- that will contextualize how they're doing from a functional point of view, how they've done historically, how they will do going forward and also what an intervention can do in terms of functional vision preservation. So all of those things are things that are either within our control or -- well, most of them are within our control to help SYFOVRE grow next year.

Okay. David, maybe you want to add to that. Where are you in expanding into ophthalmology and optometry for referrals into the retinal specialists. Has that funnel started to produce anything into the retinal?

Yes. Great. Thanks. Great question. So first of all, we've had -- and you guys know this, we've had a team that's been focused on the referral patterns for quite a while now in place. They specifically call on the general ophthalmology groups that help us make connections in the pathway for patients to get referred. And that team will continue to be in place moving into next year. We also have had a telesales team that's been focused on the top OD offices to help educate them on GA and also making referrals. There's a lot of patients that sit there as well. And those both will continue to be in play. I just want to remind everyone kind of our -- what our strategy looks like overall. So our goal is to grow the market, and our goal is to grow our share within the space. And 2 things that we just talked about are helping us with both, growing the market as well as making sure that we gain the confidence in the -- around all of the efficacy that Tim was just talking about and all the other things that we're doing with the brand. So -- and there are a lot of patients, especially today with the funding issues that have come up that are coming into the current retina offices that are actually diagnosed with GA, but they're not being treated. So our goal is to make sure that those patients get treated and we refer new patients in through the processes that we just talked about. So those have been in place. We're going to continue to execute that moving into next year and make sure we pull that through with the commercial team.

Okay. And just one last question before we move into EMPAVELI. Well, there's never a last question. But is there any effort to provide any additional -- can you provide any additional assistance to those patients? Or is that going to be -- the co-pay funding going to be a persistent headwind and we just have to annualize that and then start a new -- from a new base? Or is there anything that could change in the near future?

Yes. Look, I think that's a great question. We have taken the conservative approach to believe that the baseline has been reset and that we're going to continue to work through the process as it is today with where the funding is for co-pays. Now for us, look, we've got programs in place for patients to get access to product. I think one of the things that you all know is that we've had higher use of our free goods programs as a result of some of the funding challenges that have been out there. I personally view that as positive. That's actually true demand. That's a patient asking to be treated or a physician asking to treat a patient. And those are patients that are going on product despite lack of reimbursement in place. And frankly, for these offices, there's really no incentive outside of doing the right thing for the patient to treat them with a free good. So I anticipate that the baseline is set, and I think we need to kind of continue to think that way unless something happens differently. And if we get a tailwind, that's great. If not, we're going to do the right thing to make sure that patients that want to be treated have access to product. And they work really hard in those offices like we have from a reimbursement perspective to make sure that everyone understands what's the best medical benefit program you can find in Medicare that will have those patients that maybe weren't covered this year for reimbursement or co-pays that could help them moving forward. And we've got a team that helps educate offices and do that work today.

And what do you think that baseline demand is? Is it back to just the low mid-single digits? Or do you think it's going to change with the new data that's come out?

So look, I think the new data always drives a lot of new confidence, especially this 1.5 years that Tim was talking about in our 5-year data. I think that's key. That, on top of the tissue preservation conversations that we've been having are going to have -- continue to have a lot of impact for us, right? The baseline, we're going to continue to stick into that low to mid-single digits and continue that growth quarter-over-quarter is what our goal is. If we get some tailwinds, then hopefully, we can come in with something different than that, but that's where we're at today.

Yes. I would throw in one just quick point, which is that in spite of these headwinds, the fact that injections are growing on average about 5% per quarter. We had 4% in the first quarter, 6% in the second quarter and 4% in the third quarter in spite of those headwinds, that's pretty impressive, right? I can tell you that plenty of retinal specialists have stopped treating GA altogether and bringing in new patients in GA altogether because of this patient assistance organization issue. So in that context, I think you have to be fairly impressed with the injection growth. A lot of that's been free goods, but it is what it is.

And now this is the last question on SYFOVRE. But what is the persistence and compliance here? We're 3 years in. If we think about the wet AMD market, it starts to drop off after 18 months. So are we seeing more persistence, less persistence? What are you seeing in terms of patient retention?

Yes. So just a reminder, we're real fortunate with our label that we've got both monthly and every other month dosing, which makes a big difference. And the efficacy on the every other month dosing is definitely recognized by the retina community. And it certainly brings the burden of patient having to come into those offices multiple times more a year. So that is definitely a very good thing for us. I will also go back to the tissue preservation data and the data that came out on our 5-year GALE study today also help augment the higher efficacy with the product in general. What you'll see is that the every other month dosing keeps these patients coming in more, which we would expect because the burden is less. But at the end of the day, you're going to end up kind of being in the same kind of range of that 12 to 18 months, where you're going to start to see some patients that do fall off. But most of this is not inconsistent with what you'll see in the space. And remember, these patients are on average in their 80s being treated. So for them to come in 6 times and continue to be in play on a product that doesn't show improvement for them the way that you might see in an anti-VEGF. I actually think is a very positive story for the product, and every other month dosing is a big part of that.

Okay. I'm going to resist asking one more question about EMPAVELI. So I'm just moving on. Sorry about SYFOVRE. I am moving on to EMPAVELI because we're going to run out of time for all the new stuff. We did see a strong start, as you had mentioned, in C3G and IC-MPGN. I guess talk about the initial reception to the launch in light of the market seeing 2 new options in pretty short order. I know what the obvious -- the patient starts were, but maybe from a physician perspective and how they look at a patient and think about the treatment to start with.

Yes. Great question. So we just came off of ASN, which is the biggest meeting for nephrology last week. It was an excellent meeting for us. But here's some playback that we're hearing from physicians, both before that meeting and specifically last week, Tim and I were there for several days to meet with the physicians. One of the best things that they remember right off the bat is that we've got such a great label, right? So you've got pediatrics, 12 and up. We've got C3G, we've got IC-MPGN. We've got adults for C3G and we got post-transplant. So for us to talk to the nephrologists around this product, there's really no gap, right, in the label that we have to worry about. They were very clear with us that one of the best things that we did was make sure that we did studies in the pediatric population at the same time, we did the adult population. Many, many times, you'll find that the pediatric population gets left behind for a second study, much like our competition is working through now. And they were very pleased that we did both populations at the start. The other thing is that we learned is that -- and we talked a little bit about this on the earnings call, we have patients across the whole gamut. So it's not like we're getting all patients that are pediatric or all patients that are C3G. We've got post-transplant. We've got IC-MPGN. It's very broad across the indications that we have or the indication with the patient populations in the label, which is also very telling that there's confidence in the brand early on. And at the end of the day, I think what we're starting to see is the physicians are starting to talk very clearly with each other at this meeting and with us about very specific patients, what they would do, how they potentially change their protocols to move this product up into earlier use versus going back to what they've always done, which is your symptom management products like a prednisone versus a disease-altering product like EMPAVELI. And I think that's really good. And they're very keen on trying to make sure that those protocols get changed and that there are some opinion papers that get out there early so that people can understand what's happening in the real world with patients.

Okay. So they actually really are waiting for guidelines before they move it up even though you have that broad label.

I would say guidelines, we all know is going to take time. I would say the influencers that are in the KOL space, doing a white paper, having some real-world experience being on stage, that's going to come much quicker. And you'll see some position papers that they start to take that will happen in the next 4 to 6 months. That will have significant impact, I think.

Okay. And they're prioritizing the efficacy over convenience for these patients.

Yes. So that's a great point. Efficacy is definitely top of mind, but the fact that you can be dosed twice a week with EMPAVELI and have that efficacy versus twice daily with an oral does make a difference for these patients.

Okay. Great. All right. So as you move past this initial bolus of patients or bolus of early adopters rather not the patients, how should we think about capturing that next group of physicians and the next group of physicians? And how are you staging that? Or how do you see that playing out?

Yes. No, great question. So just a reminder, there's about 5,000 or so physicians that we call on across the country that are nephrologists that fall into the space to see these patients. We call on 20 major centers that see about 35% of all this patient population. And all of them have start forms that have come out of them, and they also have physicians that are REMS enrolled. So we're in the right places where the right volumes of patients are. We've been canvassing and we canvassed before the launch, all of these offices to really profile, understand where the patient population was if they knew if they had patients or not and how to identify them and start to bring them back in for conversation. And now that we've gotten kind of the top accounts moving, we continue to work there, but we're continuing to go pull through in these other community-based type of nephrology offices. The funny thing is these community-based offices and nephrologists work very closely with the academic centers as well. So it doesn't take long for us to connect dots on who we need to be talking to. And that's really that next level down is to make sure that we get everyone educated that's referring into these accounts that are seeing the majority of these patients and start having dialogue and conversations about their referral patterns and where those patients will be going for treatment.

Okay. Got it. So I guess one of the questions I would have is the patients that you're getting right now in that, I guess, 152 patient start form. Those are new to treatment patients or are those switches? Or are those -- I know you mentioned you have transplant patients, you have IC-MPGN, but like are these patients who have already started switching over from oral? Or is it just new to treatment altogether?

So it's a little bit of both, right? So of that 152, there's EAP patients that are included in there. And then what we call organic, which is the new starts that are coming over is a big part of that. And we do have some cases where we've had people that were on the oral Factor B product that have made the transition over to EMPAVELI. What's driving that is what we just talked about, which is the efficacy plus the flexibility in the patient population inside the label. And quite frankly, I don't think we can downplay how important the twice-a-week dosing is for compliance purposes for these patients. And that's what you can get with EMPAVELI.

Yes. I want to just throw in one example of that. We were -- I was sitting at a table at ASN with a bunch of pediatric nephrologists, and they said a twice daily oral which, again, is not indicated for right now, but maybe it will be at some point, was a nonstarter for the peds basically that compliance was going to be a huge issue for once -- a twice daily oral. And they really liked the twice-weekly subcutaneous, especially with our enabled device.

Okay, I see. And then talk about -- a little bit about the lead time into getting patients on treatment. Obviously, you have the vaccination schedule that occurs. I mean, is this just sort of an early launch dynamic that it's very noticeable now and then it sort of washes away later? Or how should we think about that with the trajectory with the cadence going into 2026?

Yes. So we have stated publicly with everyone, which is exactly where our data has fallen out is that you're going to see it takes 4 to 6 weeks to get a patient from kind of start form time frame to the time that they get on product, okay? And there's lots of reasons for that. Part of it is just logistics. Anything that really gets slown down with the patient is usually logistics. They may not live in the area where they're going to get treated. In this space, in particular, the very big centers are typically attached to a transplant center, and that's where they also do biopsies. So those patients, if they have been identified as having C3G several years ago, they will probably go back in for another biopsy to make sure that everything remains the same diagnosis and then they will be treated with EMPAVELI. So it takes time and logistics and moving things around. And right now, one of the things that early on in the launch that you also need to work through is the payers, they don't have a fully recognized policy in place in many cases until 3 to 6 months post approval. Once that starts to really get -- be prevalent, which we've done a lot of great work so far. And I would say by the end of -- certainly by the end of Q1, we will have that completely taken care of. We'll be in a place where that starts to speed things up too. What happens today is everything has got a prior auth that goes in. And then if there's a policy that's not reflective of the product yet and our label, then there'll be an appeal. We've had no denials, which is good, but it does take extra time for those appeals. So those are the kind of things you have to work on early on. And then that time frame of 4 to 6 weeks will start to decrease over time.

Okay. Can you talk a little bit about the patient journey? I mean, how severe are these patients that are going on therapy? Are they seeing deterioration? Are they feeling deterioration? Is that the kind of -- is the kind of patient that you're treating those that are in the most severe phase? Or they just know that they have this condition and they should be treated because they need to preserve their kidney?

I think it's a little bit of both, actually. I think on the pediatric side, these physicians have a very high sense of urgency to get a kid, right, someone that's 12 and older on treatment to preserve them for life on where they -- the extension of their life, right? So that's where they proactively say, it doesn't really matter to me if they're mild, moderate or severe, the kids need to be treated because it's the right thing to do for them now. I think when you get into the adult population, it varies a little bit more, mostly because adult patients make adult patient choices and decisions. And the physicians told us that at the meeting, too, there's decisions that they'll help give them guidance on, but those -- the adults are a little different population to treat. But you'll find that in that patient base as well, it's not just the severe patients. It's other patients they know that are going to be severe. And we have some post-transplant patients that, quite frankly, are going on product right after the transplant because they know they'll reoccur. And just as a reminder, 90% of those patients have a reoccurrence of the disease within 30 days. So it's almost guaranteed that the patients will have a reoccurrence and they're moving pretty quickly to put them on product. So I think as this thing moves on a little bit more, we can give you some updates on some of these pieces of data, but we're still learning, but that's what we heard at the meeting last week for sure.

If you had to put a TAM on this, would you?

You mean the size of the market?

Yes, size of the market. [ Give me a ] TAM.

So we've always -- yes. I just want to make sure we're talking the same thing.

We're talking the same thing.

The -- so we've talked about the 5,000 patient population. We've been conservative in our approach. So we made sure that we looked at all the diagnosis codes and really did the right thing to find the right patient population. I think we're in the right realm. We feel confident with our data. I do think what you're going to find, just like any other situation where you have a rare disease that hasn't had a disease-modifying product in the space, patients are going to get identified that weren't identified before because it's top of mind, there's things that physicians are thinking about, patients will learn about it and ask questions. And so we'll see. Right now, we're confident in the data. And I feel like we -- when we talk to the physicians, they feel pretty confident in it as well. I see...

That's not a TAM.

Total addressable market, 5,000 patients.

Okay. Sticking over on it.

Well, I mean, you know the cost of our drug and you know the...

I just can't do the mental math right now.

It's about $500,000, and it's about mid-single -- mid-teens gross to net. So you do the math.

Whoever got those notes will do the math. All right. So any expectation for providing guidance next year? We're doing rapid fire questions.

Yes, under consideration, no commitment yet.

Okay. All right. So the cost control measures that you've implemented, I guess, is this sustainable through 2026? Do you expect to see an expansion of those costs as you're going into this launch for EMPAVELI? Or does that remain relatively under control?

We're fully loaded in terms of those costs. Anything else might come with some small expansion in R&D as we go through the FSGS and DGF studies. Again, we'll look at that. We're not guiding, but I don't think there's going to be like a material large increase in those expenses.

Okay. So you still think you're on target for profitability on the current cash, current capital. I didn't ask you [ a year, ] I can guess because I do my math.

Yes. Well, you can do the math yourself. And -- but the way I would look at it is over the last couple of quarters, our net revenue and our net -- so our cash operating expenses, excluding one-timers, which are small, we are, call it, averaging $5 million to $10 million in cash usage, right? So then if you include interest expense on top of that, which that is not included in, you're kind of at the $15 million-ish per quarter. So -- and we had $500 million in the bank and $350 million in receivables, which should is equivalent to cash to some extent, like these are high-quality credits. You're looking at a situation where we're not that far from being cash flow neutral, right? $20 million in quarterly revenue gets you there where we are today. So GAAP profitability is a different question, but...

Yes. We're talking about non-GAAP here. And then any expectation for any major expansion of R&D for some of the programs you're considering the new program for GA, where you're using combination usage with SYFOVRE. Any big expenses there that we...

We're not quantifying that. I mean these are clinical studies, so they do cost something, but we're an innovative company. And to the extent those will change people's view -- would change people's views on our operating expense, we'll give some color on that next year, but we're not guiding right now.

Okay. Well, you managed to get through the whole thing and over without giving me any numbers. So very good.

That's my job.

Good job, CFO. Thank you.

All right. Thank you.

All right. Thanks a lot.

Thank you.