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

Good morning, and welcome once again to TD Cowen's 46th Annual Healthcare Conference. I'm Phil Nadeau, one of the biotech analysts here at Cowen, and it's my pleasure to moderate a fireside chat with Apellis Pharmaceuticals. We have with us Cedric Francois, the CEO, President and Co-Founder; and Tim Sullivan, the CFO.

Guys, could you provide a brief state of the company overview, biggest strengths, biggest challenges? And what does Apellis need to do to drive shareholder value?

Thank you, Phil, and thank you for inviting us again to this wonderful conference. So this year is a very important year for us. Last year, we went through a phase of building a good foundation for what the next phase for Apellis will be. And right now, we have three pillars in the organization with SYFOVRE. We have a durable and resilient business where we plan to continue to provide a best-in-class therapy to patients with geographic atrophy. We also have an exciting developmental program in the eye, where we are combining a subcutaneous siRNA against C3 with the intravitreal injection of SYFOVRE in a program where, through the course of next year, we will get a data readout as well. Then with EMPAVELI, we are in the middle of a very exciting launch in the first full quarter. In Q4, we had more than 5% penetration on an epidemiology of approximately 5,000 patients with C3G and IC-MPGN. That launch trajectory will continue, and we believe that we are on a path to being able to offer EMPAVELI to probably about half of that epidemiology of 5,000 patients. There too, we have two exciting Phase III clinical trials going on, one in focal segmental glomerulosclerosis, the other delayed graft function, not currently getting it on when that will read out, and what kind of it look like. But with a lot of enthusiasm in the nephrology community as it relates to what the drug may be able to do there. And then we have, of course, our pipeline where in the second half of this year, we will -- to be in the clinic with the first gene editing program for the siRNA class in collaboration with Beam, again, where we are very excited about potentially being able to offer a once-and-done treatment to patients with many, many patients that can be benefit from an FcRn approach to have a disrupting treatments in that entire class. From a cash perspective, we are on a path to profitability at Apellis. We have a very solid foundation and core at the company with an organization is working incredibly well right now.

You mentioned this past year, it's a bit of a year of transition. Revenue was down year-over-year. Can you talk about the factors that led to that decline? How confident is Apellis that revenue will return to growth?

Thanks, Phil. So I think that sequence masks our excitement for what's going to happen in 2026 and beyond. There were a few unique factors that affected our revenue in 2025. And I'll go through those one by one. From an EMPAVELI perspective, we had essentially flattish revenue, and we expect that to continue for that initial indication, which is PNH. So that was roughly $18 million to $20 million per quarter, and that was sort of steady and flat through the year. But we did have some growth, very exciting. We got approved in C3G and IC-MPGN, as you know, and as Cedric mentioned, and we had a very strong launch in that indication and that launch continues with great momentum. So that gives us a lot of excitement for the EMPAVELI side of the business heading into 2026, and we think that's on the path to having, call it, 50% penetration in the combined C3G and IC-MPGN market at peak, which is around 5,000 epi, right? So that launch has had great momentum exiting 2025, and we see no inflection point in that, either up or down, it's doing great. So then you look at the SYFOVRE business. That's really where we had some of the headwinds. There were a couple of factors there. The first one, as you all know, probably was that the patients who were relying on patient co-pay assistance no longer had that because the co-pay assistance organizations were no longer being funded. And that meant that patients were being driven to free goods or to discontinuing treatment. And it really affected geographic atrophy. It affected the whole retina. So the whole retinal practice in general was being affected. For example, patients who are on a once every 3-month Vabysmo or a longer-term type of therapy who could no longer pay for their drug then went on to either generic or Avastin, for example, and they suddenly had to go on monthly. So there was a huge disruption in that practice. And the geographic attribute patients were the ones who were kind of put a little bit on the back burner. And that really affected the space overall. On the flip side, even in the context of that, we had 17% growth in injections. So the underlying demand for treating geographic atrophy still grew quite well in the face of all that. And that gives us great confidence heading into 2026. There was a little bit of a revenue -- an inventory building at the end of the fourth quarter '24 that led to a low number in the first quarter of '25. That also had some impact, but it wasn't quite as big as obviously, the co-pay assistance organization. But when you call that together, that led to basically a total product revenue growth for Apellis that was down a little bit versus 2024. But it completely masked our excitement for both drugs heading into 2026. And so that I mean that's sort of the answer to your second part of your question.

So maybe focusing on SYFOVRE, going into 2026, you suggested that the co-pay assistance issue has been resolved at least for the G&A portion of the market. Can you talk about what has happened, and what could be the impact on trends?

It's a great question. So on a quarterly basis, in 2025, we had between 12% and 14% free goods. Put that into context, in 2024, that was a 5% per quarter. So it was a big impact. We don't know what the total disruption of the retina practice will mean. So we can't really predict what will happen. Our basic baseline thinking is that we don't expect 12% to 14% to go up this year. And in all likelihood, it will come down, the question is how much. And it's -- I mean the dynamics are new, and it's sort of -- it's an unprecedented situation. So we're not making any predictions, but we do expect the free goods to come down somewhat, and how long it will be before it gets to a new normal, we don't know, and what that new normal is.

Maybe more generally, where does Apellis think SYFOVRE is in its launch? How much of the market is penetrated, and how much more could be penetrated over time?

Yes. So SYFOVRE is at more or less the 3-year anniversary of the launch. And with all of the fluctuations that happened in the past couple of years, I think it's important to bear in mind that only a small percent of patients have been treated so far. Geographic atrophy is a terrible indication for patients. And what is interesting to see, I just came back from the Macular Society meeting in San Diego, is that the data continues to mature, right? I mean we recently presented the full 5-year data set on these patients with geographic atrophy. And what that data tells you is that if you are a patient with geographic atrophy, and you commit to being on treatment for 5 years, you can save yourself 1.5 years, right? I mean think about the impact of that, if you are 70, 75 or 80 years old, it's really, really important. And the retina community, I think, is really starting to raise that concept. And I expect this year that, that will continue to be the case. There is also the emerging data, which very clearly shows that geographic atrophy that presents with wet AMD, so inside the wet AMD in the market, right, that these patients continue to suffer from vision loss caused by atrophy. That real-world evidence shows a very important impact of SYFOVRE on being able to slow that progress down. So as we progress, again, this year will be a year of steady growth in that resilient and durable business with opportunities for acceleration coming into next year. Of course, there, as we already highlighted, stands out the prefilled syringe. Everybody that follows this field knows that the introduction of a prefilled syringe is really kind of a new launch within that field. It introduces a completely new dynamic, where it becomes very easy and efficient to administer SYFOVRE to patients. When that comes into play, it will be an opportunity to broaden the market but also competitively could make an important difference for us. And then there is that OCT F concept that we've spoken a lot in the last year, functional OCT have done there is really incredible, right? So we have a technology now that allows us to have a patient, take an OCT standard technology that has been around for 15 years. We can take an OCT on a patient, and we believe that we will be able to put an augmented reality headset on a family member and experience what it's like to walk around with the vision of their mom or dad. And the same, by the way, for the retina physicians who will be able to experience that as well. And because it's not a new technology, we'll be able to go back in time and say, this is what that patient was actually experiencing 3 years ago, 2 years ago, and how that has evolved. And it will really reshape, I think how people think about geographic atrophy within the retina community, and it will also highlight something that I believe is going to be truly important and that is that in the field of wet AMD or the concept over the last decade has been, let's try to extend the interval between injections, the focus will become more importantly, what is going on in these patients who are dry and their best corrected visual acuity may be okay. But when you look at the retinal loss and the sensitivity loss in these patients, it's pronounced, and it appears to become complement driven.

Let's talk about the competitive environment. What is SYFOVRE's market share today? Where do you think that could go over the next several years? And what is Apellis doing to build the case for superiority of SYFOVRE?

Yes. So we have been remarkably stable at about a 60%-40% split. 60% in favor of SYFOVRE for the past 1 year to 1.5 years. On the new injections, we have been between 50% and 50%, so new patients that become enrolled. And you could say, "Well, why is that 60% not coming down meaningfully?" Well, there's actually a difference as far as it relates to compliance or resilience on treatment. So SYFOVRE appears to have a better profile in the real world with patients being -- continuing to be on treatment compared to our competitor. I think there's also an important notion here to bear in mind. When we look at the data set of the largest private equity group, which accounts for about 30% of our entire volume. So it's a very good research set for us to look at. When you look there, then the average interval between injections for SYFOVRE is about 8 weeks for our competitor, it's about 7 weeks. So there's also a little bit of a higher injection volume on a per patient basis that seems to be apparent at least on that data set.

And how would you compare and contrast the efficacy maybe in particular, that you referenced the 5-year data that were just presented. How does that stack up against the data that Izervay has presented?

Well, so we have always, I think, in every way in which we look at the data, we believe that we are differentiated from an efficacy perspective, right? But it's very, very clear, including when you look at the 3.5-year data asset versus the 5-year data set. I think when a patient after 2 years of being in a sham goes on treatment, right, that patient should not be expected to do differently from a patient that goes on treatment in the beginning of the study, right? When there is an important difference there, I think that should raise questions. Also, the sham control is no longer there after 2 years of treatment. So what we do at Apellis is when we create what is called a projected sham, we do a quality check on that by comparing that projected sham to what happens in the untreated fellow eyes of the patient population because the untreated fellow eyes continue to be not treated, and it's a really perfect control for what is going on with what would have been a sham-control. In the case of SYFOVRE, there's pretty much a complete overlay between those two graphs. So we feel very good about the data projections that we make. And I believe that is an important data set and a validation point that is lacking from our competition.

And how would you compare and contrast the safety profile?

So obviously, kind of the important point that people continue to have understandably and rapidly questions around is what happened with vasculitis around the time of the launch we've always said, and we did that based on profound pharmacovigilance that this was a very rare event that we believe was not meaningfully different from other anti-VEGF injections. And as the years have progressed, that has turned out to materialize that way. So at this point in time in the year 2025, throughout the full course of the year, we had approximately 370,000 injections. There were approximately 32,000 new patients. And over that entire volume, we had two cases of vasculitis, both of which result back to baseline. So I think that's really important to internalize because if you compare that to what goes on generally with intravitreal injections, it's not quite dissimilar, for example, anti-VEGF injections.

So how do you look at the long-term future of SYFOVRE. What share could it maintain? What proportion of patients ultimately will be on therapy?

So we are deeply committed to the retina. We believe that the opportunity there; a, to redefine what it means to have geographic atrophy. The understanding of the disease is really important. I mentioned earlier, even retina physicians or any of us, none of us can imagine what it's like to have the disease, and we now have the tools to make that much more tangible, kind of making the need for treatments and depreciation for what a treatment can do that reflected in data. So I think that the opportunity in geographic atrophy, very important. Also the opportunity, as I mentioned earlier, in patients with wet AMD, the entire $12 billion market, where we have grown accustomed to the concept that if a patient is dry in the back of the eye and best corrected visual acuity is stable that these patients are fine, but when you look outside of the fovea, which is all you need to read the chart and assess your BCVA, when you look outside the fovea, and you look at the neurodegenerative process in these patients, it's profound, and we have an opportunity to make a difference there.

Great. Turning to the second pillar, EMPAVELI and specifically focusing on the C3G IC-MPGN. Could you give us a brief overview where are we in the launch today? And how has this early launch compared to your expectations?

So we're in the second quarter -- second full quarter, right? And it is going exactly in line with the expectations that we had. So a very strong launch. Again, if you -- I think, arguably the strongest launch in rare disease in the kidney. If you look at any rare disease launch, having a penetration of more than 5% in your first full quarter is a remarkable accomplishment. We have probably been more conservative on our epi than most of the analysts and other companies, including our competitor there have made, that makes us feel very good about us having identified the epi about having been conservative, but also about our ability to find these patients, identify them and treat them. We have four buckets that we work with in our funnel. There is, of course, patients on treatment. There are the patients who receive a start form. Then above that, in the pipeline are what we call the hard leads patients. We know where they are. We know the physicians are interested in treating them. And then the soft leads, which is patients we know where they are, but we still have to work out a dialogue. So this is how we look at the evolution of the treatment of these patients. And what's important here is we've communicated start forms to you. Patients on treatment will be reflected in the revenue, but upstream that pipeline of patients that are out there, that pipeline is today larger than it was at the time of the launch. So that tells us that we continue to be very good at finding these patients, identifying them and feeding the pipeline as we move forward.

Investors are debating whether there was an early launch bolus of warehouse patients, and therefore, what would steady-state uptake look like? What's Apellis' view on whether there was an early launch bolus, and what could steady-state uptake look like?

Yes. With an important unmet medical need, there's always an upfront bolus as there should be, right? I mean if you don't, then it's probably not a very serious disease. So that bolus was there. We addressed that swiftly. We have expanded access patients that went on treatment. That also has done very efficiently early in the launch. We have patients that have been waiting. Those patients went on treatment. And as you mentioned, we are now finding that cadence in terms of a steady growth, as you typically see linear steady growth moving forward. But it's remarkable what the drug does in the real world for these patients, as you would expect from looking at the VALIANT data. And again, we believe that in these early innings, everything is exactly on track with where we had hoped it would be.

In terms of the competitive environment, how would you compare and contrast FABHALTA versus EMPAVELI. What are the advantages and disadvantages of both?

So there was, of course, a clear differentiation in the data, but importantly, by label, we are the only product that is approved for the pediatric population, and it has an approval in the post-transplant population as well. So the only place where we are competing with our only competitor in this field is in the adult population. And I think, again, there's general -- generally speaking, an important appreciation for the efficacy differentiation that is there. I think the remarkable safety profile of EMPAVELI is also something that really stands out, right? So EMPAVELI at this point in time has well north of 3,000 patient years of experience of dosing experience due to trials in the real world. If you compare that to kind of the class effects, the risk that is believed to be associated with the class for complement inhibitors, where on a vaccinated background with C5 inhibitors, we've seen an incidence of encapsulated meningococcal infection of about 1 in every 200 patient years. You should have expected at this point in time to have seen as many as 15 cases of encapsulate meningococcal infection with EMPAVELI, and we have seen zero. That is something very important. We're putting that together in a publication. But I suspect, and I believe, that as we move forward, that will also become a very important point of differentiation.

And in terms of delivery, skeptics would argue FABHALTA's oral versus EMPAVELI being injected, how important is that in a severe disease like C3G and IC-MPGN?

Well, I think that's an important diseases and indications where -- that are, quite frankly, life threatening because once you are on hemodialysis, your lifespan is not going to be very long unless you get transplanted and then you at risk of relapse. These are very, very serious and life-threatening indications. So in that context, the benefit of convenience is probably less important. I would say that at this point, that is, of course, very clear in the pediatric population, which tends to be more rapidly progressing in the post-transplant setting, of course. In the adults, when you have visibility on being on hemodialysis, again, you're going to be motivated by that. So I think again, we're going to see how things evolve. But right now, we feel very good about how we are positioned.

And can you talk about the long-term potential of EMPAVELI in the class in C3G, IC-MPGN. Hopefully, what proportion of patients will be on therapy, and how long could it take to get there?

Yes. So as we mentioned last week and earlier in this call, we believe that on that epidemiology of about 5,000 patients that as many as half of these patients will find their way to treatment at peak with EMPAVELI, right? So that is what I think we have in front of us, which creates a blockbuster opportunity only in these indications with EMPAVELI. So really excited about what's going on there. And then we have, of course, our registrational studies, our Phase III clinical trials in FSGS and DGF. And to put that into perspective, FSGS, which is a disease indication that probably in terms of severity and progress into end-stage renal disease is comparable to C3G and IC-MPGN, we believe, has an epi of about 13,000 patients in the U.S. compared to 5,000 patients with C3G and IC-MPGN. In DGF, there are a little north of 20,000 transplants in this country every year. And probably about 1/3 of these patients have a problem with delayed graft function. So again, an important opportunity for us that we look forward to exploring.

What type of data needs to be produced in the Phase IIIs to become standard of care in those two indications, FSGS and DGF?

Yes. So look, eGFR is, of course, critically important, but there is an opportunity with proteinuria already in the first year to be able to differentiate ourselves. Recently, with some of our competitors and the regulatory interactions that have happened, we're going to see how that evolves. But I think it all comes down to the data. I think if we were to have data comparable to what we had in C3G and IC-MPGN, then, of course, you can make a solid and robust case potentially even with 1-year data to go and file for approval. But other than that, it is a trial that has an eGFR endpoint at 2 years as well.

Got it. Maybe moving on to the third pillar, the pipeline programs. You briefly mentioned the Phase II of 3007 SYFOVRE. Can you talk just broadly the aims of that program. What do you think you could accomplish with the combination?

Yes. So this is a very exciting program, we believe, in geographic atrophy with all of our buyers, we believe by far the most exciting Phase III clinical program. The reason for that is that we learned a lot with SYFOVRE, and it is the following. It is that it is not as easy as looking at geographic atrophy from the endpoint in which we looked at fluorescent -- autofluorescence in the back of the eye because there are two layers in the retina that are impacted in geographic atrophy. There is the RPE layer, the pigmented epithelial cell there in the back of the eye. And on top of that, the photoreceptor cells. The photoreceptor cells sense light, the RPE layer is there to support the photoreceptor cells. And what we found from our analysis in DERBY and OAKS and GALE is that the protective effect that SYFOVRE on the photoreceptor cells, we believe, is near complete. Photoreceptor cells appear to stop dying completely from the disease process as soon as you start treatment with SYFOVRE. The RPE cells are the ones that slow down in a highly meaningful way. But once the RPE cells perish, of course, the photoreceptor cells that are supported by these RPE cells will also perish in that process. So distinguishing photoreceptor cells from RPE is important. The impact on photoreceptor cells, we believe, is near complete. On the RPE cells, there is room for improvement. We have slowdowns ranging from 20% to north of 30% and sometimes 40%, but that is where we want to make a bigger impact still. There's also the fact that right now, we have a treatment that is administered every two months. Being able to do treatment every 3 months would be better for patients, would be better for physicians. So what we decided to do with 3007 is to have a subcutaneous injection, which can be given by a nurse practitioner or even a technician in the practice of the physician at the same time that the intravitreal administration of the drug of SYFOVRE is done. What does that mean? Should the drug get approved, is that if you have patients who are on every 2-month dosing, you can now bring them in every 3 months. You can give them the intravitreal injection with SYFOVRE, the subcutaneous pen injector as well. And then benefit from a superior benefit in terms of slowing down the RPE cell death. So that is what we're trying to do there. Again, we'll have a readout throughout the course of next year, but we believe a unique approach to being able to tackle this program.

And what would be proof of concept from that readout next year? What do you need to see to continue to advance the program?

So we need to see the most important aspect on the primary end point is a significant slowdown beyond what SYFOVRE does on its own on RPE cell death and the growing of the GA lesion. And what's interesting there as well is we have an OCTF secondary endpoint to kind of really capture the functional benefit that we believe this drug regimen will provide to patients.

Great. Maybe moving to some corporate questions to finish off. Tim, your guidance has been that the current cash balance will fund Apellis profitability. There is some skepticism about that among investors. What are the skeptics missing?

Yes, they seem to be missing a lot. So the -- we ended the year with $466 million in cash. In the first quarter, we received the final $25 million installment in the monetization of the Sobi royalty from Sobi. And then we also are expecting another milestone payment from Sobi based on our original partnership, the trigger for that is once they gain reimbursement in Europe for C3G and IC-MPGN? So that -- so together, that puts us over $500 million in cash in the bank. And if you look at our kind of our P&L even in 2025, when we had, as you said, a slightly down here from a revenue perspective, we had a couple of quarters where if you took kind of an adjusted EBITDA. So EBITDA, adding back noncash items like stock-based comp, we were basically breakeven, right? So if you return to some revenue growth, which obviously we've talked a lot about, we're excited about this year. And you keep operating expenses more or less in line. That gives you a sense of where we are, and our cash needs, right? We do have interest expense of roughly $10 million per quarter. We do have working capital, but that's what we're funding here. And I guess the final piece is we do have a $94 million convert that we do have to address by the end of September, but -- and we have a range of opportunities and ways we can deal with that.

We project that by 2030, Apellis will have $1.7 billion of revenue and about $460 million in operating income. How is it operating margin strike you? Is that reasonable? Can you achieve that with growth?

Every year, we talk about this, and I'm unable to give you guidance, but yes, I mean, I probably can't comment on that, but I understand the desire.

Great. With that, we're just about out of time. Anything else I should have asked you that I didn't.

No. Thank you for inviting us and very excited about what's in store for us in the next year. With keep an eye out for SYFOVRE and the trajectory and the continued launch with EMPAVELI and in the second half of this year, what we're going to see with FcRn.

Great. Thank you.

Thank you.

Thanks, Phil.