Apellis Pharmaceuticals, Inc. (APLS) Earnings Call Transcript

It's our pleasure to have all of you with us this morning here in Las Vegas. Our first presenting company is Apellis Pharmaceuticals. I'm Tazeen Ahmad. I'm one of the senior SMID biotech analysts. Sitting next to me are two members from the Apellis management team, Cedric Francois, who is, of course, President and CEO; as well as Tim Sullivan, who is Chief Financial Officer. Gentlemen, good morning, and thanks for making the trip over.

Thank you. Glad to be here. .

We'll start with you, Cedric, about -- a little bit about the company broad overview. What does the company focus on, some of the things that have been occurring. And then we'll talk to Tim about some news that you guys announced this morning.

Thank you so much, Tazeen. Thank you for inviting us. Love being here in Vegas. That's -- look, this is a really exciting time for us as a company, right? I mean we are in this exciting transition phase. We have two marketed products in the last -- that came on the market in the last 3 years, EMPAVELI and SYFOVRE. SYFOVRE is on its track for one of the strongest launches in recent memory. Two products that make an incredible difference in the lives of patients. What we have in front of us is, of course, the continued growth of SYFOVRE. We are now 1 year in and north of $400 million in sales, of course, but it addresses this incredible unmet need in this blinding disease for patients. And then EMPAVELI, which I'd like to call the little train that could because in PNH, it made an incredible difference for -- in lives of patients, but this is the moment where it will blossom into new indications. We are looking forward to the VALIANT trial. That's a Phase III readout this summer, where we are hoping to have the first approved product in C3 glomerulopathy and IC-MPGN and other indications that we will be talking about in the future as well. And then, of course, our pipeline. We have an siRNA product that is currently in early clinical development. And then preclinically, we continue to work on this complement pathway that we know so well and have gotten to appreciate so much. And where we have our Beam collaboration alongside other new technologies that will come to bear that we will talk about more in the second half of this year.

Okay. We'll go into a lot more detail in a minute about all of those things that you talked about. But Tim I think it's probably a good time to talk about the press release that you guys issued this morning. Can you talk about the refinancing of the SFJ debt arrangement through Sixth Street that you announced? Maybe some details around it? How it came about? And what does it mean?

Yes. Thank you. So this is big news for us, right? We just announced a $475 million financing with Sixth Street. This facility is initially $375 million draw, and that was used to replace -- almost entirely used to replace the SFJ Pharmaceuticals debt. The important thing about that is that over the course of the next few years, we had $366 million in payments to SFJ. And we took that out on a debt-neutral basis with $375 million from Six Street, which is fantastic. And these terms were phenomenal, and they did a couple of things for us. We previously messaged that Six Street was a great instrument for its time, but it has certain constraints including the fact that it had these -- over the next 19 months -- sorry, SFJ required over $200 million in payments, cash payments over the next 19 months. So we felt that was obviously something we needed to address. And the Six Street facility helped us do that. In addition, these are incredible terms, right? So what that did was it allowed us to get an interest-only debt vehicle, where the payment of principal is delayed until 2030. And these are very -- also very exceptional term. So probably the best credit spreads seen in a biopharma deal, debt deal in the last 5 years. So the SOFR plus 5.75 are really phenomenal terms. So we're really proud of the deal. And actually, it was -- the genesis of this was sort of 6 months ago, we really looked at how we could increase our financial flexibility and bring in capital and do so nondilutively, that started with the, I think, the well misunderstood capped call unwind, which got us $100 million, removing these $366 million in near-term payments to SFJ, we also brought in $32 million in this deal. So that together is $500 million nondilutively we brought in just with this deal and with the cap call. We also have the flexibility to bring in $100 million with an accounts receivable line and $100 million more from Six Street. So when you put all that together, that's $700 million in flexibility we've gotten nondilutively. And what's really nice about this is that we can say we're no longer relying on the capital markets to fund the business, right? And that's something that's a huge milestone for any company, and it's really honestly a great day for Apellis to be able to say that.

Okay. So yes, for sure, the terms that you announced seem really attractive. I think one question that folks are going to ask is, what are your finance needs for the next few years. Cedric started off by talking about the run rate for SYFOVRE in particular, which has been spectacular. So knowing that you do have cash flow coming in, how does that impact your view of the need to have this kind of flexibility and access to cash.

Well, that's the wonderful thing about this deal is that we don't need to, right? And so -- with the strong growth of SYFOVRE, and with EMPAVELI, the contributions of those excellent products and strong launches, we pretty much will be covering our operating expenses in the near future. And then the cash items really were the fact that we're financing these accounts receivables. So we extend payables to these retinal specialists, and that's something that we finance, right? And we couldn't access that capital. But with this new facility, they're allowing us to access some of that. And also, we took away these SFJ payments, which were substantial. And in fact, the first one of which -- the first one of this -- the payments of the $200 million was meant to be today. So we took that out too. So it's actually phenomenal for us, really.

So -- with that in mind, how should we be thinking about a couple more items and then we'll go back to the metrics of the launch, about where you feel the sales force size is? Do you need to invest any more money either in DTC and you've done a ton of DTC. Everybody knows the Henry Winkler ad by now on television. And how are you thinking about what's going to be needed in order to make this $1 billion-plus product just in terms of resources?

Well, I think it's on its way already to the $1 billion-plus product. But DTC has been a fundamental component of that. We've never held back from doing DTC, and it's honestly been something that's, I think, been one of the core arrows in our quiver in terms of this launch. We continue to invest, and we're looking -- we actually just began -- I think you -- some of you may have seen, we've had a branded campaign that's just begun. You'll start to see a little more of that over time. But that's never been something we've taken off the table in any of our projections. So yes, that's been phenomenal. And then in terms of the sales force size, I think the one thing that probably is the variable there is Europe, and I know we'll probably talk about that later. But right now, we're at steady state. And we've always offered our Head of Commercial, Adam, whatever he needed to build out that sales force. It's currently 100 people when you include field reimbursement representatives, salespeople, med affairs. That's not very big. So you increase that by 20%, it's not going to cost that much. So you're getting tremendous leverage out of your sales force in this particular indication. So I wouldn't look at that as a future expense that's massive.

Okay. So let's transition back to SYFOVRE and the launch metrics. So you reported another very strong quarter last week, I believe. And inclusive of I think the 5,000 or so free vials. You would have been trending to close to $150 million, which is, if my math is correct, was double digit, once again, double-digit quarter-on-quarter growth. Questions that have been coming into us that I'm hoping you can give some color to are how are you thinking about the dynamics of 2Q without giving specific guidance, of course. You do now have a competitor that received a J-code on April 1, and that's been front and center in the minds of investors. So maybe Cedric, can you talk through, I guess, qualitatively, what you're hearing and seeing? And any changes if you feel are needed to your strategy for marketing?

So what has been the biggest surprise even to us is how many patients have this disease and how driven these patients are to find treatments, right? I mean we are currently only at about 12% of patients with a confirmed diagnosis being seen by eye care professionals that are on treatment between our competitor and us. And that is, of course, something that is reflected in that growth that I don't think anybody had predicted when we sat here last year. That will continue, right? I mean, the notion that somehow this -- we're at the end of the ropes here and that is going to stabilize. It has just started. And that is something that we look forward to being there for these patients for many years to come. Another aspect is that in Q1 there was -- the percentage growth in Q1 may have been less than in Q4. It was "only 20%." Normally, Q1 for anti-VEGF is pretty much flat. And the reason for that is you have recertifications, but also older people typically don't go and start on new treatments in the winter. There's dynamics like that, that are out there. The first quarter for us was phenomenal. I mean month after month after month, we see that growth continue. And that is really what stands out. And again, it's a reflection of the need that exists there. I think also that there's -- we're coming more and more in a place of stability where with 250,000 injections done, I mean 0.25 million, right? I mean it's massive. We really understand the benefits and the safety profile of this drug to patients. Physicians are becoming very comfortable with this product as well, and that's something that we will continue to build on. So we are in a very happy place right now. And I understand that after the past couple of years that people think like, yes, wherever is this going? What does this market mean? Are there patients? This is an enormous unmet need that we feel privileged to address.

Do you feel that based on the trends you're seeing so far using your word phenomenal that, that phenomenal trend will continue through the rest of the year?

Yes. I think the -- not the rest of the year, I think, for years to come. I mean the next product in geographic atrophy should there be another successful product is not going to be earlier than 2028. I mean -- so in terms of competitive dynamics, the need that exists and the ability to address that market, it's a very privileged situation to be in. So yes.

I think one other metric that's worth mentioning is that by our math anyways, roughly only 12% of patients who have been diagnosed and seen by a physician are being treated, right? That's today. That includes both treatments. So there is a tremendous amount of room to just continue with those patients who haven't even been brought into a doctor's office and haven't been diagnosed. So that's less than the 1.5 million -- far less than the 1.5 million we believe are out there.

Yes. So that's a good point, Tim. But for the patients who are already diagnosed where the doctor has not prescribed, let's say, SYFOVRE yet, what's been the reason that they've given?

Well, obviously, there were the safety events last year, right? And I think always when you have a new product that comes out, I mean, a new disease with the first treatment, with a new modality, a new drug, you are going to have forces like that at work. I always give the example of 2005 when the anti-VEGFs came out, you would be surprised how many retina doctors at the time said that they would never do an intravitreal injection. They will all deny it today. But back then, that was kind of not a rare concept. When you go into a new disease like this, you're going to find these forces where you're sitting with the physician and the physician is going to tell you, look, yes, there's these new products. You don't have an acute disease. Why don't we wait a couple of months, maybe a year, let's see how this all pans out, what's really going on, and then we'll put you on treatment. And that's something that we see with a lot of practices and a lot of patients. And whenever I speak about this with physicians or in the company or outside entities, it's that balance, right, between people standing on the sidelines, wanting to be uber conservative, which is understandable, right? I mean not really understanding what the benefit is, how it works, what the risks are, et cetera, and then people that really drive the product. At some point, right, you have to just make sure that the balance is always in favor of the latter ones. And at some point, the other ones are going to come along because the reality on the ground is also that people that do not prescribe the drug, lose patients to other physicians that do.

So on the point of safety, is there any reason to believe that safety events would just suddenly stop?

No. Look, I think we are thinking about mitigation strategies around it. It's an extremely rare event, right? And this is something else that I think got little bit lost in translation in the last year maybe. Intravitreal injections once in a while will give this phenomenon, right? It's associated with it. There's kind of this extremely rare event that happens with the first injection, right, about 1 in 4,000, more than half of those have partial or even full recovery. The notion was at the time the uncertainty. Is it more frequent than that? Are we just scratching the surface? Well, that's not the case, we know that now.

Yes. So how long -- just remind us, when did the drug launch and how much real-world safety data has been collected since then?

Well, I mean we do continuous monitoring, right? I mean that is part of our very thorough pharmacovigilance program. I think we have about 20 people working on this full time.

So it launched just over a year ago.

It launched just over a year ago, yes, 250,000 injections. And again, with kind of a very good understanding now that there's a risk of about 1 in 4,000 on the first injection. After that, it goes back to the baseline of what you would get with anti-VEGF, et cetera. And important to note, is that with an intravitreal injection, every injection, there is a risk of developing infections and ophthalmitis. That is very similar to this. So it's kind of like having one extra injection. That is a knowledge that we very well understand now and that just is a matter of communicating and making it part of life.

Okay. So maybe let's just talk about continuing patients versus new patient starts. There was a comment that I think your Chief Medical Officer, Caroline made on your earnings call about a question regarding switching. And I think maybe you can clarify this for us Cedric that her answer was that at this stage, it would be very uncommon for a doctor to switch a patient from one drug to another. So can you elaborate on that a little bit? .

Yes, I think we're in this phase right now where everything is very new still. When you have a patient on SYFOVRE or IZERVAY and you want to switch that patient over, you're going to have to explain to that patient why you want to do that. I mean that's the simple answer to that. It's not an easy -- and if you wanted to switch one versus the other, you can focus on the efficacy profile maybe versus the other. They make this story around safety. I mean it's like -- but it's just -- it's not an easy conversation. I think in the long run, what will really stand out is what is the best drug to slow down the progression of GA. And of course, with up to 42% slowdown in extrafoveal patient in the third year of dosing, that is a massive benefit rate. It's a neurodegenerative conditions slowed down almost in health. And more and more we see that in the field with physicians and with patients becoming the prevailing narrative.

Okay. And then as far as new patient adds, I think you had talked about -- you've been consistently talking about double-digit accounts being added since launch pretty consistently, except for that maybe a couple of weeks when the news of the safety events occurred. But can you give us color on what type of accounts those are? Like what are those practices like?

It very varies. I mean, at this stage of the launch, the accounts that typically come on board are going to be not the bigger private equity practices, but a lot of smaller practices that come on board. Academic practices that have much more red tape to put things on formulary, those can be struggling along as well. So it's a bit of a blend of many.

And do you know what it takes for that particular practice to write a script? Does it take a certain number of touch points with your sales force? Does it take education in some form? What is the driver of a practice finally making that decision? And how confident are you that you will continue to see that pace of new additions?

There's a whole standardized process, right, in which we bring accounts on board and make them familiar with the product, assign our field force to them, et cetera. So again, it's like -- it's hard to believe, but it's only been a year, right, I mean that we've been into this launch. We're only scratching the surface in terms of the number of patients that have been treated in terms of the number of physicians that are prescribing. And again, I mean, we see that momentum continue to build.

Okay. Then just in terms of market share between Apellis and Astellas, I think it's important to note, we've talked about this a couple of times, but just to make it clear. Astellas is saying that by year-end, they expect to have a 40% market share. Can you talk to how you're calculating market share? And what some of the differences might be? And why it may not necessarily be an apples-to-apples comparison?

Yes. I mean first, the apples for us are patients, right? So not number of injections. So that is the -- that's I think very important. And again, I think that there will, of course, be fluctuations between these two entities, but this will be a very powerful duopoly. Where the balance ends up between these two, we'll find out. But unquestionably we both going to win. The big advantage we have, of course, is this, what we believe, a very big difference in terms of the efficacy profile, which will become more clear as time progresses.

Do you feel that, that efficacy advantage is still as robust today as it was in September when IZERVAY launched in favor of Apellis?