Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) Q4 2023 Earnings Call Transcript
Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) Q4 2023 Earnings Call Transcript February 27, 2024
Apellis Pharmaceuticals, Inc. misses on earnings expectations. Reported EPS is $-0.73 EPS, expectations were $-0.66. Apellis Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning ladies and gentlemen. Thank you for standing by and welcome to the Apellis Pharmaceuticals Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, today’s conference is being recorded. I will now hand the conference over to your speaker host, Meredith Kaya, Senior Vice President of Investor Relations and Strategic Finance. Please go ahead.
Meredith Kaya: Good morning and thank you for joining us to discuss Apellis' fourth quarter and full year 2023 financial results. With me on the call are Co-Founder and Chief Executive Officer, Dr. Cedric Francois; Chief Operating Officer, Adam Townsend; Chief Medical Officer, Dr. Caroline Baumal; and Chief Financial Officer, Tim Sullivan. Before we begin, let me point out that we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. Now, I’ll turn the call over to Cedric.
Cedric Francois: Thank you, Meredith, and thank you all for joining us this morning. As I reflect on this past year, I am extremely proud of our team and all of our achievements in 2023. Our two commercial products, SYFOVRE and EMPAVELI, are making meaningful differences for patients. The year ended with SYFOVRE in a very strong position, and we remain encouraged by the continued uptake and high compliance rates for EMPAVELI in PNH. We also had multiple positive data readouts, including up to three years of efficacy and safety data from both of our approved therapies. While 2023 certainly had its challenges, our accomplishments and our resilience position us well for continued execution in 2024 and to deliver on our vision for patients now and in the future.
Let me share some details on this past year and our priorities for 2024. Beginning with SYFOVRE, we recently celebrated SYFOVRE's one-year approval anniversary, and what a year it has been. The loss had exceeded our expectations, even with the unexpected challenges we faced last summer. More than 200,000 SYFOVRE doses have now been distributed to physician practices since launch through mid-February, and we estimate that approximately 215,000 SYFOVRE injections have been administered to patients through mid-February, including our Phase III clinical trials. These numbers underscore the retina community's confidence in the benefits of SYFOVRE and the central role it plays in improving patients' lives. And importantly, based on these numbers, the risk of developing retinal vasculitis remains rare at an estimated rate of approximately 0.01% per injection.
In the fourth quarter, we reported $114 million in SYFOVRE U.S. net product revenue. We achieved $275 million in SYFOVRE revenues for the full year. While we have experienced modest seasonality in the first quarter so far, SYFOVRE continues to show meaningful growth, and we look forward to bringing it to more and more patients throughout the year. In 2024, our priorities with SYFOVRE are to maximize access to patients in need in the U.S. and to bring SYFOVRE to patients with GA, worldwide. Key to these are, our commercial and medical activities, including building on the relationships we've already established in the retina community. Given our global expansion goal with SYFOVRE, let me comment on the European Union. As you know, we received a negative opinion by the Committee of Medicinal Products for Human Use or CHMP, for the marketing application of SYFOVRE in the EU.
While this is disappointing, we remain steadfast in our efforts, given the more than 2.5 million GA patients in need of treatment across Europe. The feedback and support we have received for SYFOVRE from the physician and patient communities in Europe has been extraordinary. We have been informed of several letters sent to EMEA from multiple European retina organizations, highlighting the need for new treatments and how important SYFOVRE would be for patients. As such, we are initiating a re-examination of our application, which includes revising our dossier to ensure that key questions are addressed. We expect a final opinion in connection with this re-examination to be issued at an upcoming CHMP meeting in the second quarter. If positive, a decision by the European Commission is anticipated in the third quarter.
To be clear, and as we've said many times before, this is not going to be easy. It will be an uphill battle, and we do not know the likelihood of success at this stage. But we strongly believe in our data, including analyses that many experts agree, demonstrate a functional benefit with SYFOVRE treatment, and we will continue to work closely with the CHMP and the retina community throughout the process. Turning to EMPAVELI, we generated $24 million in fourth quarter U.S. net product revenue and $91 million for the full year. The EMPAVELI Injector, an innovative and first-of-its-kind high-tech volume injector, was approved and launched last fall. We've been very pleased with the feedback and adoption so far. And in 2024, we will remain focused on maximizing our market position in PNH, and also look forward to the Phase III data readouts for systemic pegcetacoplan in C3G and IC-MPGN, two rare and debilitating kidney diseases.
Our Phase III value study is fully enrolled, and we expect top-line data from this study mid-year. Over the past couple of years, we've been very focused on our commercial products and new launches, but we have other exciting earlier-stage programs advancing. Let me shift to our fourth priority for 2024, which is to progress our early R&D pipeline with an eye to the long term. In addition to the EMPAVELI initiatives in C3G and IC-MPGN, we are focused on our siRNA program, APL-3007, which is now in a Phase I of dose escalation study with data expected later this year. Additionally, we are advancing the gene-editing program with Beam, on which we also expect to share more this year. We are entering 2024 from a position of strength with an unwavering commitment to address unmet needs for patients and to create even greater value for our shareholders.
And with that, I will now turn it over to Adam to discuss our commercial and medical affairs activities.
Adam Townsend: Thank you, Cedric. It was a big year commercially for Apellis with the launch of SYFOVRE in GA and the commercialization of EMPAVELI in PNH. Starting with SYFOVRE, in the fourth quarter, we delivered approximately 62,000 doses to physician practices, including 55,000 commercial vials and 6,400 samples, generating $114 million in U.S. net product revenue. This strong growth underscores the rebound in weekly demand that began in August of 2023. Our execution was driven by meaningful engagement with our key stakeholders, physicians, patients and payers. We continue to see weekly orders coming from both new and existing physician practices, with a double digit number of new sites ordering SYFOVRE every week since launch.
Patients are motivated to seek treatment and the vast majority of physicians are treating their patients with SYFOVRE every six to eight weeks, reinforcing how much doctors and patients appreciate a more flexible dosing regimen. And we continue to have robust payer coverage. We are encouraged by the demand growth we are seeing in the first quarter so far. January and February have been two of our biggest months since launch. However, as expected, we did see some seasonality in January as a result of Medicare recertifications, as well as weather delays affecting doctor visits and product shipments. These seasonality trends are consistent with what has been seen with some of the anti-VEGF products in the wet AMD market. Today, SYFOVRE is the number one chosen GA treatment, with a current market share of approximately 90%.
At launch, we estimated that there were 1 million patients with GA in the U.S. Now that treatments are available for GA patients, we are learning that this population may be even bigger than we expected, with estimates suggesting there may be up to 1.5 million patients. Going forward, we expect to continue to build this market and maintain our market leading position. We will be laser focused on executing our strategy, highlighting the key advantages of SYFOVRE, which include increasing effects over time, with more than 40% reductions in GA lesion growth demonstrated in our GALE Extension Study. Extensive experience with approximately 215,000 injections estimated to have been administered between our clinical trials and real world experience, and more vision saved for patients.
Meaning treatment with SYFOVRE has been shown to preserve visual function longer in multiple post-hoc analyses. Now to EMPAVELI. The positive trends witnessed across the key leading indicators for this patient population have continued through the end of 2023. In the fourth quarter, EMPAVELI generated approximately $24 million in U.S. net product sales, resulting in a total of $91 million for the full year. Notably, approximately 10% of demand in 2023 was from treatment naive patients, and compliance rates remain incredibly high at 97%. We also continue to have a very strong safety profile. We have over 1,400 patient case of systemic pegcetacoplan exposure and have had zero cases of meningococcal infection and very low rates of thrombosis. We are facing a more competitive market with the recent approval of an oral product in PNH.
And I expect the convenience of a twice a day pill will be appealing to some patients. I previously commented on the positive feedback since approval of the EMPAVELI Injector. By simplifying administration and offering greater mobility, we believe the injector elevates the patient experience and fortifies our competitive position. Before I hand it over to Caroline, I'll close by saying that I am incredibly proud of both the SYFOVRE and EMPAVELI medical and commercial teams. They did an outstanding job throughout 2023, working night and day to bring these two medicines to physicians and patients in need. With that, let me turn the call over to Caroline.
Caroline Baumal : Thanks, Adam, and good morning, everyone. We had an active year within the medical community for both SYFOVRE and EMPAVELI. In November, we presented data from our GALE extension study, which followed three years of continuous treatment with SYFOVRE at the American Academy of Ophthalmology Annual Meeting. These data continue to show increasing effects over time with both monthly and every other month SYFOVRE dosing, a seminal feature of SYFOVRE’s efficacy profile. As Adam just highlighted, SYFOVRE reduced GA lesion growth by more than 40% in patients with nonsubfoveal GA lesion in year three, compared to projected sham. This is the largest treatment effect shown in GA to-date. 2024 has already been a busy year so far in terms of medical meetings.
Most recently, we were at the Macula Society, where we had a significant presence with three oral data presentations, including our GALE 36-month data, a matching adjusted indirect comparison, or MAIC analysis, using our 24-month data, and post-hoc microperimetry analysis, demonstrating preservation of function in the retina following treatment with SYFOVRE. Turning to EMPAVELI, we, along with our partner Sobi, presented post-hoc long-term efficacy and safety data on EMPAVELI at ASH Annual Meeting in December. These data showed that treatment with EMPAVELI can help PNH patients achieve rapid and sustained control of their disease over the long term. Furthermore, it is impressive that the majority of patients remain transfusion-free for up to three years, alleviating a significant and common disease burden for many patients living with PNH.
Additionally, at Kidney Week, we had the opportunity to present new data from our Phase II NOBLE study, investigating pegcetacoplan for the treatment of post-transplant recurrence of C3G and IC-MPGN. C3G and IC-MPGN are diseases in which patients have a 50% chance of progressing to end-stage renal disease or kidney transplantation over the course of five to ten years. Between these two indications, there are approximately 5,000 potential patients in the U.S. and up to 8,000 in Europe with no approved treatments available. This year, we are looking forward to the top-line data from our Phase III VALIANT study, which we expect mid-year. VALIANT enrolled 124 patients, split 50/50 between treatment and placebo, aged 12 and up with C3G or primary IC-MPGN.
It is the only study to include both native kidney patients and patients who have recurrent disease after receiving a kidney transplant. Study participants were randomized to receive pegcetacoplan or placebo twice weekly for 26 weeks. Following this 26-week randomized controlled period, patients will proceed to a 26-week open-label phase in which all patients receive pegcetacoplan. The primary endpoint of the study is the reduction from baseline in urine protein-to-creatinine ratio or uPCR as compared to placebo at week 26. I'd like to shift gears and comment on the Cascade Phase II study evaluating the efficacy and safety of pegcetacoplan in patients with Cold Agglutinin Disease or CAD. As Sobi previously disclosed, the decision was made to end the study due to decreased medical need in the CAD space and a limited number of patients eligible for the study.
This is not due to any safety concerns and the efficacy has not been evaluated due to the study being mapped. I'd like to express our gratitude to the CAD community for their support and collaboration. Sobi is working with study investigators to manage the next steps for those enrolled in the study with their welfare as the priority. Now I will turn the call over to Tim for a review of the financials. Tim?
Tim Sullivan : Thank you, Caroline. I will provide a brief overview of our financials and you can find additional details in the press release that we issued earlier this morning. Total revenue for the fourth quarter in full year 2023 was $146 million and $397 million respectively. Quarterly revenue consisted of $114 million in SYFOVRE and $24 million in EMPAVELI U.S. net product revenue and $8 million in additional licensing and other revenue associated with the Sobi collaboration. Full year revenue consisted of $275 million in SYFOVRE and $91 million in EMPAVELI U.S. net product revenue and $30 million in additional licensing and other revenue associated with Sobi collaboration. Turning to the rest of the P&L, for the fourth quarter and full year, cost of sales was $20 million and $58.5 million respectively.
R&D expenses were $69 million and $354 million respectively. G&A expenses were $142 million and $501 million respectively. And we reported a net loss of $89 million and $529 million respectively. I'd like to point out a few items in our financial statements that will help in evaluating our business. First, we recorded accounts receivable of $206 million at year end, which is primarily associated with payment terms that we provide to the SYFOVRE distributors. The accounts receivable line item has increased along with the increasing SYFOVRE sales and is in line with typical payment terms. Second, as we shared previously, we are now categorizing the majority of medical affairs and certain other costs in G&A instead of in R&D. This represents an approximately $22 million shift from R&D to G&A in the fourth quarter and $41 million in the second half of 2023.
No new classifications were necessary for prior periods. However, it is important to note this shift when reviewing trends in our operating expenses. And finally, our operating expenses do not yet reflect the ongoing efficiencies that we expect from our restructuring last August due to severance and winding down of certain projects. As I said last quarter, we expect to realize these efficiencies beginning in 2024. And while I'm not going to get into detailed numbers, what I will say is, that we expect our total operating expenses in 2024 to be less than our total expenses in 2023. Turning to our balance sheet, as of December 31, 2023, we have $351 million in cash from cash equivalents. We continuously evaluate ways in which to further strengthen our financial position.
And with that in mind, today we announce that we entered into agreements to unwind approximately 80% of the cash call associated with the $425 million in convertible notes that we hold in Treasury. We expect total aggregate net cash proceeds to be up to $125 million, including approximately $100 million following this transaction and up to $25 million in additional net cash proceeds if we unwind the remaining capped call. The underlying transactions will be settled based on a seven-day averaging period beginning on and including February 27, 2024. As of December 31, 2023, the aggregate principal balance of the remaining convertible notes made of unamortized issuance costs was $93 million. We now believe that our cash and cash equivalents combined with the cash generated from the capped call unwind and from sales of SYFOVRE and EMPAVELI would be sufficient to fund our projected operating expenses and capital expenditures for the foreseeable future.
That said, we will continue to evaluate opportunities to further optimize our balance sheet and maintain an appropriate cash balance at all times. We have multiple levers that are available to us, and as always, we will be incredibly thoughtful and opportunistic in any decision we make. I will now hand the call back over to Cedric for closing remarks. Cedric?
Cedric Francois : Thanks, Tim. This was a strong finish to the year. We are building on our success and learnings. And the evidence of our ongoing strengths continues to be seen in the numbers and feedback we are seeing. We are headed into the year with renewed energy and an acute focus in our goal of putting patients first and elevating the standard of care in all disease areas in which we work. With this, we are determined to execute on our four key priorities, continuing to expand patient access to SYFOVRE in the U.S., while also working to bring the therapy worldwide, maximizing EMPAVELI in PNH and then expanding in this new indication in C3G and IC-MPGN, and finally progressing our early pipeline, including the siRNA program and our collaboration with Beam.
As always, we are looking forward to sharing updates as they become available and continuing our efforts towards becoming the global leader in complement medicine. Let us now open the call for questions. Operator?
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