Apellis Pharmaceuticals - Earnings Call - Q2 2025

Transcript

Operator (participant)

Good day and welcome to the second quarter 2025 Apellis Pharmaceuticals Inc earnings conference call. At this time, all participants are in.

A listen-only mode.

After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Tracy Vineis, Vice President of Communications. Please go ahead.

Tracy Vineis (VP of Communications)

Good morning and thank you for joining us to discuss Apellis' second quarter 2025 financial results. With me on the call are Co-Founder and Chief Executive Officer Dr. Cedric Francois, Chief Financial Officer Tim Sullivan, Chief Medical Officer Dr. Caroline Baumal, and Executive Vice President of Commercial David Acheson. 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 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 (Co-Founder and CEO)

Thank you Tracy. As many of you know, Apellis is a pioneering biopharmaceutical company with two approved C3 targeting medicines, SYFOVRE and EMPAVELI, both with blockbuster potential, and a pipeline of innovative therapies. We are focused on treating diseases with high unmet needs by targeting C3, the central protein in the complement cascade and the only target that addresses all three activation pathways that can initiate and drive disease. Earlier this week, the FDA approved a label extension for EMPAVELI for the treatment of patients 12 years and older with C3 glomerulopathy or primary immune complex membranoproliferative glomerulonephritis. This marks our third FDA approval in just four years, a significant milestone that reflects the strength of our science and our ability to deliver for patients.

Importantly, this approval represents a breakthrough for patients as for the first time they can be treated with a C3 targeting therapy and one that achieves the trifecta of outcomes across all three key markers of these diseases, including proteinuria reduction, eGFR stabilization, and substantial clearance of C3 deposits. It also advances care for several underserved populations that previously had no approved treatments, including pediatric patients with C3G, primary IC-MPGN patients 12 years and older, and patients with post-transplant C3G disease recurrence. The launch is now underway and we are excited to make this transformative medicine aVALEable to patients as we expand into rare nephrology. Moving then to SYFOVRE performance, we continued to see steady demand growth in the second quarter. Total injections, including commercial and free goods, grew by 6% quarter-over-quarter, delivering SYFOVRE revenues of $151 million.

SYFOVRE remains the clear market leader in GA with 55% of new patient starts during the quarter and total market share exceeding 60%. Commensurate with the headwinds we saw in the first quarter, we do continue to see high levels of free goods usage in connection with the funding shortage at the third-party copay assistance programs. The market opportunity in GA is significant. With SYFOVRE's market leadership, strong patent life, meaningful potential for growth, and a low likelihood of new market entrants in the next few years, we have confidence in the long-term potential of SYFOVRE. During the second quarter, we also gained significant operational flexibility through our Aspaveli cap royalty purchase agreement with Sobi. This transaction reflects our shared confidence in the meaningful growth potential in rare kidney diseases.

With a strong cash position, a substantial growth opportunity for EMPAVELI, SYFOVRE's continued market leadership, and a maturing pipeline, we are well positioned for success going forward. With that, I will now turn over the call to Tim to provide a review of the financials from the second quarter. Tim.

Tim Sullivan (CFO)

Thank you Cedric. Total revenue for the second quarter was $178 million, including SYFOVRE net product revenue of $151 million. Utilization of SYFOVRE free goods remained high during the second quarter and impacted revenue by approximately $13 million. We expect a similar impact to quarterly revenue throughout the rest of 2025. We delivered over 95,000 doses of SYFOVRE in the quarter, including 82,000 commercial doses and 13,000 free goods doses. SYFOVRE injection demand grew 6% during the quarter. Looking ahead to the rest of the calendar year, we expect quarter-over-quarter injection growth to be in the low to mid single digits, consistent with the.

Growth trajectory of the last two quarters.

Over the longer term, we aim to accelerate growth with several key initiatives.

Dave will speak to shortly.

EMPAVELI continues to elevate the standard of care in PNH. Revenue in the second quarter was $21 million, up 5%. quarter-over-quarter patient compliance rates remained at 97%. We expect EMPAVELI to begin generating meaningful revenue from the C3G and primary IC-MPGN opportunities in the fourth quarter of 2025. Turning now to the capped royalty purchase agreement with Sobi. This transaction reflects both parties' shared confidence in the blockbuster potential of this product. In exchange for 90% of future ex-US Aspaveli royalties up to the cap, Apellis received a $275 million cash payment up front. Apellis is also eligible to receive $25 million in milestones upon the European Medicines Agency approval of Aspaveli in C3G and primary IC-MPGN. Defined caps tied to Aspaveli's performance allow Apellis to participate in long term upside. Once these caps are achieved, all royalties revert to Apellis.

These deal terms provide validation of the potential for meaningful growth in C3G and primary IC-MPGN. This purchase agreement does not affect the regulatory and commercial milestones that Apellis is eligible to receive. Under our 2020 agreement with Sobi, we have maintained a highly disciplined approach to cost management while prioritizing the commercialization of SYFOVRE and EMPAVELI. Operating expenses were $212 million in the second quarter versus $229 million in the second quarter of 2024. We continue to expect our 2025 operating expenses to be in line with 2024 OpEx. We ended the quarter with $370 million in cash and cash equivalents. We expect this cash, combined with the $275 million payment from the royalty purchase transaction and future product sales, will be sufficient to fund the business to sustainable profitability. I will now hand the call over to Caroline for an update on our medical activities.

Caroline.

Caroline Baumal (Chief Medical Officer)

Thanks Tim. With SYFOVRE as the leader in geographic atrophy and three diseases now approved for treatment with EMPAVELI, we have validated our conviction in targeting C3 as the optimal way to control complement-mediated diseases. With the launch underway in C3G and primary immune complex membranoproliferative IC-MPGN, we are planning the next phase of our strategy to maximize the potential of EMPAVELI. With a proven ability to control complement through targeting C3, we are expanding EMPAVELI development into two other rare kidney diseases: delayed graft function or DGF and primary focal segmental glomerulosclerosis, FSGS. Similar to C3G, FSGS is a rare kidney disease that progresses to kidney failure within five to 10 years for most patients. DGF is a complication in kidney transplantation where the transplanted kidney fails.

Most patients are forced to go onto dialysis, which negatively affects the long-term survival of the kidney and overall patient outcomes. The complement pathway plays a significant role in both diseases, and there are currently no FDA-approved therapies for either. We remain on track to begin pivotal trials in DGF and FSGS by the end of the year. We are also focused on the development of a next-generation treatment for geographic atrophy. I'm pleased to share that we have initiated a Phase two study evaluating the combination of SYFOVRE and our siRNA APL-3007. With APL-3007's ability to lower complement levels systemically and SYFOVRE's well-established ability to inhibit complement in the retina, we believe we can improve efficacy with fewer injections. I look forward to sharing more on our exciting progress in the coming quarters. I'll now turn the call over to our Executive Vice President of Commercial, David Acheson.

David Acheson (EVP of Commercial)

Thank you, Caroline, and good morning, everyone. Following approval and the outstanding broad label we received from the FDA, I'd like to start with EMPAVELI and the launch into C3G and primary IC-MPGN. The initial response has been gratifying, and we have already seen activity from both patients and the treatment community. In the U.S., we estimate there are approximately 5,000 C3G and primary IC-MPGN patients. Notably, EMPAVELI's broad label makes it the first treatment approved for pediatric patients with C3G, primary IC-MPGN patients aged 12 years and older, and patients with post-transplant C3G disease recurrence. We expect EMPAVELI to become the preferred treatment option across all C3G and primary IC-MPGN patients on its way to blockbuster status by the end of the year.

We expect to transition approximately 50 C3G and IC-MPGN patients who are receiving EMPAVELI as part of our early access program, or EAP, to commercial drug. Furthermore, we know there are some patients and physicians who are awaiting the approval of EMPAVELI that are expected to generate early demand. Beyond this, we expect traditional rare disease launch dynamics where there have historically been few or no approved treatments. More broadly, we are excited about this opportunity for growth. We are executing on three pillars to maximize the potential of EMPAVELI in these diseases. First, raise awareness about the aVALEability of EMPAVELI as a disease-modifying therapy that targets the underlying cause of disease. This approval represents a breakthrough for patients, and for the first time, they can be treated with a C3 targeting therapy. Second, our goal is to establish EMPAVELI as the treatment of choice among nephrologists.

We plan to leverage the outstanding clinical data that supported this approval. Our goal is for physicians and patient communities to equate early use of EMPAVELI with the preservation of kidney function and long-term disease control. Third, we are working to secure broad access as soon as possible. We care deeply for patients and are committed to ensuring that every patient who may benefit from EMPAVELI has access to treatment. This includes helping patients through reimbursement processes, disease education, and product support. We have been very successful in increasing disease awareness through our strong presence in physician offices and medical conferences and look forward to updating you on our progress. Switching now to SYFOVRE and the GA market, we are encouraged to see continued market leadership with injection growth of 6% during the quarter. However, revenue continued to be impacted by elevated use of free goods.

We are working closely with retina offices to educate on best practices for managing patient access and reimbursement processes. As Tim already mentioned, our expectation for the rest of 2025 is for low to mid single digit injection growth, consistent with the growth we've seen in the first half of this year. Now moving to our key strategic objectives, growing the GA market and maintaining our leadership. Last quarter I talked about some of our field initiatives to drive demand and new patient starts. We continue to execute on these. Disease awareness education on the importance of treating GA early and effectively remains a major focus for us. Many retina specialists take a wait and see approach when treating GA patients. There is a disconnect between physician perceptions of GA and the functional impact patients experience. We are working to close this gap.

Next, we are expanding our engagement within the clinical community to educate the optometrists and ophthalmologists who manage a significant proportion of patients. We have prioritized engaging with these physicians to raise awareness about GA and the benefits of SYFOVRE treatment. Our efforts include directing them to our Physician Finder tool, which provides a list of retina specialists who have recently had experience using SYFOVRE. Finally, we continue to leverage our highly successful direct-to-consumer campaign to secure awareness and activate the patient base to seek treatment. Turning to competitive dynamics and our continued market leadership, SYFOVRE is the clear market leader by any measurable metric: revenue, new patient share, overall market share, commercial vials, total injections, preferred payer coverage, and presence at academic conferences. Our gains on new patient share reflect an understanding of SYFOVRE's differentiated profile.

Specifically, SYFOVRE is the only GA product to demonstrate robust and increasing effects over time. SYFOVRE is the only GA product approved for as few as six doses per year. SYFOVRE is the only product in a preferred position with many payers, and finally, we have five outstanding data presentations at the ASRS conference this week. We expect this newly published data on SYFOVRE's unique ability to preserve retina tissue over time to further differentiate SYFOVRE and build on our market leadership. I look forward to reporting on our progress on our third quarter call. Let me now turn the call back to Cedric.

Cedric Francois (Co-Founder and CEO)

Thanks, David. Before we close up the call, I'm excited to also share two key leadership appointments that mark an important new chapter for Apellis. We are pleased to welcomes Dr. Leslie Meltzer as our new Chief Research and Development Officer. Leslie comes to us from Orchard Therapeutics and is an experienced biopharma leader with a proven track record of advancing therapies from early stage research through regulatory approval and commercialization. She will officially join Apellis on August 25th. We also recently welcomed Kelley Boucher as our new Chief People Officer. Kelley joins us from Alnylam where she served as Chief Human Resources Officer. Over her six-year tenure, she played a pivotal role in shaping Alnylam into a top-tier biotech company consistently recognized for its outstanding workplace culture. Please join me in warmly welcoming both Kelley and Leslie to the Apellis team.

The first half of 2025 has been a period of success for Apellis and we look forward to continuing this in the second half of this year. With that, I'll turn the call over to the operator for Q&A.

Operator (participant)

Thank you. As a reminder to ask a question, you will need to press star one one on your telephone. To withdraw your question, press star one one again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question will come from the line of John Miller with Evercore. Your line is open.

John Miller (Managing Director of Biotech and Pharma Equity Research)

Hi guys.

Thanks for taking my question and congrats on all the progress. I'd love to ask about the GA market since we just had a kidney call, but I guess your competitor is.

Talking about 20%+ quarter-on-quarter growth. They're talking about a majority market share as well.

They confirmed that they're also using insurance.

Claims to generate their supposedly majority market share. I wonder if you could just.

Help me square that circle a little bit. It feels like your growth in the.

Mid single digits is good, but that's.

Not what they're expecting.

Your market share looks great, yet again discordant with what they're expecting.

Can you help me understand how.

You guys are getting to different results.

On the overall market potential here?

Cedric Francois (Co-Founder and CEO)

Thank you so much, John, and great.

Hearing you, we have clear leadership.

To be clear on every single metric on revenue, new patient share, overall market share, on vials, on injections, on preferred payer coverage, and also presence at academic conferences.

I mean we're here at ASRS.

In Long Beach, we have five podium presentations, our competitor has zero. I think it's really important to point out also that the data that is being presented is by now four years old and it's still the one year data because in the second year, you know, it wasn't as good as in the first year. These are things that really favor us. I think the quality of the data, especially what came out after four years of treatments in the GALE Extension, is something that really resonates with the retina community. I think it's important to.

Note that the way in which we.

Track and measure the competitive dynamics is on a much larger database set than what our competitor uses. Ours is representative of approximately 50% of injections in the offices, whereas our competitor estimates their presence on approximately 10% with the database that they use. I think, look, at the end.

of the day, it comes down to.

The meaningfully differentiated efficacy profile that we have that is starting to resonate with the retina community and continued evaluation scientifically of what SYFOVRE can do for patients. That is really gratifying to see because again it's a full four years of data that we can analyze for SYFOVRE, with the benefit and the increasing effects over time continue to stand out.

Operator (participant)

Thank you. One moment for our next question. That will come from the line of Anupam Rama with JPMorgan. Your line is open.

Anupam Rama (Analyst)

Hey guys, thanks so much for taking the question.

I was wondering if you could comment a little bit more on some of the sampling trends you saw in the quarter.

I know last year you said it was going to last quarter.

It was going to be about a similar amount.

It looks like there's a little bump.

Here on an absolute basis.

Maybe just providing a little bit.

More color on how you're thinking about moving forward.

Thanks so much.

Cedric Francois (Co-Founder and CEO)

Thank you, Anupam, great hearing you. I will hand the question over to David Acheson.

David Acheson (EVP of Commercial)

Hey, thank you very much for the question. Appreciate it. As you would suspect, as we continue to grow the business quarter-over-quarter with the injections, you're going to continue to see some additional growth as we continue to play through the situation with the foundation funding where we could potentially see at or close to the same levels of the $13 million in samples that we saw in Q2. That's why you have a little.

Bit of the bump.

The business continues to grow and the injections and the demand is there, which is very positive and I'm very encouraged by that. As we work through the rest of.

This year, I think we'll see similar trends.

Operator (participant)

Thank you. One moment for our next question. That will come from the line of Yigal Nochomovitz with Citigroup. Your line is open.

Yigal Nochomovitz (Director of Biotech Equity Research)

Great. Thank you. I had a question on FSGS with regard to your phase three plans.

As you know, there's been a lot.

Of work regarding endpoints in FSGS, including a Paracel working group that determined that proteinuria was a very good proxy for eGFR slope. I'm wondering if you can comment with respect to what your plans are on endpoints for the FSGS trial.

Thank you.

Cedric Francois (Co-Founder and CEO)

Thank you so much, Yigal. Thank you for that question. Obviously, we are going to be in the slipstream, if you want to call it, of the Parasol group's work, Parasol group's work. It's a trial we're very excited about. We're still planning to enroll or start enrollment in that trial in the second half of this year. We believe that the mechanism, the target engagement of EMPAVELI in the kidney and what we can do on a differentiation basis, leaders should not look forward to.

Yigal Nochomovitz (Director of Biotech Equity Research)

Okay, and if I could just put one follow up. Regarding the free goods. In prior quarters you'd referenced samples for SYFOVRE. Is it fair to assume that the samples are sort of subsumed within free goods or are they different or the same? It's a little unclear as far as the terminology now. Thank you.

Cedric Francois (Co-Founder and CEO)

Thank you.

Yigal.

David will elaborate on that.

David Acheson (EVP of Commercial)

Yigal, thanks for the question. By the way, you're right. It's basically a terminology shift that we've made. We've included both samples and the PAP program or patient assistance program in free goods to capture all the free goods that are being used in the marketplace.

Yigal Nochomovitz (Director of Biotech Equity Research)

Okay, thank you.

Operator (participant)

One moment for our next question. That will come from the line of Salveen Richter with Goldman Sachs.

Hi, this is Srinathran for Salveen. Congratulations on the quarter. You've mentioned that the expectation of QoQ injection growth in the low to mid single digits. Is this a conservative estimate? When do you expect to see an expansion for this growth rate?

Cedric Francois (Co-Founder and CEO)

Thank you so much for that question. I think the most important aspect here to bear in mind is that with SYFOVRE we are now having a stable business with steady and gradual growth. That is something that allows us to really continue to work on the many, many patients that haven't been treated yet, continue to educate the retina community. Again, I want to point out that between the two products on the market, a little over 10% of patients have been treated so far. There's a long way to go. Most importantly, we're now in quite a stable situation, something that we look forward to taking advantage of.

Thank you.

Operator (participant)

One moment for our next question, and that will come from the line of Steve Seedhouse with Cantor. Your line is open.

Timur Ivannikov (Biotechnology Research Associate)

Yes, hi, this is Timur Ivannikov on for Steve.

For Q2, could you talk about.

The factors that drove higher SYFOVRE revenue with similar commercial doses quarter-over-quarter.

To follow up on Yigal's.

Question, out of 13,000 free injections, how.

many were samples for new patients versus help assistance to existing patients?

Thank you.

David Acheson (EVP of Commercial)

Yeah, thank you for the question. Appreciate it. This is David. A couple quick points there. A little less than half of the growth that we saw was attributed to the free goods of the samples. That's specific data that we can pull out of our free goods program when it comes to the growth or the first part of your question around sample usage and where that played out up against the quarter-over-quarter kind of the growth that we saw overall. Obviously we've got great demand, been thrilled with that and continue to see quarter-over-quarter growth and samples is a part of that. Yes, we saw the trend that was consistent between the commercial and trade vials. We're also seeing true demand and patients getting started on the product through our sampling and PAP programs.

Operator (participant)

One moment for our next question. That will come from the line of Colleen Kusy with Baird. Your line is open.

Colleen Kusy (Senior Research Analyst)

Great, thanks. Good morning. Thanks for taking my question. Just on the ongoing disruption of the third-party copay assistance, is there anything that you're hearing on that and any expectations on that in the near future? Maybe one longer term question if I can for the VALE long term extension study for C3G, IC-MPGN, obviously we've seen some good data from GA that's helped us understand the differentiation of SYFOVRE. Any expectations for the VALE data going forward and how that might differentiate EMPAVELI in C3G and IC-MPGN. Thank you.

Cedric Francois (Co-Founder and CEO)

Thank you so much, Colleen. There are evolving things happening at the foundation level for us. The way we think about these organizations is they are wonderful for patients. Of course, we have supported them in the past and we will continue to support them. That is something that we are obviously very much in favor of. As it relates to the second part of your question, could you repeat that?

Because that couldn't be the year on IC-MPGN.

Colleen Kusy (Senior Research Analyst)

Sorry, just on the VALE data, anything we can expect from that on how that will differentiate EMPAVELI versus its competitor C3G and IC-MPGN.

Cedric Francois (Co-Founder and CEO)

Thank you. I will hand it over to Caroline. Thank you, Colleen.

Caroline Baumal (Chief Medical Officer)

Thanks, Colleen. We are really thrilled with what we've seen for EMPAVELI and the recent approval and label for C3G and IC-MPGN. I think what really differentiates us is that we achieved this trifecta of positive outcomes across these three key disease markers: reduced proteinuria, eGFR stabilization, and this robust, substantial clearance of C3 deposits in the kidney. What we're really excited about is that these effects continued onto the label extension study, which of course rhymes with GALE, which is what we use for ophthalmology. We continue to see these effects. Even more importantly, physicians are so excited about this data, we're hearing a lot of positive input from them. Thanks, Colleen.

Operator (participant)

One moment for our next question. That will come from the line of Akash Tiwari with Jefferies. Your line is open.

Hi, this is Tassian for Akash. Given the current SYFOVRE trajectory as of now, it seems like the class isn't expanding into a broader community center setting. What's the right amount of OpEx spend for the GA franchise going forward? Given the current business trajectory, when do you think SYFOVRE will reach profitability? Thank you.

Cedric Francois (Co-Founder and CEO)

Thank you so much for that question. I'll hand it over to David.

David Acheson (EVP of Commercial)

Yeah, I will tell you, I think we just need to take a step back for a second and remind ourselves how big this market is and the potential opportunities to meet a lot of unmet needs for a lot of patients that live with GA today. I think it's important to keep that in note. I also think it's super important to go back to what Cedric just talked about. We believe we are now in a very stable market. We anticipate that when we have stable, steady correctional growth. Right now we've got about 10% of the market that's currently treated. The market opportunity still exists and we think long term this is still a blockbuster product in the space.

Tim Sullivan (CFO)

Hey David, this is Tim Sullivan. I'll just jump in for one second. You know SYFOVRE is one of our business lines. We have obviously EMPAVELI, we have development, we have discovery. If you're looking for whether or not SYFOVRE alone is profitable on its own, it's a very profitable business. It's high leverage with a reasonable sales force. You can also see in our 10-Q we do show on an R&D basis what is allocated to G&A. You can make yours. You can make a P&L for SYFOVRE alone. That shows it's a profitable business.

Operator (participant)

Yes. One moment for our next question. That will come from the line of Divya Rao with TD Cowen. Your line is open.

Divya Rao (Research Analyst)

Hi team, this is Divya on for Phil. Based on your discussions with physicians, I'm curious if you get the sense that the competitor label expansion in February has impacted prescribing patterns. Now that we have about one full quarter with the new label, and then if I can, a quick one on EMPAVELI, what might be the specific launch metrics we can expect for the launch in C3G over the next few quarters.

Cedric Francois (Co-Founder and CEO)

Thank you so much for that question. I will briefly comment on our competitor's CRL and the removal in February, and then I will hand the second part of your question over to David. I think the most important aspect of the CRL that was issued to our competitor in November is the fact that it truly called out the fact that there was a limitation on that initial label of one year, something that a lot of physicians.

We're not aware of.

The fact that every other month dosing was rebuked by the FDA as a treatment that works for this product is very important for retina specialists to understand and know. From all the data that we see, that is not something that they had recovered from. Caroline, I don't know if you want to expand on that.

Caroline Baumal (Chief Medical Officer)

Just adding that we have SYFOVRE has a flexible label with every other month dosing, which has been well studied in our clinical study as well as in our extension study. We are currently at ASRS with five podium presentations, and we will continue to have robust data that data-driven retina physicians really need to treat their patients best. All of this has helped with patient compliance. Treating them every other month is much more reasonable. This really speaks to the broadness of SYFOVRE use.

Cedric Francois (Co-Founder and CEO)

Thank you.

David, if you want to comment, you can.

David Acheson (EVP of Commercial)

You repeat the second part of your question? I think it was on C3G.

Divya Rao (Research Analyst)

Yeah, I was just curious if there was any specific launch metrics we can expect over the next few quarters on just how the launch is going for EMPAVELI.

David Acheson (EVP of Commercial)

Yeah, no, great question. Basically that. Our specific focus and what we'll lay out for you will be the transition that we've got for EAP patients, which is in motion already as of this week, and our compassionate use patients. We will look at TAR forms that will be where we spend our time reporting out. Also, we'll work through REMS enrollments on the physician side over time. What we'd like to do is transition it over to actual patients on product. It's early, right? We're three days post an awesome label coming out from the FDA, and it's going to take us a little time to get active data coming in that we can continue to track and be consistent with. We want to make sure we give them a little time before we do that.

Operator (participant)

Thank you. One moment for our next question, and that will come from the line of Eliana Murrell with UBS. Your line is open.

Hi, this is Jasmine on for Ellie. Thank you for taking our question. I wanted to follow up on the patient assistance funding dynamics going forward. Specifically, can you talk about what you expect from the impact of Regeneron donation matching to Good Days? Do you think that seeing some funding return can potentially lower the usage of free goods that you see in the coming quarters? Secondly, can you talk about the latest you're seeing in compliance and adherence for SYFOVRE?

Cedric Francois (Co-Founder and CEO)

Yes, thank you so much for that question. Look, on the foundations again, I think the most important element there, as I mentioned earlier, is that this is something that is important for patients. The way in which they manage their money, the way in which it gets allocated, the way in which it does get funded is something that we are completely independent from. For us, it's a medical decision to help and assist. These foundations help patients. We have done that in the past. We will continue to do that as far as compliance is concerned. I will hand that question over to Caroline.

Caroline Baumal (Chief Medical Officer)

Thank you, Cedric. I think that of course there's things that might affect patient compliance like the patient foundations, but overall physicians from large real work groups are reporting compliance, and it's been about 80% depending on which physician group. Patients are motivated to be treated, especially because they experience persistent vision loss. David, do you have anything to add?

David Acheson (EVP of Commercial)

No, thank you.

Great, thank you.

Operator (participant)

One moment for our next question. That will come from the line of Lachlan Hanbury-Brown with William Blair. Your line is open.

Lachlan Hanbury-Brown (Research Analyst)

Good morning and thanks for taking the questions. Can you just talk to the progress you've made with the benefits investigation process for the patients that were previously getting persistence and obviously no longer are?

I think last call you said that.

Was maybe 20% of patients. Have you sort of been able to make a dent in that 20% of patients? Especially in light of the fact that, as mentioned earlier, commercial vials was sort of flat quarter-over-quarter.

Cedric Francois (Co-Founder and CEO)

Yeah, Lachlan, our apologies, but we can't.

Really hear what you're saying.

Can you repeat please?

Lachlan Hanbury-Brown (Research Analyst)

Is this better?

Cedric Francois (Co-Founder and CEO)

Yes, please go ahead.

Lachlan Hanbury-Brown (Research Analyst)

I was wondering if you could talk to the process that you, the progress that you've had with the benefits investigation for patients that previously were using copay support.

I think you previously said that.

About 20% of patients. Have you been able to make a dent in that number because the stuff over commercial vials were flat quarter-over-quarter.

Cedric Francois (Co-Founder and CEO)

Okay, thank you so much for that question. Yes, I will hand it over to David.

David Acheson (EVP of Commercial)

Yeah, great.

Thank you for the question.

Appreciate that. We did report back in our earnings call for Q1 that about 20% of the market had shifted and our patient assistance program obviously is being used at a higher rate. We are working through our Apellis Assist program very closely with our offices along with our reimbursement team inside the offices to make sure that when a patient hits an out-of-pocket max, they then get moved over to trade or commercial product as soon as they are able to do that. It's a lot of communication between our teams and the offices and the reimbursement teams inside these accounts. Yes, we can see definitely a trend where patients get transitioned over. I can also tell you that the continued use of the program has been high because the funding issue is still in play. As patients come out of their out-of-pocket max, we move them.

The good thing is we're seeing quarter-over-quarter injection growth and we have additional opportunities for patients to be on product and we'll transition them over as well. I'm going to hand over to Tim.

As well, just on some of the.

Financial part of it.

Tim Sullivan (CFO)

Yeah.

Hey Lachlan, thank you. I just want to caution against reading too much into any given quarter on the commercial vials delivered. That's actually from the specialty distributor to the ECP offices, and there are inventory dynamics at the ECP offices that play into that. That's why we kind of lead people to that injection growth as the true demand measure as opposed to looking at commercial vials. That's sort of in between two inventory stops. I just wanted to caution on that. On any given quarter, over time, that injection demand and the commercial vials delivered should more or less equate to each other, but on any given quarter they're not.

Going to be exact.

I wouldn't read too much into any particular quarter there.

Lachlan Hanbury-Brown (Research Analyst)

Thanks.

Operator (participant)

One moment for our next question. That will come from the line of Annabel Samimy with Stifel. Your line is open.

Annabel Samimy (Managing Director and Senior Analyst in Healthcare-Biopharmaceuticals)

Hi guys, thanks for taking the question just for slide over again. You mentioned several times the market is about 10%. I guess 10% or 15% penetrated, depending on whose numbers you rely on. Do you have a sense now with the education of ophthalmologists and optometrists on what the total penetration could be of the market? I think Estelle has set a goal of about 35% of the target population by 2029. Does that seem realistic based on what you're hearing back from the community, and I guess separately on the funding gap? Do you know of patients who are holding off starting treatment because of this funding gap, or most of these patients who need treatment are getting free goods?

Thanks.

Cedric Francois (Co-Founder and CEO)

Thank you so much. What I will say about the growth beyond the little more than 10% where we currently are is that if you take physicians that have adopted SYFOVRE as part of their routine practice, they end up treating between 30% and 50% of their GA population with SYFOVRE. On a broad basis, that is probably the type that you should be looking at in terms of what population really benefits from this product and what we should be looking forward to as it relates to the funding gap. I will hand that over to Caroline for comments.

Caroline Baumal (Chief Medical Officer)

Thank you, Cedric. As someone who is still a practicing ophthalmologist, we see that patients are not able to start on treatment because of the funding gap. Starting patients on SYFOVRE is not just a one time thing. It's signing up for every four to eight weeks injections and having a long term plan. It's unfortunate that this is affecting patients who need this treatment. While some patients are able to compensate for that, others are not. Resolution, I think, will be very helpful for patients. The other thing I want to say is that this is a really dynamic market and the retina practice in the United States is very dynamic. There are constantly new patients, new retina physicians, new ophthalmologists, and new types of eye care providers. Our process of doing medical education and education on GA is continuous so physicians understand how to use this medication.

One of our key highlights at the ASRS meeting is showing the 48 month GALE data. This really attests to the fact that there are increasing effects over time. Our key point here is that earlier treatment leads to more retina tissue saved. It's significant in the amount of the best treated group of up to over 3mm squared of retina tissue. That is about one and a half disc areas of tissue. Just so you know, that's about the size of the fovea. We show this image to our eye care providers and they're really impressed with how significant it is. Thank you.

Annabel Samimy (Managing Director and Senior Analyst in Healthcare-Biopharmaceuticals)

Thank you.

Operator (participant)

One moment for our next question. That will come from the line of Biren Amin with Piper Sandler. Your line is open.

Biren Amin (Senior Research Analyst)

Yeah. Hi, guys.

Thanks for taking my questions.

Maybe to start on SYFOVRE commercial doses, I think in the quarter were 82,000 vials, but this number was a lot.

Higher in Q4, which is around, I.

Think, 89,000 commercial doses.

There was a decline of about 9% from Q4.

Is that due to conversion to free goods usage, or are you seeing patient discontinuations from current patients with new patient starts?

Predominantly going to free samples? That's the first question. The second question, R&D.

Expenses came in lighter.

Should we expect the Q2 run rate?

Going forward, or should we assume the.

Average over the last several quarters, which.

Is around the low 80s?

Thanks for that.

Tim Sullivan (CFO)

Hey Biren, and thanks for the question. This is Tim. In the fourth quarter, as you know, there was a bit of a build. The vials delivered go from the specialty distributor to the ECP. As we talked about in the fourth quarter, there was a lot of stocking at the ECP level. The fourth quarter, unfortunately, is really not a good barometer for looking at growth or change over time. There are a lot of inventory dynamics between the specialty distributor and the ECP fridges.

That.

Tracks.

To my prior comment, over time that should average out to what the injection growth looks like in any given quarter. It can be misleading as it, you know, even in this quarter.

Right.

It wasn't the growth versus the first quarter didn't exactly track injections. We're hoping that'll normalize over time. Just a caution around that, commercial vials delivered is something we talk about sort of as an industry and we do that. On any given quarter, I don't think it's the best measure. That's why we've talked about injections. That's your first part, and then on your second part, in the Qs we give a pretty good table on what's happening within the R&D expense. We do that. It's in the research and development expenses section of our Q. It breaks out those expenses pretty nicely. What you'll see is that we did have a pretty decent drop in a couple of areas for this quarter. Some of those were one-time opt-ins for some collaborative stuff we've done.

I like, at least on a go-forward basis, the average a little bit better because we are heading into some pivotal studies that really haven't ramped up. That's the DGF study and the FSGS studies. I think you're probably safer more in that average zone than you are taking this quarter. Obviously, we had a few things that made this quarter look a little bit more efficient from an R&D perspective. Going forward, I would use the.

Average.

Operator (participant)

One moment for our next question, and that will come from the line of Ryan Deschner with Raymond James. Your line is open.

Ryan Deschner (VP Biotechnology)

Thanks for the question. Just to clarify, when you report patient start forms and REMS enrollments for EMPAVELI in the future, will you be breaking these numbers out by specific indication? i.e. PNH, C3G, and IC-MPGN? Can you also talk about what the burden will look like to obtain prior authorization for C3G and IC-MPGN patients?

Thanks.

David Acheson (EVP of Commercial)

Thanks for the question. Yes, on the metrics of the start forms that will come in initially, we'll report total start forms. Over time, we'll start to look at how the data plays out and where we're penetrating by age group and disease state and different indications. Up front, it will be start forms only, and then we'll transition over time as we get more data.

Caroline Baumal (Chief Medical Officer)

As for the burden of doing REMS forms, I think that these REM certifications are done to inform physicians about these medications so they're aware of all the effects of them. I think that it's done with all complement inhibitor therapy, and physicians, once they do it once, they don't have to do it again. I think that it will not be a big burden on physicians to do this. Thank you.

Ryan Deschner (VP Biotechnology)

For the REMS enrollments and patient start forms, will you be breaking down between C3G and IC-MPGN?

David Acheson (EVP of Commercial)

Not initially, we won't. Everything will be just start forms, and then we'll break it down as we learn and we get more data.

Ryan Deschner (VP Biotechnology)

Thank you very much.

Operator (participant)

One moment for our next question. That will come from the line of Douglas Tsao with H.C. Wainwright. Your line is open.

Douglas Tsao (Managing Director of Equity Research)

Hi, good afternoon. Thanks for taking the questions. I'm just curious, are you seeing relatively consistent utilization of free goods across all retina specialists, or are there sort of some practices that are using it more than others based on patient mix? As this funding shortage exists, is there a way for you to sort of target the market a little bit more towards patients who.

Might be able to afford.

The out-of-pockets for the time being?

David Acheson (EVP of Commercial)

Yeah, great question.

Thank you.

This is David. Let me answer the first part of it. When you look at the marketplace, what I think is a really good metric to look at is the true demand, which is the growth quarter-over-quarter in injection. We should start there. I think the part to also keep in mind is that when a physician wants to put a patient on product, they can use free goods to do that. They're putting those patients on product through our Apellis Assist program and we can transition them over when their out-of-pocket max is. I think it's important to keep that in mind as far as the targeting part of it and how we try to make sure that we're in the right places with the right benefit design discussions. We have a reimbursement team.

I also have an Apellis Assist organization that connects with these offices on a regular basis. We've had a very concerted effort in these offices to go in and educate on benefit design so that those accounts can help patients pick the right benefit in Medicare that will pay for these products even today and the funding issues that we've had over time. We've been very close to the education on it. We've done a lot of targeting and I think that's helped a lot. The feedback we've gotten back from the offices and we'll continue to do that. Over time these patients will then transition either to a new benefit design or they'll transition because of out-of-pocket max to trade files and treatment.

Douglas Tsao (Managing Director of Equity Research)

If I may, one follow up.

I'm just curious when you think about the patients that are getting treated today, I think in the past you had referred to sort of like most, almost all of them were coming from existing retina specialist books or existing patient-based populations. Are you seeing more patients come from referrals directly and are you seeing a shift in terms of the time of a patient's initial diagnosis of GA to start a treatment?

David Acheson (EVP of Commercial)

We have a program, we've got actually a couple programs where we've got folks that are in these offices for ophthalmology and optometry, specifically for education and specifically so patients can be identified and then referred to a treating retina specialist. That has obviously been running for quite some time now. We do see data in transition. I will tell you one thing to keep in mind as we move those patients over.

There are still a lot of patients inside these offices where the treating injecting offices and retina specialists are that could go on treatment because about 50% of the market sits in those offices already. The market is very large, as you know, so there's opportunities on both sides. Yes, we can see that data and we do know that the referral processes and our TTC alongside of that is working.

Douglas Tsao (Managing Director of Equity Research)

Okay, great. Thank you so much.

Operator (participant)

One moment for our next question, and that will come from the line of Derek Archilla with Wells Fargo. Your line is open.

Hi, this is Simone on for Derek. Congrats on the quarter. Just one question. Can you guys provide more color on the free goods usage trends and how should we be thinking about the % for the rest of the year, and is the 10%-15% range still valid that you said last quarter?

Thank you.

David Acheson (EVP of Commercial)

Let me answer that on the free goods usage part of it. Like I mentioned a few minutes ago, we expect similar levels of drug that's going to be used moving forward. We did have a $13 million headwind in the second quarter as a result of previous free goods being used. What I'm mostly encouraged by is that the demand at the physician and the patient level continues to grow, and that's why we see injection growth that we're seeing today.

Operator (participant)

One moment for our next question. That will come from the line of Judah Frommer with Morgan Stanley. Your line is open.

Judah Frommer (Senior Equity Research Analyst)

Hi, thanks for taking the questions first.

Just kind of on more of a.

High level market penetration question, do you.

See achieving kind of the market penetration in GA that you've discussed over time along with SYFOVRE and maybe additional patient and provider education? Or do you think you might need a next gen product like the three zero zero seven.

Combination to get there? Secondarily, just a housekeeping question on the Sobi royalty.

Can you walk us through how that's?

Going to be recorded in the financials.

Whether it's going to run through the income statement or the balance sheet or both.

Cedric Francois (Co-Founder and CEO)

Yes, thank you.

Thank you so much for these questions. First of all, as it relates to penetration, I want to reiterate that we are now in a stable business with SYFOVRE with steady and gradual growth in front of us. Again, I think remarkable data over the course of a full four years follow-up in these patients allow us to really expand on what the efficacy profile means for this drug and what it means for patients to be on treatment. We do have, as you may know, a next generation product in development, but this is a next generation product that will actually combine SYFOVRE with an easy to administer subcutaneous injection, which is an siRNA product.

What we're going to be testing in that clinical trial is whether we can give SYFOVRE every three months and every two months and whether the reduction of the lesion growth, which is, you know, 30%-40% with SYFOVRE, whether we can expand that and go hopefully well beyond 50% in terms of lesion size reduction. This would make it more convenient for patients and expand on the already impressive efficacy that SYFOVRE has. By the way, I want to point out here as well that in the four-year data set we now have very clear indicators of the functional benefit that patients gain from feedback with SYFOVRE. With this subcutaneous product, it's easy to administer, would be off injector and would make it every three months instead of every two months.

Importantly, I think we are the leaders in geographic atrophy and targeting C3 is definitely very clearly now the way to address the disease in the first place.

Tim Sullivan (CFO)

Yeah, Judah, I'll just jump in on your housekeeping question. It's a very simple recognition. The payment upfront will be recognized as revenue, and it'll show up on the balance sheet in cash.

Judah Frommer (Senior Equity Research Analyst)

Great, thank you.

Operator (participant)

One moment for our next question. That will come from the line of Greg Harrison, with Scotiabank. Your line is open.

Hi everyone.

Thank you for taking our questions.

This is Joe on for Greg.

Just a quick one on C3G and IC-MPGN. How are you seeing the competitive landscape evolving there considering the competitors working on studies to kind of expand their patient population going forward? Over the longer time.

Horizon, how do you think that can.

Play out with EMPAVELI?

Cedric Francois (Co-Founder and CEO)

Thank you. Thank you for that question. First of all, I want to highlight that what we did in the VALIANT study was go very broad. We studied C3G and IC-MPGN. IC-MPGN is a separate trial for our competitor.

Which will take a while to read out.

We also included the pediatric population. There is a separate trial for pediatrics by our competitor, which will take time to read out. We studied pre- and post-transplant as well. What is remarkable about VALIANT is not just the fact that we had the trifecta of efficacy with these profound beneficial effects that we saw across proteinuria, GFR, as well as the deposition of C3 in the kidney, but also how homogeneous that readout was across all populations. That is why we got the label that we did. I think moving forward, this is a product that can be life changing for patients, and we look forward to providing it as soon as possible to as many patients as possible.

Thank you.

Operator (participant)

One moment for our next question. That will come from the line of Graig Suvannavejh with Mizuho. Your line is open.

Graig Suvannavejh (Senior Biopharmaceuticals and Biotechnology Analyst)

Great.

Thanks so much for taking my question. I wanted to revisit a question that was asked earlier with respect to growth for the category.

This is SYFOVRE and GA.

Relative to your comments about seeing a.

Very stable business now where growth will be steady, and that's great to see.

I'm wondering if you can again just.

Revisit your thoughts around how your competitor.

Is seeing or has projected that their product can potentially grow in the upper 20s on a quarterly basis.

Do you have any insights as to whether that is a reflection of this?

Market growth and perhaps your view of.

Low to mid single digit growth is perhaps conservative.

Thanks.

Cedric Francois (Co-Founder and CEO)

Thank you so much. I want to point out first of all our clear leadership in this category across every metric: revenue, new patient share, overall market share, trials, injections, preferred payer coverage, and also the presence at academic conferences. We have these long-term data and we have a very thorough understanding of the market dynamics. We don't want to comment on what our competitor believes the market looks like. I think the key thing here is that with the right data set in our hands, which is a full four years of data in our hands consistently showing increasing benefits over time, the benefits of every other month dosing, where our competitor is still talking about the one-year data, which is many years old, I think we have the better grasp on what can happen within this space.

Operator (participant)

One moment for our next question. That will come from the line of Lisa Walter with RBC. Your line is open.

Lisa Walter with (VP Biotech Equity Research)

Oh, great. Thanks so much for taking our questions. Maybe just one.

On.

The call on Tuesday, you reiterated that EMPAVELI has potential for blockbuster status. I was just wondering, could you walk us through the path to get there? Does that also include further label expansion into other kidney indications? Even beyond that, any color here would be helpful. Thanks so much.

Cedric Francois (Co-Founder and CEO)

I think, look, I mean we shared with you the numbers on the demographics, right? We estimate conservatively that there are 5,000 patients between C3G and IC-MPGN, that approximately half of these patients have IC-MPGN, that approximately 20% of these patients are transplanted, that probably about 15%-20% of these patients fall in the pediatric category, which means that we would only be competing with the only other available products.

Where we are differentiated, again, as we've outlined many times now.

For 1,500 to maybe 2,000 out of those 5,000 patients in terms of revenue, you know, every 1,000 patients could represent approximately $500 million in revenue. That is what this particular approval means for us in terms of potential revenue moving forward. The additional potential approvals, in FSGS and GS, obviously will take some time to run the clinical trials and to find out if the drug works and how well it works in these indications, which would then be in addition to what we can do there. Of course, in the background there's always the PNH business, which continues as well.

Operator (participant)

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Cedric Francois for any closing remarks.

Cedric Francois (Co-Founder and CEO)

Thank you so much, and thank you everyone for your thoughtful questions. This concludes the Apellis second quarter earnings call, second one of the week. We hope you have a wonderful rest of the day. If you have questions, don't hesitate to reach out to our team, and we'd be happy to answer what we can. Thank you.

Operator (participant)

This concludes today's program. Thank you all for participating. You may now disconnect.