Apellis Pharmaceuticals: Approval Is Baked Into Valuation (NASDAQ:APLS)

The Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) story is that in an indication with a decent market and an unmet need, the company ran two trials. One succeeded marginally, and the other failed at 12-month data, but did better at 18-month. This was supposed to be the basis of an NDA, and then did a little better at 24-month data, which led to an NDA amendment. Meanwhile, it is facing competition in its approved indication.

APLS is a $5.9bn company which I covered in June, discussing the mixed data for their pegcetacoplan in Geographic Atrophy or GA secondary to age-related macular degeneration (“AMD”). I said then that while the data was mixed, pegcetacoplan seems approvable in this indication. Now, after a lot of delays and confusions, the company finally got a second PDUFA date for pegcetacoplan, and it is February 26, 2023.

Pegcetacoplan, branded as EMPAVELI, is already approved for Paroxysmal nocturnal hemoglobinuria (PNH) in the U.S. The drug was found to be superior to blockbuster soliris in terms of change from baseline in hemoglobin level at Week 16. In the PEGASUS trial, there was a huge difference between the two in the metric of patients staying transfusion-free, where 85% versus 15% patients stayed transfusion free at week 16. The drug was approved in May 2021.

One difficulty quickly facing Apellis is its PNH franchise, in the form of Novartis AG’s (NVS) iptacopan. This is an oral drug that is supposed to be non-inferior to EMPAVELI on a cross-trial basis. Being a twice-daily oral pill, is more convenient than EMPAVELI’s twice-weekly, 30-minute subcutaneous infusion, according to Evaluate.

Coming to GA, this is a leading cause of blindness for over five million people globally, and one million Americans. The company ran three studies totaling over 1500 patients for the GA indication. Results showed:

…treatment with both monthly and every-other-month pegcetacoplan resulted in a clinically meaningful reduction of GA lesion growth across a broad, heterogenous population of more than 1,500 patients. Pegcetacoplan demonstrated a favorable safety profile in all three studies.

Companies sometimes use the phrase “clinically meaningful” when a trial does not attain statistical significance, which was the case here in the monthly dosage in the DERBY trial, and for DERBY and FILLY trials in the every-other-monthly dosage, where the molecule basically failed to meet the trial’s goal. I also noted that none of the trials were able to achieve 20% reduction in lesion growth rate at 12 months, which was considered the benchmark for significance. The best Pegcetacoplan could attain at that time was 18%.

In my previous coverage, I also noted some difficult safety issues; where at 18 months, 9% and 6% of patients on the monthly and every-other-month dose, respectively, saw instances of choroidal neovascularisations. This is a potent cause of vision loss, although, unlike GA, it can be treated with anti-VEGF therapy.

I must note that 18-month data for the once-monthly therapy finally produced a lesion growth rate reduction of 21%. Thus, the molecule did attain statistical significance, although by a small margin; the company planned to produce 24-month data in September.

Here’s some of the data in a table:

Click to enlarge

Source – Company material via Evaluate.

So we can see that the data was not exactly straightforward. Other players have had poor data in the GA indication; Roche (OTCQX:RHHBY) and Gemini Therapeutics (GMTX) come to mind. We can also guess that the FDA may have difficulties with the data.

The FDA initially gave them priority review status, which means a 6-month review period instead of 10. That implied a PDUFA date of Nov 26, initially. The FDA also did not plan to hold an advisory committee meeting.

2-year data that the company released in late August added to the confusion. The positive part was:

The company said in an Aug. 24 press release that over two years of treatment, both monthly and EOM pegcetacoplan showed a clinically meaningful reduction in GA lesion growth from baseline compared to sham. In DERBY: 19% monthly, 16% EOM; while in OAKS: 22% monthly, 18% EOM.

While the negative, confusing aspect was:

The company, however, noted that no clinically meaningful difference was seen between pegcetacoplan and sham in the key secondary goals measuring visual function after two years of therapy.

Note, though, that clinically meaningful is not the same as statistically significant, which is what concerns the FDA more. This data, however, was originally not part of the U.S. NDA; the company had planned to show this data only to the Europeans. However, in early November, the company decided to include this data to the NDA, which constituted a major amendment and pushed back their PDUFA to February 26.

What is interesting is that the company was initially quite confident that 12 and 18-month data would suffice for the NDA. However, it later changed its mind and decided to include the 24-month data, effectively losing its priority review benefit. I believe this was because the earlier data did not come to the 20% threshold it had set for itself for reduction of lesion growth rate. The 18-month data did, but the 24-month data improved that figure by a percentage point at the higher end, and was generally better than the prior data. I think this led to the change of mind; although, to be frank, the data still remains “mixed,” proving once again that GA is a tough indication to crack.

Apellis is the first company to approach the regulatory process for approval in GA. Immediately following – about one year behind – is IVERIC bio, Inc. (ISEE), whose Zimura just toplined a phase 3 trial. Some analysts consider this data at par with Apellis in efficacy and better in safety. NGM Biopharmaceuticals, Inc. (NGM) also has a molecule targeting GA running a phase 2 registration-enabling trial, which has produced poor data. There’s also ALK-001 from privately held Alkeus Pharma. Some analysts see peak sales of $2bn for Pegcetacoplan in GA.

Financials

APLS has a market cap of $5.9bn and a cash balance of $708mn. They made only $22mn in revenue last quarter, of which $17.7mn was from Empaveli, which is something of an anti-climax. R&D expenses were $95.2 million for the third quarter of 2022, while G&A expenses were $78.4 million. At that rate, the company seems well-funded and has a cash runway of 4-5 quarters. However, I think too much cash is leading to too high expenses, which may become unsustainable if there’s a hiccup somewhere in the regulatory process.

Bottomline

As others have stated, and I agree, Apellis Pharmaceuticals, Inc. is currently being valued with the hope that it will get approval for GA. I don’t doubt, given the unmet need, that there’s a high chance of approval. However, approval is one thing, commercialization is another. The company’s valuation is also taking into account strong commercialization, and here I have more doubts. Their expenses also tell me that the company itself is taking its approval and future blockbuster potential too seriously.

Granted, Apellis Pharmaceuticals has a lot of cash, but it also has a too-high expense, and revenue from empaveli is nothing compared to that. As such, Apellis Pharmaceuticals, Inc. makes me worry it is overextended and overvalued right now. I will stick to the sidelines.