ALPMF - Apellis Pharmaceuticals: Focus Shifts Toward Market Share After Apparent Safety Resolution

2023-12-06 11:19:36 ET

Summary

• Apellis addressed Syfovre's safety issues, improving its situation; still, initial concerns about severe side effects remain relevant.
• Syfovre's market potential is significant as the first GA treatment, but rare vasculitis cases and competition pose challenges.
• Apellis reported strong revenue growth in Q3 2023, yet faces high operational losses and a reduced cash runway.
• Investment recommendation: 'Hold' due to Apellis' potential tempered by financial and clinical uncertainties and emerging competition.

At a Glance

In my earlier assessment of Apellis Pharmaceuticals (APLS), I took a conservative view due to the emerging safety issues with Syfovre. Since then, Apellis has impressively addressed these issues, working closely with regulatory authorities and tweaking how Syfovre is administered. This has somewhat improved the situation, but the initial concerns I raised are still relevant. Syfovre , being the first approved treatment for geographic atrophy [GA] related to age-related macular degeneration ((AMD)), holds great market promise. Yet, the rare but severe safety issues, like retinal vasculitis, still dampen its appeal, though Apellis' actions have mitigated this to some degree. On the financial side, Apellis shows strong revenue growth, but this is tempered by substantial operational losses and shrinking cash reserves. Given this intricate mix of clinical and financial factors, a careful yet attentive approach to Apellis' trajectory in the biotech arena is advisable.

Syfovre's Market Journey: Promise, Problems, and Prudence

In February 2023, the FDA greenlit Syfovre as the first-ever treatment for GA caused by AMD. This decision rested on its proven ability to slow GA lesion growth and its strong safety record shown in the DERBY and OAKS phase 3 trials. Yet, real-world usage unearthed some rare but concerning cases of retinal vasculitis, happening in about 0.01% of injections. These ranged from minor eye bleeds to more severe vision blockages, typically emerging around 11 days after treatment. While most patients did regain some or all of their vision, a few suffered significant vision loss.

Apellis has been proactive, working with the FDA to update Syfovre's labeling .

This move, reflecting their commitment to safety, includes adding these new findings to the drug's warning and post-marketing sections. Apellis also regularly reviews all reported post-market incidents, showing their dedication to thorough drug monitoring. They've even reached out to the ASRS to discuss these vasculitis cases.

A noteworthy point is the suspected link between the 19-gauge needle used for Syfovre and these vasculitis cases, a connection not seen in clinical trials that used a different setup. A statistical analysis pointed to a higher risk with the 19-gauge needle. In response, Apellis pulled these needles from the market, although the exact cause-and-effect relationship remains unclear. This step, however, highlights their quick reaction to safety concerns.

Going forward, keeping an eye on Syfovre, especially the vasculitis issue, is key. Such problems can arise with any eye injection, making ongoing surveillance vital.

For those investing in biotech, especially in eye treatments, this case underscores the unpredictable nature of real-world drug use. It stresses the need for ongoing vigilance even after a drug is approved. Apellis' shares did take a hit post-announcement, but their transparent approach and efforts to widen Syfovre's reach, like seeking approval in Europe, could provide some stability.

In the GA treatment arena, Apellis confronts formidable rivalry from Izervay, developed by Iveric Bio, which is now a company of Astellas (ALPMF). This competition is critical for investors and healthcare professionals to monitor, given its impact on market dynamics and Apellis' growth trajectory. Apellis, although pioneering the market with Syfovre, is under pressure due to emerging safety concerns. The occurrence of rare vasculitis cases, despite Apellis' prompt response, may cause physicians to consider alternative treatments, particularly for new patients. Consequently, Syfovre might secure a lesser market share than initially anticipated.

Apellis' Financials: Revenue Surge with Persistent Net Losses

In Q3 2023 , Apellis' revenues reached $110.4 million, a substantial leap from $22.1 million in the same quarter of 2022. Product sales primarily fueled this surge, climbing to $99.2 million from the previous year's $17.7 million. Additionally, licensing and other revenue streams contributed, increasing to $11.2 million from $4.4 million in Q3 2022. Despite this, operating expenses rose to $247.5 million from $175.0 million in Q3 2022, leading to a net operating loss of $137.1 million, a slight improvement over last year's $152.9 million loss. The pre-tax net loss was $140.0 million, better than the $190.8 million in Q3 2022. The quarter ended with a net loss of $140.2 million, showing progress from the previous year's $191.3 million.

As of September 30, 2023 , the company's assets totaled $818.2 million, up from $760.2 million at the end of 2022. This includes a decrease in cash and equivalents to $452.4 million from $551.8 million. Liabilities marginally decreased to $585.9 million from $590.3 million. Over the nine months ending September 30, 2023, the company experienced a net cash outflow of $496.9M in operating activities, averaging about $55.2M monthly. The current cash reserves suggest an 8.2-month operational runway, based on past spending. However, projecting ahead, the company anticipates its cash runway extending into Q2 2025.

My Analysis & Recommendation

Concluding my analysis of Apellis, it's clear that the company's situation presents a mix of promise and caution. Apellis has commendably addressed the safety issues with Syfovre, particularly the retinal vasculitis concern. However, these efforts, while significant, don't entirely erase the risks associated with the drug. The potential market impact of Syfovre, as a pioneering treatment for geographic atrophy, remains substantial, but we can't ignore the shadow cast by its safety profile.

On the financial front, Apellis' strong revenue surge is a positive sign, but it's weighed down by considerable operational losses and dwindling cash reserves. The financial health of the company, marked by a high cash burn rate and limited cash runway, is a bit of a tightrope walk, although their projections suggest some breathing room until Q2 2025.

The competitive landscape is another critical factor. The entry of Izervay into the GA treatment market adds pressure on Apellis. The competition could sway the market share and growth prospects for Syfovre, especially as doctors might lean towards alternatives due to safety concerns.

For investors looking to navigate these waters, a balanced approach is key. Diversifying your investment portfolio within the biotech sector can cushion against volatility in Apellis' stock. Keeping a close tab on regulatory news, competitor activities, and Apellis' financial health will be crucial in staying ahead of the curve. Also, staying updated on clinical developments can provide insights into how the market might shift, affecting Apellis' position.

With these factors in play, a 'Hold' recommendation for Apellis seems most fitting. The company shows potential, but the landscape is dotted with enough uncertainties that justify a watchful, measured approach for investors.

For further details see: