ISEE - Apellis Pharmaceuticals Is Poised For Dominance In Geographic Atrophy Market

2023-03-24 14:37:39 ET

Summary

• Apellis Pharmaceuticals received FDA approval for Syfovre (pegcetacoplan injection) for geographic atrophy (GA) secondary to age-related macular degeneration.
• Over 1 million people in the US and 5 million worldwide are affected by GA, providing a significant market opportunity for Apellis.
• Syfovre's approval is based on the results of two 24-month clinical trials (OAKS and DERBY), which showed a reduction in GA lesion growth.
• The company faces potential competition from Iveric's avacincaptad pegol, which is nearing market introduction.
• With the global ophthalmic drugs market projected to grow at a CAGR of 7.7% from 2022 to 2030, Apellis' prospects in tackling GA appear promising. Apellis is a "Buy".

Introduction

Apellis Pharmaceuticals (APLS), a commercial-stage biopharmaceutical company, focuses on discovering, developing, and commercializing innovative therapeutic compounds to address diseases with high unmet needs by targeting the complement system's C3 protein. In February 2023, the FDA approved Syfovre (pegcetacoplan injection), the first and only treatment for geographic atrophy [GA] secondary to age-related macular degeneration. With over one million affected individuals in the US and five million worldwide, GA represents a substantial market opportunity for Apellis. The company also received FDA approval for Empaveli (pegcetacoplan) in May 2021, a targeted C3 therapy for the treatment of paroxysmal nocturnal hemoglobinuria (PNH). With a potential to elevate the standard of care in PNH, Apellis aims to establish Empaveli as the preferred first-line treatment for patients. As Apellis prepares to launch Syfovre in the US and seeks marketing authorization in Europe, this investment article will explore the company's prospects in addressing GA and its potential impact on the market.

Financials

Let's first review Apellis' most recent financial report . Apellis had $551.8 million in cash and cash equivalents as of December 31, 2022, compared to $700.6 million the previous year. Total revenue was $22.7 million in the fourth quarter of 2022, primarily from U.S. net product revenue of Empaveli and licensing revenue. For the full year 2022, total revenue was $75.4 million, mostly from U.S. net product revenue of Empaveli and licensing revenue from the Sobi collaboration. Cost of sales in 2022 was $5.6 million, compared to $0.2 million in 2021, due to the expensing of manufacturing costs before FDA approval. R&D expenses were $99.4 million for Q4 2022 and $387.2 million for the full year, down from the previous year due to a decrease in expenses related to clinical trials and collaborations. G&A expenses were $84.4 million for Q4 2022 and $277.2 million for the full year, up from the previous year due to employee-related costs and commercial preparation activities. Apellis reported a net loss of $166.0 million and $652.2 million for the fourth quarter and full year 2022, respectively.

On February 27, Apellis completed a public offering of common stock and pre-funded warrants, raising approximately $402.5 million, with the underwriters exercising their option to purchase an additional 833,333 shares.

Geographic Atrophy and the Potential of Syfovre

Geographic atrophy [GA] is a condition related to age-related macular degeneration [AMD], which damages the central area of the retina responsible for clear, central vision. It is a major cause of blindness in individuals above 50 years old. GA lesions are regions of retinal degeneration that lead to the loss of retinal pigment epithelial [RPE] cells and photoreceptors. The progression of GA is irreversible, and no approved treatment exists to prevent or halt its advancement.

Reducing GA lesions is crucial for maintaining vision in GA patients. Syfovre is a medication created to inhibit C3, a protein in the complement system thought to be a critical factor in the development of GA. By suppressing C3, Syfovre reduces complement system activation, which can result in RPE cell death and lesion growth.

Syfovre Clinical Trials

The safety and efficacy of Syfovre were evaluated in two 24-month, multi-center, randomized, sham-controlled clinical trials, OAKS and DERBY, involving 1,258 patients with GA due to AMD. Participants, aged 60 to 100 with a mean age of 78.7, were randomly assigned to one of four dosing regimens, including two Syfovre groups and two sham groups.

In both studies, a reduction in the mean rate of GA lesion growth was observed. OAKS showed a 21.9% reduction in the monthly Syfovre group and an 18.1% reduction in the every-other-month group compared to the sham group. DERBY reported an 18.1% reduction in the monthly Syfovre group and a 17.4% reduction in the every-other-month group compared to the sham group. Treatment discontinuation rates varied between 21-31% in OAKS and 21-29% in DERBY.

Syfovre was linked to higher rates of neovascular AMD or choroidal neovascularization, or "CNV", (12% with monthly administration, 7% with every-other-month administration, and 3% in the control group) by the 24th month.

Peak Annual Sales Potential for Apellis' Syfovre in GA Treatment

Considering the prevalence of geographic atrophy [GA], the competitive landscape, pricing, and market trends, we can evaluate the peak annual sales potential for Syfovre, which has a price per vial of $2190 and dosing typically occurring every other month.

GA Prevalence: With over one million GA patients in the US and five million globally, the aging population is causing GA prevalence to grow. This expanding patient demographic presents a significant market opportunity for Syfovre.

Competitive Landscape: As the only approved first-in-class GA treatment, Syfovre offers Apellis a unique advantage. However, competition may increase with IVERIC's ( ISEE ) avacincaptad pegol nearing market introduction and other drugs in development. The market's adaptation to new drug availability and how their efficacy, safety profiles, and pricing compared to Syfovre remain uncertain.

Pricing: At $2190 per vial and dosing typically every other month , the annual cost for Syfovre would be around $13,140 per patient. Given existing treatments' high costs and the lack of effective GA therapies, this pricing could be justifiable, particularly if Syfovre demonstrates a favorable safety profile and significant clinical benefits.

Market Trends: The global ophthalmic drugs market, valued at $33.5 billion in 2021, is projected to grow at a compound annual growth rate [CAGR] of 7.7% from 2022 to 2030. This expanding market for eye medications and therapies may contribute to Syfovre's potential success.

In light of these factors, we can estimate Syfovre's peak annual sales potential by hypothesizing the drug reaching a portion of the US market, considering its price. If Syfovre captures, for example, 20% of the US GA patient population (approximately 200,000 patients), the annual sales potential would be approximately $2.63 billion (200,000 patients * $13,140 per patient).

This estimate is rough, and the actual peak annual sales potential for Syfovre could be higher or lower based on various factors like regulatory approval, market penetration, competition, and pricing strategy. Furthermore, peak sales potential may vary as new therapies enter the market or if the overall market size undergoes significant changes.

IVERIC's Avacincaptad Pegol Expected to Compete with Apellis in GA Market

Apellis Pharmaceuticals may soon face competition from IVERIC in the GA treatment market. IVERIC's avacincaptad pegol has demonstrated positive results in both the GATHER1 and GATHER2 studies, showing a reduction in the mean rate of growth in GA area. In both studies, there were no observed cases of endophthalmitis or ischemic optic neuropathy, and only one case of mild intraocular inflammation was reported.

IVERIC's PDUFA date is set in August.

Syfovre vs. avacincaptad pegol

It is important to exercise caution when comparing clinical trials, as there may be differences in patient populations, trial designs, and statistical analyses used. Furthermore, the primary and supportive analyses and measured endpoints in the respective studies may not be directly comparable. Therefore, any conclusions drawn from such comparisons should be taken with a grain of salt.

Efficacy

The following statements are solely my opinion based on the data. Both Syfovre and pegol have shown statistically significant reductions in GA growth rate when compared to sham control groups in their respective studies, as shown in the tables. However, there is a significant confounder to consider regarding the GATHER1 data. As explained by IVERIC:

As part of the modifications for Part 2 of the trial, we amended the clinical trial protocol to provide that patients in any arm of the trial who developed CNV in the study eye would be removed from the trial and any future study treatments and assessments, since we did not believe, at the time of the modifications, that GA lesions for patients with CNV in the study eye could be reliably measured with FAF images.

IVERIC

It is presumed that none of the patients who developed CNV during the trial were included in GATHER1's reported 27.7% reduction in GA lesion growth at 12 months. In my view, it is challenging to include this number in comparison since CNV development is believed to negatively impact vision and GA lesion growth.

It is worth noting that Syfovre's response appears to deepen over time (24 months) according to the label's data. It remains to be seen if avacincaptad pegol will have the same effect.

Safety

CNV is a term used to describe the growth of new blood vessels in the choroid layer of the eye, which can leak fluid and cause vision loss. New-onset exudations, which refer to instances of fluid leakage in the eye, are related to the development of CNV. These terms can be used interchangeably to describe the formation of new blood vessels and subsequent leakage of fluid.

When considering the data and taking into account that (1) most Syfovre patients will receive EOM dosing and (2) the 2 mg dose of avacincaptad pegol is likely to be standard, and (3) the risk of CNV development theoretically increases over time observed (e.g., 24 months versus 18 months), it appears that the rates of CNV are similar between the two drugs.

However, if avacincaptad pegol is associated with lower efficacy, especially as the data matures to 24 months, compared to Syfovre, it could negatively impact its market prospects. Ultimately, regulatory agencies will evaluate the safety and efficacy of the drugs, and the market will determine which drug is the best option for patients with GA secondary to AMD.

My Analysis & Recommendation

In conclusion, the FDA's approval of Apellis Pharmaceuticals' Syfovre (pegcetacoplan injection) represents a significant breakthrough as the first and only treatment for geographic atrophy [GA] secondary to age-related macular degeneration. GA affects over one million individuals in the US and five million worldwide, presenting a substantial market opportunity for Apellis. The company's financial position is bolstered by a public offering that raised approximately $402.5 million, combined with the growing global ophthalmic drugs market valued at $33.5 billion in 2021 and projected to grow at a CAGR of 7.7% from 2022 to 2030, indicating a promising future for the company.

Despite challenges from IVERIC's avacincaptad pegol and other drugs in development, Apellis has an advantage as the first company to receive FDA approval for a GA treatment. At this moment, it is reasonable to view Syfovre as the superior GA treatment as avacincaptad pegol data matures.

Based on my analysis, if Syfovre captures 20% of the US GA patient population, the annual sales potential would be approximately $2.63 billion. However, this is a rough estimate subject to various factors such as regulatory approval, market penetration, competition, and pricing strategy. The potential peak sales may vary as new therapies enter the market or if the overall market size undergoes significant changes.

Therefore, I recommend considering a "Buy" on Apellis, while remaining cautiously optimistic about its prospects in tackling GA. The recent approval of Syfovre and the company's strong financial position are solid indicators of potential growth. However, investors should remain vigilant about the competitive environment, regulatory changes, and evolving market trends. Apellis' long-term success will depend on its ability to maintain its leadership position in the GA treatment field, ensure the safety of its products, and effectively penetrate the market.

Risks to Thesis

While my bullish thesis on Apellis Pharmaceuticals presents a strong case for the company's potential in addressing GA, there are several risks and challenges that could impact its future success. Here are some potential risks to consider:

1. Regulatory hurdles: Although Syfovre has received FDA approval, there may be additional regulatory challenges as Apellis seeks marketing authorization in other regions. Unexpected regulatory issues or delays could impact the company's ability to effectively commercialize its product and expand its market reach.

2. Competition and market saturation: As mentioned, IVERIC's avacincaptad pegol and other drugs in development pose potential challenges to Apellis' market dominance. If competitors successfully introduce new treatments with better safety profiles, efficacy, or pricing, it could negatively impact Syfovre's market share and sales potential.

3. Manufacturing and supply chain issues: Apellis may face manufacturing or supply chain challenges, such as shortages of raw materials, disruptions due to global events, or difficulties scaling up production. These issues could impact the company's ability to meet demand, resulting in delayed or lost sales opportunities.

4. Reimbursement and pricing challenges: The high cost of Syfovre could make it difficult for some patients to access the treatment, particularly if insurance companies are unwilling to cover the expense. Additionally, price pressures and negotiations with payers could lead to lower-than-expected revenue.

5. Post-marketing safety concerns: While Syfovre has demonstrated a favorable safety profile in clinical trials, unforeseen safety issues or adverse events could emerge once the drug is widely used in the general population. Such concerns could lead to restrictions on the drug's use, negative publicity, or even potential withdrawal from the market.

6. Intellectual property disputes: Apellis may face legal challenges related to patent infringement or other intellectual property disputes. Such issues could result in costly litigation, delayed product launches, or limitations on the company's ability to commercialize its products.

7. Execution risk: As a commercial-stage biopharmaceutical company, Apellis will need to successfully navigate the complexities of launching and marketing its products, managing its supply chain, and navigating regulatory and payer landscapes. Failure to effectively execute on these fronts could impede the company's growth prospects.

Overall, while Apellis Pharmaceuticals presents a promising investment opportunity with the approval of Syfovre and its potential impact on the GA market, investors should carefully consider the aforementioned risks and challenges that could impact the company's future success. It is essential to continually monitor these risks and adjust your investment thesis accordingly as new information becomes available.

Appendix

Data aggregation & comparison disclaimer

I did my best to aggregate data from both Syfovre and avacincaptad pegol to allow for comparison. However, it's important to note that there are many factors that could complicate both the aggregation and comparison processes due to the nature of the data.

Firstly, multiple sources were used to collect data, including FDA labels and company annual reports. Additionally, IVERIC presented both "primary" and "supportive" analyses when describing changes in GA lesions. I chose to use the primary analysis, as I believe it's the most relevant measure.

Moreover, both IVERIC and Apellis may have used different methods to measure GA lesions or define CNV in their respective clinical trials. Finally, the data varies across different time periods, such as 6 months, 12 months, 18 months, and 24 months.

These few examples demonstrate how data aggregation and comparison can be confounding.

For further details see: