It is easy to be solemn, it is so hard to be frivolous.”― G K Chesterton
Today, we put the spotlight on Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) for the first time. The company launched its flagship product Empaveli in 2021 and is currently pursuing other indications. The drug has the potential to be a blockbuster, but Apellis currently is bleeding cash while developing its pipeline. The stock has stood up well during the market turmoil over the past six weeks. Further gains ahead? An analysis follows below.
Apellis Pharmaceuticals, Inc. is based just outside of Boston. The company is focused on the discovery and commercialization of therapeutic compounds through the inhibition of the complement system for autoimmune and inflammatory diseases. The stock currently trades just north of sixty bucks a share and sports an approximate market capitalization of $6.5 billion.
The company has one product on the market. That is Empaveli (pegcetacoplan) which was approved for the treatment of adults with paroxysmal nocturnal hemoglobinuria (‘PNH’) in spring of last year. PNH is a rare and acquired disorder that leads to the premature death and impaired production of blood cells. PNH affects red blood cells, which carry oxygen; white blood cells, which protect the body from infection; and platelets, which are involved in blood clotting. Empaveli is complement inhibitor. Empaveli targets an immune system protein called complement protein C3. Empaveli works by stopping the immune system from destroying red blood cells and is usually administered via IV twice a week.
Empaveli was approved with a broad label and priced at over $450,000 per patient per year. This is actually a decent discount to Soliris which is approved for the same indication as well as recently approved Ultomiris, both from Alexion Pharmaceuticals (ALXN) which was purchased by AstraZeneca (AZN) late in 2020. The company’s partner Sobi launched Empaveli in Europe earlier this year where it known under the brand name Aspaveli.
Second Quarter Results:
On August 8th, the company posted second quarter numbers. Apellis lost $1.46 a share on a GAAP basis as revenues came in around $16.5 million for the quarter versus next to nothing in the same period year ago before the full launch of Empaveli. Product sales from Empaveli accounted for $15.7 million of overall revenue in the quarter. Both top and bottom line results were slightly below expectations.
During the quarter, approximately 30 start forms for Empaveli were generated, bringing the total number of start forms since launch to approximately 190. Most of these C5 inhibitor patient switches continue to come from Ultomiris. Management plans on further positioning Empaveli as first line treatment for all patients with PNH. Based on Phase 3 Pegasus data, the company should get additional FDA approval to strengthen the promotion of Empaveli, for treatment naive patients in late February of next year.
The company is at the start of its buildout of its franchise drug. The company filed an NDA for intravitreal pegcetacoplan to treat geographic atrophy or GA secondary to age-related macular degeneration earlier this year. On September 7th, the FDA stated this marketing application did not need to go through an Adcomm Panel and its priority review should be finished near the end of November. Data from Phase 3 studies DERBY and OAKS will support this application, the latest results from these trials were posted late in August. The company plans to file a marketing application for this indication in Europe by the end of 2022.
GA causes impaired visual function and affects more than 5 million people worldwide, including 22% of people over 90 years old. There are no currently approved treatments for GA. However, IVERIC bio (ISEE) is likely to file a new drug application for Zimura in the first quarter of next year based on recent trial results. NGM Biopharmaceuticals (NGM) is also a potential competitor in this space.
Approval for PNH was the first step in developing Empaveli into a potential blockbuster franchise. Pegcetacoplan has Orphan Drug Status in immune complex membranoproliferative glomera nephritis or IC-MPGN. A phase 3 study for this indication kicked off this spring.
A Phase 2 study evaluating pegcetacoplan to treat hematopoietic stem cell transplant-associated thrombotic microangiopathy or HSCT-TMA hemato stem cell transplant associated thrombotic micro angiopathy or HS CT TMA is currently enrolling patients. Finally, the company remains on track to report the top line results from their potential registrational Phase 2 study for pegcetacoplan to treat ALS in mid 2023.
The company has some other much earlier stage compounds in development, but they are not germane to this analysis.
Analyst Commentary & Balance Sheet:
The analyst firm community is generally positive around the company’s prospects. Since second quarter earnings were posted, 11 analyst firms including JPMorgan and Citigroup have reiterated Buy or Outperform ratings on the stock. A couple of these had slight upward price target revisions. Price targets proffered range from $70 to $112 a share. Both Credit Suisse ($52) and Wedbush ($67 price target) have maintained Hold ratings while Roth Capital ($40 price target) has reissued a Sell rating on the stock.
Various insiders have been frequent and consistent sellers of the stock in 2022. They have disposed of nearly $10 million worth of shares in aggregate so far in the third quarter of this year. Just over 10% of the outstanding float is currently short. The company ended the second quarter of this year with just over $850 million of cash and marketable securities on its balance sheet against approximately $190 million worth of long term debt. This is after posting a net loss of $156 million in the second quarter. Management has stated funding in place gives it cash runway until the first quarter of 2024.
The current analyst consensus has the company losing nearly six bucks a share as revenues rise 19% to $80 million in FY2022. They project revenues will soar to nearly $270 million in FY2023 and losses will be cut to roughly $4.70 a share. It should be noted there is a wide range of estimates for both losses and sales right now in the analyst community, especially around next year’s projections.
The company continues its journey to a more commercialized entity and has some key milestones on the horizon. Good execution could make Empaveli a blockbuster compound over time.
The challenge is that Apellis is a long way from profitability and probably at least one significant capital raise to getting to break even status. The company could make a logical buyout target as well if M&A activity wasn’t so dismal across the sector. In addition, with rising interest rates, growth stocks haven’t been in favor throughout 2022. Add in a good dollop of insider selling this quarter, APLS seems to merit only a small ‘watch item‘ position at best at the moment pending further developments.
Frivolity is destructive, and complacency is corrosive”― Allison Pataki