BeOne Medicines AG (ONC) Earnings Call Transcript & Summary

Good morning, everybody, again. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Very pleased to have BeiGene with me to start off this session. Briefly before we get started, I need to read a disclosure statement. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. With that, very pleased to have John Oyler, the CEO; and Howard Liang, who is the CFO at BeiGene. And John, I thought maybe to start us off over the course of the last, I guess, it's 12 months or so, you've had some pretty sizable partnerships, including the Amgen partnership. And I wonder if you could just start off talking about the outlook for the company as you see it here going forward.

Sure. Thanks so much, Matthew. It's delightful to be here, although remotely, I guess I'm not really here. But so BeiGene, I think as we've talked about over time, is a company that really has had a vision of how do we transform the industry to get innovative medicines more quickly to billions more people around the world. And that's something we're passionate about. I think we're a company that likes to think differently and try to do things differently and are hopeful that we can be a powerful force to improve the industry in general on part of that. I think from that perspective, we think that we're in a very unique time of opportunity, where changes happening from a regulatory perspective globally, changes happening from a reimbursement perspective in China are enabling really fundamental change across the industry and a reevaluation of what the business model is going to be in the future that works, and we think this is affordability. And a key to that is how we can reduce where 90% of the money and 90% of the time is spent, which is the clinical burden associated with bringing new medicines to the market. From that perspective, our belief has been, we're trying to build an organization that has very clear strategic, sustainable advantages. The first that we talk about repeatedly is a clinical organization that is able to enroll globally and more efficiently, specifically in China, but by doing things in-house, not working as much with CROs and trying to redesign the system to be more efficient, cost effective, better and faster. We think this is the single biggest issue in the industry. And I think it's something that we, as a company, say very clearly, one of our strategic imperatives is to be the best clinical company in the world and push the changes that are necessary to drive more affordable medicine. I think from the second perspective, we believe, which is very clear, this is the biotech industry, it's all about innovation. I think you have Wang Xiaodong, my Co-Founder and Partner, incredible, creative and successful scientist. And we've built our own research team in China, it will be 600 people by the end of the year. It's not working with CROs, it's largely in-house. And that team has a track record of successfully making 3 pharmaceutical like products that have either made it or have filed to make it as products. And from the other perspective, if we look at the early research and early development pipeline, which we have started to share information about, just a tremendous group. And I think that this is what really drives biotech and our team is functional at humming with a track record of success and at very large scale. Of course, with that team, we have cost advantages, and we're also leveraging those. I think the third point is the commercial team. We believe there's never been a science and medicine-based commercial team in China. The China market requires scale. We brought in Wu Xiaobin, who has 20-plus years leading Pfizer Wyeth, Bayer and is really the grandfather of the industry -- godfather of the industry, I'm supposed to say, not grandfather. But he's spectacular guy. And I think from that perspective, you've seen us build an oncology presence, so that's very important and we're starting to broaden that. And that's a key strategic advantage for success, and that requires a broad pipeline, an incredible team, incredible leadership, incredible systems for compliance. And I think that as we talk about other advantages that we're building biologics manufacturing and such, this just continues over time. And BeiGene is really thinking through how do you build the company in the future, and that's what we're trying to do, and I think we're well on our way to that.

Okay. Great. Thanks for that introduction, John. Maybe just to start off in terms of -- we could spend a moment or 2 on the base business. So a lot of stuff going on this year, COVID has impacted ability to sell products. You obviously launched your PD-1 and your BTK. And then you've had some manufacturing issues with your partner at Celgene. So maybe just wrap all that together and give us your outlook sort of what was happening in the first half and how you're thinking about the second half here?

Sure. Well, from a commercial perspective, I think that it's very important for us to be the true leader versus science and medicine-based commercial organization in China. I think at this point, we've been active since the Celgene transaction. And I think with the Celgene products, we've been able to have a very successful far-exceeding expectation in commercial life of those products until early this year when BMS encountered issues associated with ABRAXANE. And from that perspective, up to that time, it's a track record of success. We had a successful launch of VIDAZA, REVLIMID was put on national reimbursement, commercial numbers succeeded all expectations from anyone. So I think that's been great. In terms of internally, the internal team now has launched 4 products, VIDAZA from Celgene, our BTK, our PD-1, in addition to that, we've now launched XGEVA, which probably the timing around and execution on that, I think that's probably never been done before in the industry. So very successful track record from that perspective. And I think that we've been able to see our ability to help work with policy development around being able to have zanubrutinib as one of a few therapies that are going to qualify for national reimbursement and a policy change this year. That's something we were able to be involved in and helped the industry move in a positive direction. So I think that at a top level, the teams executed tremendously. As we've said, ABRAXANE is not in the market. That's unfortunate. CSPC's second quarter numbers are huge, the first quarter being in GPO, which we would have been, too. So we wish that was the case. It's not, but nonetheless, the performance is spectacular. I think there's 6 commercial products now. But -- I'm sorry, and we're moving to a situation where there should be 11 by the end of next year, if things go right, so potentially we'll be there. So it's a broad portfolio. The team is spectacular. On the U.S. side, I think that the team really only has a label for reimbursement in MCL. And for new patient adds in the area where we're approved, we've done exceptionally well. The challenge for that team is now how we work towards reimbursement, which comes 1 of 2 ways, either through approvals, and that we talk about, or through NCCN guidance. And I think as people may have seen AstraZeneca despite not having an approval has just been given reimbursement or given NCCN guidance, which will enable them reimbursement in Waldenstrom. And certainly, that's based on their clinical data. We have much more extensive clinical data and a head-to-head with ibrutinib. So we're hopeful in that area. And we have a broad data -- set of data in CLL. We're working towards that, too, hopeful with the agencies. But that's our 2 vehicles to getting towards reimbursement. In the areas where we are, I think it's really resonating with people, the safety profile that we've shown in the head-to-head against ibrutinib and I think it seems like that's carrying through, both for us and for AstraZeneca, in other therapeutic settings.

Maybe I can just add a little bit. But before I talk a little bit, expand a little bit, I just need to probably say that we'll be -- in this presentation, we'll be making forward-looking statements. We didn't get say that at the beginning. So obviously, it's -- biotech business carry certain risk those are disclosed in our -- some of these risks are disclosed in our SEC filings and filings with the Hong Kong and Stock Exchange. So I just want to expand on what John said about the clinical data that driving commercial progress. So the highlight the -- our ASPEN data presented at ASCO and EHA, which shows a strong favorable trend in VGPR, the primary endpoint in the study, but also notably better safety and tolerability. For example, the rate of atrial fibrillation, which is, as you know, the key concerning side effect of the class is 15% versus 2% for ibrutinib versus zanubrutinib. And this is -- we have also data presented also in our investor deck, you can see that the curves appear to continue to separate over time and it's also a similar trend for hypertension. So we believe that these data are resonating with physicians and patients since the presentation in June. I think on the China side, commercial side, I would also highlight the execution of the team that we -- for example, BRUKINSA was approved in June, the team was able to -- team collected the commercial manufacturing, supply chain, be able to launch the product within 12 days approval, that actually was a new record for China. So that I think shows the good execution of the team and all those products performing very well.

Okay. Great. Maybe just on XGEVA, probably a product people haven't focused on a lot. What's the opportunity for you with that product in China?

Howard, do you want to answer that?

Yes. So right now, we launched it for the first indication of giant cell tumor of the bone, which is relatively small indication. But it is -- has been filed for SRE, schedule [ related ] events, which is a bigger indication. So we think that's a significant opportunity. It is a new market or new -- sort of a new type of [indiscernible] new drug, new setting, new class for China. So we need to expand, drive the growth of class, but we think that's a large opportunity across multiple tumor types in solid tumors and also synergize -- synergistic with our existing business very well in -- for example, with other products, PD-1 and the hematology.

Okay. Helpful. Can we flip to PD-1 a little bit? Obviously, we all know that the market is highly competitive in China, and there's a lot of molecules coming to the market. How do you feel like you've done so far from that competitive standpoint, given the number of molecules there? And then maybe we can talk about some of the additional indications you've filed for as we think about the future?

John, I think you're on mute.

Apologies. It's very clear that the market's big. And this has been a debate for a long time that I've been on, it's bigger than people think. But I think as the numbers are coming in, it's a real market, and there's no meaningful reimbursement this year. We're still at a place that the only indication reimbursed is very, very small. So I think the market's big, and it's big from volume. And even though the price point is low, the revenue numbers are big. So I think that's clear. Secondly, it is competitive. I think that's also clear. And thirdly, I think that the local companies are doing quite well relative to multinationals, certainly at the moment. And from that perspective, that's something that probably is price and focus driven and understanding the local market. But as we go into this fall, there's another national reimbursement cycle. And I think that we are already at a price point that if you went back a couple of years ago and asked the reimbursement agency, what's your goal in the long run when this becomes a big therapy? I think we're already at that price point. The question, as we go through this reimbursement cycle, is how hard are regulators going to push? This is an innovative drug, an innovative medicine and how hard are they going to push? And there's different schools of thought on that, but we believe that we're in a system that is being built to create sustainable innovation, and there's an understanding of that. And that, that has limits on what's going to happen. But nobody knows the answer to that, and we'll see how it plays out in December. I think we have always believed it's a challenge for most multinational companies to price at a level for reimbursement in China because it jeopardizes their global franchise. And so we think that will probably continue to be true in this cycle, but we'll see. In terms of our performance, I think that it's been as good or better than we expected, but we had high expectations for ourselves. Remember, we've had an innovative commercial team in place for a while. We have the best commercial leader that's around. So I think as we've watched our launch and the quarters that we have and have reported, we're quite happy with our performance to date, and we look forward to next year. You mentioned label and labels tied to reimbursement. So it's a very, very important part of the equation. And I think as we move into next year, we would not have a reimbursement label only in CHL, but also in bladder. And so that would expand our opportunity versus some of the competitors. I think from the other perspective, there is a very broad program being run by BeiGene. I think it's the most comprehensive of any company. And as you look at that, our expectations have always been, over time, we're going to have advantages in broader label at some point in time. So we are not just focused on this year, next year, but I think as we get into years 3, 4 and 5, we think we'll have some advantages where we have broader reimbursement than other players. And that, that's the years with big volume where it really is going to matter.

John, do you think the pricing that we see this December through this cycle for the NRDL, does that reflect where people are going to have to head to as they get lung cancer on label probably in the following year? Or do you think there's a potential another step down as lung cancer may come on label?

Yes. I think it's hard to say. I think that there was a tremendous success that probably was lower than people expected last year. Probably didn't, in my opinion, need to go that low. But that's where it wound up and I think that it's already a success. So we'll see. And I think it's kind of like predicting the election at this point. But I do believe you have a system in China that is not trying to destroy innovative biotech and is wary of that and understands the tradeoffs associated with pushing too hard in any area. And if you look at the historic reimbursement prices for medicines that are innovative, this is already at the very bottom of that range. So how much more desire there is to push, albeit this will be by far the biggest medicine class, I think that remains to be seen.

Great. Helpful. And then outside of China, right, obviously, you guys still have full rights. How are you thinking about commercialization outside of China as you derisk the program with more studies? And is a partner something you look for there? Or are you thinking about doing this on your own?

Yes. No, it's a great question. I think that we built this very broad global clinical program when we first partnered with Celgene years ago. And so we've always been running a handful of global trials, fit for purpose for U.S. and EMEA registration. And so those are in play. They have read out and are starting to read out at this point in time. In combination with that, there's a lot of trials that are China-only trials, but that may have ability to register or to help from an NCCN guidance perspective and reimbursement perspective. So it's a very broad program. As we've said, the intention has always been global approval, global reimbursement and I think we're on that path. I do think that the possibilities around working with partners, we're in a different situation than I think other companies coming out of China. We have an exceptional commercial organization already in the U.S., albeit it's in the hematology space, albeit it's not scaled at the moment for solid tumors, but it's a great team, and it's something to build around. We also have a deep presence in the United States. We're approaching 800 people or around 800 people, maybe more, I don't know the numbers at this point exactly. And that's going to continue to grow dramatically. So we really are a company with a deep presence and set of intentions here. That said, when you get into solid tumors and breadth, whether it's in the United States and Europe and Japan, there may be advantages of working with regional partners in many ways, and we're open and actively discussing creative things we could do. I think we're probably partner in 2 of the most creative deals done in our space, and we're involved in lots of conversations about that. And I think whether it's the PD-1 or other things that are earlier in our pipeline will always be in conversations trying to find ways to create win-wins and synergies from that perspective. And there certainly are ways that organizations could be helpful to us in different places in the world. But I think we don't need to do that because we don't have another alternative. I think we're very clear with our capabilities and our abilities, and we're very clear with our intention in the long run to be a truly global company.