BeOne Medicines AG (ONC) Earnings Call Transcript & Summary

Welcome. My name is Michael Schmidt. I'm one of the biotech analysts at Guggenheim and it is my great pleasure to welcome the next company, BeiGene. With us today, we have John Oyler, Co-Founder and CEO. John, thanks so much for joining us and welcome.

Thanks, happy to be here.

So I think I'll just start with a big picture question. BeiGene is obviously now one of the largest global biotech companies. Perhaps, John, if you -- could you briefly just highlight how the strategy of the company has been in recent years?

Sure. Happy to do that. I think BeiGene started about 12 years ago. And from the beginning, we believe that the industry was entering a time of fundamental change. This was regulatory policies, scientific progress, and globalization. And I think that we, from the beginning, decided, similar to other companies, we'd focus on world-class science, try to translate that to patients. But very differently, I think we set out to do what we believed was a very different vision. We had a hypothesis about the industry that innovative oncology medicines could reach far past the traditional markets in U.S., Europe, and Japan, and that they could be brought affordably and profitably to other regions of the world; and that if this happened, the market would be far larger than people expected. And it could create a very different and very favorable model for innovation and for medicine in the industry. And in doing this, it really required us to rethink every step of the process. How do you do things better, more efficiently and more affordably? And probably the biggest example of this is our very unique approach to clinical trials, where we have brought all this in-house, where most companies are outsourcing. We built a development team that's over 2,400 people. And we've really worked to go to the next set of sites that CROs haven't been working in. And we've done that in China, Australia, Eastern Europe, Europe, and the U.S. And basically, by working in those areas and working directly, we're able to help enroll patients, and run trials more quickly and much less expensively. And this is fundamentally really critical because when you bring a medicine to a patient at the end of the day, over 75% of the cost is the clinical trial costs that was upfront being amortized towards that patient. So when you really understand that the vast majority of costs is around upfront onetime clinical trial cost, once you get a medicine approved, and you run the right trial to prove it safe and efficacious, you really want to get it to as many people as you can. And if you do that, the incremental cost of getting to the next patients, in the next markets is incredibly low. And as long as they're providing a contribution margin back to pay for that upfront cost, we believe strongly there's an economic model where the cost per patient can be dramatically lower in the industry. So do things better, faster, have a lower cost base, and then bring medicine to more patients. And essentially, it's a kind of virtuous cycle, where you get those benefits everywhere, including in the U.S. from a cost perspective. So that was our approach. Today, we've pushed that forward. We've shown we have a strong research team. It's one of the biggest in the world in oncology with over 700 people. It's very productive. It's 3 approved molecules so far and many more coming. The team is about 8,000 people across 5 continents, 30 offices. And again, that's a really global company versus most of the biotech companies that you see. And the portfolio of products is big. Today, we're commercializing 15 products globally. There's new approvals with BRUKINSA, and 43 markets across the globe for BRUKINSA, which is our widest and many more coming. And I think from that perspective, really, you have this incredibly productive research team with a favorable cost structure, a clinical development team that's very unique in its approach and internal. And then we also have manufacturing in kind of this exceptional mighty global commercial team, very strong in China, strong in the U.S. in heme, and now expanding now to Europe, Australia, Canada and many of the other markets across the world.

Great. Well, thanks for that overview. And I did have a few questions touching perhaps first, new commercial products and then on your pipeline strategy. So perhaps starting with BRUKINSA, which is now approved globally, as you mentioned, in 43 countries. At the moment, revenue is still primarily generated in the U.S., and with China as well. Just maybe help us understand a bit better where you are in your global footprint expansion, specifically around BRUKINSA, and then how you allocate resources in different markets around the globe?

Sure. Well, yes, BRUKINSA is in the BTK market, which is projected to reach a market size of $15 billion in 2026. And it's the center and the foundation of our hematology franchise. Just again, in the BTK space, ibrutinib was the first medicine in this space, and it's a great medicine. It's been very impactful for patients. But at the time we started the program, we had a unique biologic hypothesis, which was ibrutinib struggles to get the inhibition in the blood that you'd hope of the BTK inhibitor on a sustainable basis during the course of the day. And we all know that when you have a small molecule and you're trying to fight cancer, it's much easier to get the small molecule under the blood. It's very difficult to get it into the disease compartments, the spleen, the bone marrow, for example, the lymph nodes where the disease is originating. So from that perspective, the hypothesis was if you made a molecule that was more selective so you didn't have the tox issues and you made PK properties where you can dose it at a much greater level with a more potent and safer molecule, and put it in the body at a level that not only could it sustainably inhibit BTK in the blood but also in the disease compartments, that could be a more efficacious medicine. And that was the hypothesis when we started the program. We actually ran animal models as you do to show that, that was a valid hypothesis. And actually, even when you inhibit it in the blood sustainably, you don't in the disease compartments. And then we entered the clinic, and ran this through the clinic. So that was the mechanism. That was the hypothesis. It was around the hypothesis and better efficacy. So today, you fast forward, and we've run through head-to-head studies. And in those head-to-head studies, as you know, we've seen things that suggest that hypothesis is correct. And actually, in addition to that, we've shown a safety profile, which particularly in cardiovascular tox, which is probably one of the most important, there's a much more favorable profile head-to-head that's statistically significant. So from that perspective, this is a big space. That hypothesis as played out in the clinic and continues to play out in the clinic. And I think from our point of view, we have a medicine that has an incredible value proposition here. So the label, we're approved in mantle cell, Waldenstrom's, and marginal zone, outside of China. In China, we're also already approved in CLL and those indications. And from the other perspective, we're on a path for CLL in the rest of the world. We're just working that through from the approval perspective. So based on the results of these studies, the 2 head-to-head studies with ibrutinib, we feel very, very strong that this is an incredible option for patients. And we believe that it's just at the tip of the iceberg as it's launching. It's about in the process of getting the CLL label as that happens. It will help it a lot. We just were put on NCCN guidance for CLL, and the status there is quite favorable from that perspective. And so it's a program that's really compelling in 43 countries but many more to come and a bunch of indications but more label to come. And it's the tip of the iceberg. And this is a great medicine that we believe that the more people get experience with it and exposure to it, the bigger they're going to understand how compelling this is. And we've always believed in this best-in-class hypothesis. And we hope to continue following it through the clinic and let people put it in their hands. And we think the molecule will speak for itself. I think -- and similar to that, PD-1 similar, it's a huge market, same as the BTK class. And from that perspective, we're only approved at the moment in China. But with Novartis, we're filing across the world in other territories over time. And this, of course, is the biggest oncology class with revenue over $50 billion by 2025. And in that area, we've run 9,000-plus-subject program. So it's, I think, by far, one of the biggest PD-1 programs run. And it has roughly 3,000 patients outside of China, so very robustly characterized in all ethnicities. And the program includes 11 multiregional global Phase III trials that had both FDA and EMA regulatory guidance before we start into Phase III. So from that perspective, these are kind of the two workhorses for us that are pushing the company forward and building the base revenue, along with, of course, the other products I mentioned, the portfolio of up to 15 that we're commercializing in China.

Yes. Thanks for that. Couple of questions -- one on BRUKINSA, and a couple on the PD-1 market side. So on BRUKINSA, you did have very strong growth really here in the third quarter 2021. Just help us understand the market dynamics perhaps in the U.S., in particular, within the BTK inhibitors, and how the drug has been incorporated into treatment -- in the treatment landscape. Perhaps also relative to Calquence, which is another second-generation BTK inhibitor.

Sure. Well, first of all, we've run these head-to-head studies with ibrutinib. And I think that whether it's our head-to-head or it's Calquence's head-to-head, I think it's very clear that there are advantages in cardiotox for both of those versus ibrutinib. So that's a challenge. And this is a good thing. It's why we approved the second and the third medicine to see if there are advantages and different characteristics. I think that from that perspective, last June, we readout our ALPINE study and then that head-to-head trial against ibrutinib in relapsed refractory CLL. We showed the potential for improved efficacy as well. The study met the primary endpoint of superiority and overall response rate to ibrutinib. And this isn't the final PFS analysis but a 12-month landmark PFS. You can see a strong trend in the right direction for BRUKINSA. So that's a great scenario to be in. And I think the ALPINE results are particularly noteworthy because BRUKINSA is the only BTK that's shown an efficacy improvement over ibrutinib in any setting. I think these results, combined with SEQUOIA study at December ASH, BRUKINSA was compared to chemoimmunotherapy in frontline CLL. They're a very strong foundation, underscoring BRUKINSA's potential in CLL. And we're just happy to have the NCCN guidance now just starting in January and look forward to the U.S. approval, CLL's major portion of the BTK U.S. market opportunity. And so we're excited to get that. But we, to date, have been very focused on driving uptake in the approved indications, which are MCL, Waldenstrom, and marginal zone. And we've had really good success there. And mantle cell with our first approval, this is one in which ibrutinib, [ Calquence ] we have labels. I think in Q3, our new patient share was about 1/3, and we're the late entrant. And hopefully, that will continue to increase over time. And we certainly aspire to be the market-leading BTK in CLL. And we think MCL bodes well for that. In terms of relative to Calquence, just stepping back, when you think of the 3 BTK inhibitors, they're all similar in that they inhibit BTK. But they're very, very different in terms of how they function. As I said, we try to improve over ibrutinib by being more potent and having much better PK so we could be available and get to the these disease-originating tissues, in addition to the blood and be all over in all tissues all the time. The design for Calquence was the opposite. It was a very short half-life molecule that went in and came out super quickly. And the whole part is that it would be favorable from a tox perspective, and it certainly was more selective. So you have 2 very selective molecules which is similar or different than ibrutinib. But in terms of ours, it's there in the body and all the tissues sustainably 24/7. And if any new BTK is generated anywhere in the body, the hypothesis has been it will be there and it will work to inhibit it. And yes, I think we've shown data to that extent in lymph node, the successful inhibition. I think with Calquence, it's a difference story because from that perspective, it's just designed and it's quickly in the body and quickly out of the body. So it has shown the safety profile that it hoped to, but it wasn't designed the same way we were for this sustainable inhibition. So that's always been a goal and belief. And when you look at the PK profiles, they're very, very different. And if you believe that in fighting the disease, you always want some BTK inhibitor around so that if in any tissue, there's new BTK generated, you should immediately shut it down. Certainly, that's the approach we took, and this is the molecule. And I think the clinical data seems to be showing that was probably a pretty good hypothesis from that perspective, and we look forward to maturing. The other point with Calquence is it doesn't have two of the indication approvals that we do in Waldenstrom and in marginal zone. And in both of these, we have that approved and saw a quick adoption in those settings. And we think that's important. And so we've run a broad program there, and we'll continue to do that. And I think that also provides additional advantages over time, and that's how we answers.

Super. Thanks, John. And so I just want to switch again to answer a bigger picture question on pricing strategy. You mentioned earlier about the advantages that you have around cost structure and being able to more efficiently develop drugs. That said, BRUKINSA pricing at the moment is still very similar to other branded U.S. drugs. Just curious how you think about pricing strategy longer term? Some of your competitors in China have partnered with U.S. companies. For example, Lilly that -- have made statements to be more aggressive in discounting to U.S. branded pricing. Just curious how you think about that longer term, perhaps around tislelizumab or other products that you bring forward?

Sure. Well, maybe I can start with BRUKINSA. As I mentioned, we've always believe that BRUKINSA is designed different and to be best-in-class. We think at this point, we've shown advantages on safety statistically. And we've shown efficacy from a response rate perspective statistically. And we look forward to the maturation of that data, but we really believe this is a spectacular molecule. And unlike many situations when that's what you're bringing to market, you would actually price at a premium. BeiGene never did that. And we didn't do that because it's not the company we want to be. And I think when you look at companies taking price increases, there certainly are companies taken at the top end of the range. That's not something that BeiGene has done either. All that said, you have a system in the U.S. where lower prices don't fairly broaden your access as a medicine. And actually, in fact, there's many different incentives in the system, and intermediaries, and other folks, and mechanisms, where if you have a significantly lower price, it can actually lead to many networks or clinicians not using your product, even if it's the best. And it's hard to acknowledge that, but it's an unfortunate reality of the system. So we're dealing with that as we can. And we're trying to live true to our mission to be as affordable as we can. But we have to work within the system for sure if we want to get the medicine to patients. In terms of the comments with PD-1, PD-1 is a little more -- a different situation. We're partnered with Novartis. So clearly, that's not something that is in our hands entirely or to a great degree. But in general, when you talk about our future strategy, I think philosophically, we believe that if we all, as an industry, strive to figure out how to work together to make -- and when I say we, I mean companies, I mean regulators, clinicians, everybody. I think there is real ways to reduce these very high upfront costs. And if we can do that, we can bring medicine more quickly and more affordably from an upfront cost to patients. But also when you start to get 24% of cancer patients in China reimbursed, even when it's at a lower price, driving in $10 billion, $20 billion, $30 billion, $40 billion a year or whatever it may be in revenue to the industry, as long as we've aligned in the same global clinical trial is able to show that the medicine is safe and efficacious. If you bring in that extra tens of billions of dollars, it's really helpful to lowering the cost everywhere because you have just some more patients on the medicine. And again, it's 75% of the cost plus for small molecules and antibodies is in the clinic. So when you think about that, the incremental cost to getting to your next patient is incredibly low. So if we can be more affordable to -- whether it's China or Southeast Asia or Latin America or the Middle East or Africa, wherever we might go, as long as there's a contribution margin that's coming back to help cover part of that upfront cost, you can have lower prices in the U.S. And you can also have an industry that's just as profitable and more profitable to make sure that everyone continues to invest in innovation forever on an ongoing basis.

Yes. Okay. That makes sense. And then the FDA interestingly -- obviously, the FDA urged Chinese manufacturers to bring their PD-1 inhibitors to the U.S. a few years ago. And it seems like there's a 180-degree turn back to being more critical of some of those that have been filed. There's a panel today, for example, discussing the Innovent product. Are we entering a period of more stringent regulation with respect to the clinical development of IO drugs such as checkpoint inhibitors in the U.S.? Or do you think that's a unique phenomenon?

Sure. Well, maybe I can start with our PD-1, and then I can jump to your issue. I think as I said, we have 9,000 patients on Tisle trials, close to 3,000 outside of China; 11 global pivotal studies in large indications, lung, esophageal, gastric, and liver. Those were run as multiregional global trials with FDA and EMEA input. And we have Novartis' support from that perspective. We are doing the same type of programs you'd see from any company anywhere in the world. We think we should from that perspective. Our first filing is esophageal. It's a second-line file. It has a PDUFA date, I think, in July. And from that perspective, if you look at it, it's in line and it was set up with regulatory guidance. When people talk about changing views from the FDA -- I think [ Eric ] was at a meeting and talked about frustration of prices not being decreased by the many PD-1s and PD-L1s that are approved. He also talked about why don't companies run collaborative trials because that's something that he's been supportive of as an initiative. And I think at the end of all that, he said maybe all the China companies should come and file here. I don't know that he really meant that at the time he said it. But I think people like that quote, and it got a lot of headway from that perspective. I think always the questions that are being raised right now by [ Eric ] and the FDA, they're science-based questions. The question is the population you ran your study in, does it represent the ethnicity of the United States? The other question is the study that you've run, is it in the right line? The other questions are, did you come and talk to the regulators beforehand and get guidance on your protocol? These are all things that have always been issues for the FDA. And I think that part of the response that you're hearing now is a lot of the companies that are taking trials at the moment, there are trials that were never intended for U.S. approval but maybe heard that offhand comment, repeated through media and such and said, "Hey, this may be worth a shot." But they didn't do the regulatory guidance meeting. They have very little, if any, global data from that perspective. So when you come in and say, "Hey, how does this fit with meeting those criteria?" there's a lot of issues and they're real science issues. I don't think we feel we have those for the PD-1 trials that we've talked about. And if we look at our BTK inhibitor, from that perspective, people say that we were approved on the Chinese data set. We were approved in MCL on 80 patients of China data. And I think this number may not be exactly right, but I think there were roughly 50 patients from Australia. So it wasn't only on that data set, there were 2. And in addition, at that time, there were 550 patients on studies in a global safety data set, anyhow for BTK inhibitors, like 80%, 90% of the patients respond. And we had those patient safety and response that could also be submitted. And I think except the -- I think over 80% of that data set was ex China. So there was a ton of global data from that perspective. So that's pitched sometimes as it was primarily a China data set. But like, in fact, and able to answer the scientific question, is this the same disease? It's straightforward for MCL. Was it the same line? It was straightforward. And did you have data that showed that you could work in this setting in a population that's represented the U.S. population? It's clear. But those questions were asked. And we had to have that whole data package to be able to answer those questions. So I understand there's a lot of media around it. But I really don't think that it's a dramatic shift from the FDA in any way, shape or form. I do think that there's pressure, which has been mentioned around trying to include more diverse data sets. And speaking about that, I don't think that issue is so much about how many Chinese or how many Caucasians are in your data set. I think it's really from the COVID experience, it's really important that clinical trials are enrolling more Hispanics and Black people in trials because those patients are traditionally very under-representative in clinical data sets, and we need to have more data from that perspective. And I think the whole industry, in general, needs to do that and clinical science needs to do that. And I think there's a lot of stuff being taken to do that probably primarily starting out as post-approval commitments. So I think there'll be an increasing move to be sure that we're more inclusive in the way we run clinical trials than we should be.

Okay. Well, with that, unfortunately, we need to wrap up. Lots of more discussion topics that we will presumably have to address next time. So John, really appreciate your time. Thanks for joining us this year.

It's a real pleasure. Thank you.