BeOne Medicines AG (ONC) Earnings Call Transcript & Summary

So perfect. Good morning, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Really pleased to have you here, the team from BeiGene with me just quickly before we get going, I need to read a short disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So pleased to have Angus Grant, who runs Business Development, Ed BeiGene; and Mark Lanasa, who is the CMO. And so I thought a nice place to just start would be I think everybody is familiar with BeiGene from your focus in China, but also now much more familiar with the fact that you're launching products globally and making real inroads here in the U.S. as well but I think there are a couple of sort of strategic pillars that you have as a company that gives you some advantages, especially around the network that you've developed in China clinically as well as the breadth of the selling organization in China.

So I thought maybe, Angus, you could just start out and talk to everybody a little bit about how you see those strategic pillars help the company.

So thank you. I think BeiGene been saying it Celgene for many years I still do that . BeiGene is built in some ways, more like a lot of the U.S. biotechs have been built, starting with the labs and that was really the foundational element of BeiGene and now the labs are up to 800 people and the proof of the value of those labs is in the molecules that are now not just in the clinic, but in the marketplace and I've been in this business for a long time, and you don't often find companies that are 11.5 years old that have bought a small molecule in the market an antibody in the market to have those dual capabilities. So we're sort of modality agnostic in the way we look to discover and develop drugs. The other piece that is sort of a value add of BeiGene is the way John based on his experience, decided that we were going to build internal clinical capabilities and not be dependent on CROs. We still use CROs from time to time but the idea was that we could manage our clinical development with 1 less synapse. If you've been involved in running large multinational trials, when you work with the CRO, there's sort of an extra decision-making point and communication that we felt we can be more efficient and more cost-effective by building internal clinical capabilities. FinexBeest was to build the commercialization capabilities, and BeiGene has built a really competitive sales capability in China and also now in the U.S. and building out Europe for Brukinsa and a lot of companies, multinationals don't go to all of China. They just go to the core markets or the big cities. BeiGene has built a sales force, which goes to the entire country and that actually really paid dividends for us during the lockdowns in certain cities, we had capabilities to keep patients on trials, keep patients on drug in the marketplace because we had full coverage of the whole country and sort of another pillar of sort of BeiGene's capabilities was to build internal manufacturing capabilities. So it started off with the Suzhou site for Brukinsa which is a small molecule site and then built we first partnered with Boehringer Ingelheim in Shanghai for Tisle and now have built our own facility down in Guangzhou that is a very large and very capable facility to make multiple antibodies for us down in Guangzhou and then sort of the final piece of BeiGene's capability is that it's got the depth of financial resources and beginning of this year, we saw sort of a pullback in certain markets and the cost of capital has gone up. So BeiGene is in a fairly privileged position to have a very strong balance sheet the $5.7 billion at the end of June, which will help us continue to do the work we're doing and then put us in a position to either do BD transactions but also to finance and invest in continuing that manufacturing capability. We're now building a facility down in Hopewell, New Jersey found an amazing piece of property, preauthorized for biologics manufacturing and now building our own U.S.-based antibody manufacturing site. So like a lot of companies that grow up, you want to have sort of some backup, some redundancy in your manufacturing chain so that you can handle global supply and you can handle any sort of disruptions that may happen, both quakes or 280 or something like that. So...

Good. Perfect. So I think that's a nice place to start Angus. So maybe a couple of things. Why don't we just talk about what's happening in China? And then obviously, we can turn to some of the recent data and things like that. So maybe just talk about what the sales momentum looks like in China. If you think you're at an inflection point in terms of sales momentum in China and then in particular, how you've navigated the lockdowns in China.

I mentioned that a minute ago, we started in the seventh place with the PD-1 with Tisle and now we're about to become the leader, I think, in China for PD-1s. The lockdown was obviously an incredibly difficult time for people in Shanghai and other cities. We had a lot of employees who slept in factories, slept in labs and people working from their apartments without much access to the outside. So it was really an incredible time but our team reacted very quickly to make sure that all the patients on clinical trials could try to stay on trials and all the patients are receiving drug could continue to receive drug and so we actually fared much better during the lockdown phase than most of the other companies and they actually accelerated our leadership position with Tisle in China. So the investment we had made in having a very broad and capable sales team that hit the entire country paid off. In fact, from a BD perspective, in our collaboration with Novartis, we reached agreement that we would help them promote some of their products where they don't go to those broad markets and so we have 5 Novartis assets that we're helping sell in those broad markets where they weren't they didn't have a sales force big enough to detail those areas. So we think we can do that for other companies.

And then, I guess, second, since you obviously run BD, maybe a good thing to talk about is just like in the U.S., there's been there was a wave of new companies in the China market and availability of capital is now much more constrained than it was. Do you see a lot of opportunity, whether it's to consolidate products or interesting pipeline programs? How are you thinking about the BD opportunity in China?

We do. We look very closely at the 2 environments, the ecosystems in the U.S. and China are a little bit different. They both had a rather frothy time in '20 and '21. It's a joke that you just have to have Phase II data through an IPO, then it was Phase I data and it seemed like in '20 and '21, you needed a hypothesis. So we see companies that might have gone out, both in U.S. and China a little bit early and now they have a challenge raising more capital and so we have capital and so we're looking at assets or companies in China, and we're looking at assets and our companies in the U.S., but the metrics are a little bit different. My experience tells me that the companies in the U.S. have a bit more access to capital, either venture capital or access to the multinationals, whereas in China is a little bit more difficult. Some companies, multinationals are less familiar with how to be successful in China. So we can partner with them as we have with the Celgene deal, the Amgen deal, the Novartis deal and so we're out there meeting with companies that may need help either they need to be bought outright or that they need help with an asset, they don't have the depth of capital to build a sales force. We have a sales force of 3,000 people in China. You're not going to be able to build that if you're a small biotech with limited capital. So they may have a product getting ready to go through Phase III trials and go to market, but not have the ability to build the commercialization team so we can help them and so we're looking at a lot of different opportunities. There are some dynamics in China, the way companies have partnered with U.S. companies that is different than, say, companies in the U.S. because companies in the U.S. tend not to partner the U.S. rights, they tend to partner China rights and so the dynamics are a little bit different.

Okay. Great. Good. I think there's a lot of stuff we can come back to, but I want to make sure we get Mark involved. So Mark, I think you just came back from ESMO. So maybe just as I look across BeiGene, I think a lot of investors are familiar with PD-1 and what's going on with PD-1 in China. I still think the story about BRUKINSA and BTK is somewhat underappreciated. So maybe just talk to us about where you are with strength of data on BRUKINSA and what you see as the biggest opportunities there?

So thank you, Matthew. We're very excited about our BTK program with BRUKINSA. We believe that we're developing a data set to support that this is a best-in-class asset. We have filed for CLL. We already have approvals in other indications with the SEQUOIA and frontline and ALPINE study in second line, we have recently shown that we have statistically superior overall response rate over ibrutinib in the second-line setting, and this has been submitted to FDA for review. So we think that it's a really important molecule because it provides both safety and efficacy differentiation and that those will ultimately bring a substantial benefit to patients.

And as you think about feedback, where does this molecule fit? And are people thinking about direct switching? Is this just about taking new patient share? How should investors be thinking about where this molecule is going to be used first?

So I can share my personal view on that. I think that the efficacy data and the strength of differentiation that we have in efficacy is certainly going to support new starts, new prescriptions. If you have data to when you're having a patient interaction to say, we believe that this will provide you the greatest clinical benefit. That's a very compelling story for patients who are stably maintained on an alternate agent, then I think the question becomes more around one of safety and we believe we also have an important story in terms of safety differentiation and for patients who have an incomplete response or maybe have been intolerant of one of the other BTK inhibitors, we think that we could potentially provide an important option.

And can you remind people so obviously, characteristic AEs involve some of the atrial fibrillation and flutter and some of the bleeding events. What are the rates out there? What are the rates that we're seeing really in the real world and what leads to actual discontinuation?

Yes and so far as the rates, so the most important events are the cardiac toxicities, and that's reflected in the labeling. I think the rates of what we've seen are in the range to 5% to 6% and guess please correct or build and what we would like to see is that we can bring that down to a population rate, CLL is a disease that predominantly affects older individuals. There's a certain baseline rate of atrial fibrillation in that population. Atrial fibrillation is a major risk factor for stroke, another cardiovascular event so whatever we can do to derisk the potential for catastrophic adverse event, we think is important.

And I guess I was asking in the context of how should people think about what proportion of the existing population probably has an unacceptable level of risk that might be thought of as appropriate for switching. Just if you want to think about dimensionalizing that opportunity.

Yes. Honestly, it's hard for me to quantify that. Certainly, it is a relatively small fraction of patients who have atrial fibrillation, atrial flutter. It becomes a question of cumulative risk over time, whether that can be reduced? And then as a prescriber, how you think about that across the total population of your patients?

Okay. Great. Good. So maybe then just for both of you, remind us about the trajectory of BTK where you're taking most share right now because I think we've seen a real acceleration in that product as well and how investors should be thinking about the launch once you hopefully get the label early next year?

Well, I think you look at the success that the team has had in granted in smaller indications and so they're optimistic they can have similar success and I'm not a physician, and I'm responsible for the commercial team or for the medical team, but just the experience of being in the space in Celgene is when you have drugs that have a superior safety and tolerability, along with the efficacy for patients who may have a longer life expectancy to be able to have a drug that allows them to stay on drug and have duration of treatment and then a survival outcome because of that duration of treatment is quite favorable. And I think what we were optimistic about is that as physicians and patients get more experience with Brukinsa that it's going to be favorably received and that's up to our team to develop the data, work with the regulators, get the approvals and then get the product out there in physicians' hands and hopefully, that will build momentum. It's always difficult when you're a third to market in any situation but so far, the team has done quite well with Brukinsa in mantle cell and Waldenstrom. So they've made some great progress. So we're optimistic that they will do very well with CLL.

I think when we look at new-to-brand share, right, I mean you've taken a pretty substantial new-to-brand share in Waldenstrom's and mantle cell. Do you think that's the right proxy for people to think about in CLL? Is the CLL market different for certain reasons? What would (indiscernible) say?

So I was we just had a Board meeting, and that was the Board's question to the commercial team, and that was basically their challenge and to the commercial team, the expectation that they do the same.

Okay. Okay. Good. Good I guess beyond that, I mean so you obviously have a pipeline for PD-1, I think pipe would be the labels are pretty expensive inside of China. What's the outlook for PD-1 outside of China, especially given some of the recent regulatory feedback...

So there are a couple of pieces to that question. One of the reasons candidly, Celgene for us licensed Tisle now Novartis licensed Tisle is the combinatorial strategies we'll look at immuno-oncology, and we see it as a combination paradigm and so one of the exciting things is the number of additional combos we're doing internally with the Tisle and the combos they're doing with Tisle as well. So we see that being a way to accelerate Tisle's success. Right now in the U.S., we're hung up with an inspection issue, that Tisle the manufacturing and the product that was filed to the FDA was manufactured by Boehringer Ingelheim, a world-class manufacturer with a facility in Shanghai and the quarantines have been a bit of a setback to get the FDA regulators over there but we believe based on the feedback we've received from the FDA that this is just sort of the final step now to get some regulators over there, we'd love to see that happen. The quarantine has been changed from 2 weeks plus 1 week to 7 days plus 3 days. It's 1 week in a controlled hotel and then 3 days in another one and so that's lowering the bar and so we're in constant dialogue with the FDA and with our colleagues in China to talk to the CDE to try to facilitate the inspection and then we think that's going to unlock then Tisle's first approval in the U.S. and then other indications to be filed on the heels of that and Mark can talk about those. Yes. So in EMA , we've also filed a second in frontline lung, but for squamous and non-squamous, we've had additional positive readouts in PD-L1 positive frontline HER2-negative gastric cancer as well as in front-line chemotherapy combinations, squamous cell carcinoma, the esophagus. If I could make a step back comment. I think as it relates to PD-1 and across all of our pipeline, it's important scientifically that we have a differentiation story. So we believe that Tisle is a really strong PD-1 inhibitor, looking at the data that we presented at GI-ESMO for front line esophageal cancer, it provided the greatest absolute improvement in overall survival and longest overall survival of any PD-1. So we think that it was designed to be a very strong PD-1 inhibitor and again, that, as Angus said, provides a platform for combination development, which is really the next wave in immuno-oncology.

So maybe that's a good say into combos. Why don't we start with TIGIT, but we can obviously work through. There's a lot of other combos you're working on. Obviously, I think there's a big debate on TIGIT and level of activity and what's going on. So what's your perspective? And why are you still pursuing a TIGIT combo?

Well, we have a number of studies ongoing where we're getting to see the data in Phase I trials, Phase II trials. As that data sort of comes off in the case of the Phase II, it's an open-label study, so we can see the data real time and we're also looking at the competitive landscape and watching everybody else continue to work on it. So the data has to speak for itself ultimately in the randomized Phase III trials but we continue to be optimistic about that combination and then other ones that we have that you mentioned, we've got an OX40 program. We signed in a LAG-3. We look at a number of other I/O combos. So that's just one of them.

No, no so maybe you could talk more broadly about the combo strategy and how you see that playing out?

So we from a business development perspective, we look at certain disease areas where we want to place a focus. Some are more prevalent or more applicable to the Asian marketplace, some are more applicable to the Western market. marketplaces. So we look at both and so we look at drug development and try to build franchises like many companies have done. We're still a very young company but I used to work at Novartis and sort of what CML was kind of a cornerstone and then Celgene, it was multiple myeloma. So you see companies sort of try to get into an area and say we're going to continue to develop drugs to satisfy patient needs year-over-year, not just one drug and move on, but to build franchises. So from a portfolio perspective, we're building out our hematology franchise with a BCL2 adding on to Brukinsa and with Tisle looking to add on to the solid tumor franchises and then look at diseases, we think that there are more unmet medical need opportunities as well as other times when we have to look at diseases and say, it's a big marketplace, we need to be there. So we're taking really a multipronged approach. We're also, as I mentioned earlier, modality agnostic, whether it be a small molecule, a targeted protein degrader, by functional and ADC cellular therapy. We're looking at pretty much anything to build this portfolio of oncology assets and then beginning to look outside of oncology. We've got a tick to that we've put into the clinic. About 20% of our research efforts in the labs are focused outside of oncology. It's not uncommon for oncology companies to move into I&I indications, and we may be following suit. As we think about accommodation strategy, there's so much that's already understood about immuno-oncology, but there's so much that's not yet understood the biology across different tumor types is quite different, and then there's further segmentation within tumor types. So we believe that it's important to have multiple different mechanisms that can be deployed across different tumor types that test different hypotheses. So we have agents that can have dual checkpoint inhibition LAG-3/TIM-3, T-cell agonist, OX40, immune microenvironment modulators such as sitravatinib and others. So through having multiple different mechanistic approaches in different tumor types, we think that, that's going to help us to really lead in this next wave of innovation in immuno-oncology.

Maybe if you could just take a moment and highlight what are you most excited about in terms of IO combinations? Or where would you suggest to investors they should take a look in your portfolio where you think you could be most differentiated from some of the competitive products?

So we have a number of new mechanisms that are coming forward. So this would include we have initiated a study of HPK1, which we call an intracellular checkpoint inhibitor. It's a protein that's downstream of the T cell receptor. This is a first-in-class molecule that has high selectivity for HPK1 that is in dose escalation, both as monotherapy and in combination. So we're very excited about the data that's emerging there. We are about to do our first patient with what we call a tumor-associated immune engager. So this is a bispecific antibody targeting CEA and 4-1BB. So again, we're thinking about novel ways to bring the benefit of immuno-oncology to a larger number of patients.

Can we talk about BCL2 as well, right? Obviously, I see that as a potentially important program, just given the fact that you're taking and starting to gain significant market share with BTK and obviously, we've seen ibrutinib plus venetoclax as having pretty strong data but having a BCL2 inhibitor is not something that's easy to make and one that's tolerable is not easy to make. So talk about some of the characteristics of your BCL-2 and where that might allow you in terms of combinations in hem/onc.

So we're very excited about our BCL-2 inhibitor. The pharmacokinetic properties are somewhat different than with venetoclax, and it is greater selectivity and greater potency. So the early phase studies and multiple tumor types are ongoing, and we intend to share data by the end of the year in AML, CLL, non-Hodgkin's lymphoma, multiple myeloma and as you alluded to, there are clear synergies within the portfolio of having a BCL2 inhibitor as well as a BTK inhibitor. So we do think that this molecule has important differentiation that may be clinically relevant, we'll share those data, and we're planning to move forward with pivotal study investments.

Okay. Great. Maybe in the last couple of minutes, we didn't touch on we obviously touched on BTK. We touched on PD-1. We didn't touch on sort of the rest of the commercial portfolio. So maybe just take a moment and remind people about what the rest of that commercial portfolio looks like and what the outlook really is for those products, either in aggregate or separately.

Yes. So we have a large number of commercial assets that we are marketing for with Celgene from the original Celgene deal, then the Novartis deal with XGEVA BLINCYTO and KYPROLIS and then I mentioned the broad markets deal with Novartis. So we continue to look to be a commercialization partner for companies that need help in China that don't want to build or can't build a very large sales force. So we continue to look at that and part of the my team in business development is looking to bring other commercialized assets into the portfolio to help companies or things that are coming through the pipe in Phase II or Phase III to then become their commercialization partner in China, but also with the success of Brukinsa in the sales force and with BCL-2 on the way and the collaboration with Novartis to look for other opportunities in U.S., Europe and rest of world and one of the things that BeiGene does, which is, I think, differentiated is we're going to more countries around the world than young companies normally do. We're going into a lot of the newer markets, some people call them emerging markets but we believe once we've got the efficiency in the infrastructure in manufacturing, clinical and regulatory that we can also efficiently distribute our products to other countries and bring the drugs to more patients worldwide and one of the things we look at from sort of a building a portfolio perspective at BeiGene, which is, I think, different than a number, we really look at the cost of goods manufactured and how we can make sure that we are bringing affordable drugs into. the clinic and then ideally development for less leveraging the efficiencies we can with our team in China to get things to market as quickly as possible, as efficiently as possible so we can manage costs on the back end.

Okay. Great. Good. Maybe just last question. You obviously mentioned the amount of cash you have. Like I think one of the things, especially for a company of your size, your I guess the real question is, how should people think about profitability at this company? How should people think about leverage over the last, let's say, a year or so, we've really started to see an inflection in sales and for the past couple of years, you've had pretty large increases in cost, but they have started to flatten out a little bit. So are we starting to see that leverage is profitability at line of sight for BeiGene? How should investors be thinking about that?

Absolutely and you look at the spend over the previous years, a lot of it was to build these capabilities. We've built out the sales force in China in the U.S. and now finishing up in Europe. We've built out manufacturing capabilities. We have more underway, but we've got a lot of that behind us now with small molecules and biologics in Guangzhou and Suzhou. We've built out a very large research team and so I think what you're going to see is sort of a flattening of the spend, which is great because you're seeing a really rapid incline in the revenues and so we track it very closely. We're not quite ready to give guidance to when that date may be but it is something we spend a lot of time on this year, we've been doing a lot of effort going through the company in each area of the business and making sure that we are allocating our investable dollars in the right places where do we need to create the most amount of value to drive to that success level.

Great. Well, thank you, Mark. Thanks for being here. Appreciate it. Nice to see both of you.

Thank you.

Thank you.