BeOne Medicines AG (ONC) Earnings Call Transcript & Summary

Thank you for joining this session, this session with BeiGene. And this is Ziyi Chen, China healthcare analyst at Goldman Sachs. So here today we have Mark and Julia, Chief Medical Officer, Solid Tumors and also CFO of the company, join us to discuss the recent updates at BeiGene. I think you guys just come back from ASCO. Tell us a bit more about what has been the reception of the data at ASCO and any key takeaways from the ASCO.

Great. Thank you all for joining today. Very glad to be here again. My name is Mark Lanasa. So we had a very busy and exciting ASCO annual meeting, I guess. I would touch on 3 different components. So first, there was a lot of data related to TIGIT. We shared data from a Phase I study, an expansion in gastroesophageal cancer where we showed incremental improvement in response rate. And, of course, there was a lot of interest both in the Roche data in HCC as well as in the Arcus data in non-small cell lung cancer and how that all, in aggregate, is potentially directional for TIGIT as a mechanism. We're very excited about the data that we shared for zanidatamab, a collaboration program with Zymeworks and now Jazz, that showed a very high response rates in patients with HER2 amplified and overexpressed biliary tract cancers. And we believe that zanidatamab can be a best-in-class HER2-targeting biologic. Realize there's a lot of different ways of targeting HER2 these days, but zanidatamab is a biologic, has a very potent mechanism. And then also very interested in the emerging data for the different PD-1s. So there was data for pembrolizumab in early-stage, neoadjuvant/adjuvant non-small cell lung cancer. We have a similar study, the RATIONALE 315 study, where we recently announced those positive for primary endpoint of major pathologic response and pathologic complete response.

Great. Well, I think, Mark, you joined the company a bit more than 1 year. So let's talk a little bit about the solid tumor overall R&D strategy, how you kind of see the future 3 to 5 years from now, and in the past 5 years, following 5 years, how can you see the solid tumor R&D strategy going to be changing at BeiGene?

Yes. So I'm extremely excited about the next 3 to 5 years for solid tumors. We are actively building upon tislelizumab, which we believe is a really excellent PD-1 inhibitor. Sorry for the feedback. And what you can see in our emerging pipeline of things that are already in the clinic, LAG-3, OX40, HPK1 and others as we're looking for IO combinations to build upon the success of PD-1 because we think PD-1 is just the beginning of the story. Now we have a very broad and diverse number of platform technologies and targets that are moving forward. We've disclosed 10 NMEs per year, beginning next year. And I think what you will see is a continued commitment to building upon tislelizumab. But the number of assets we have coming forward are also going to allow us to diversify into new tumor types with new mechanisms.

For sure. Well, let's talk a little bit about BRUKINSA which happened to do pretty well in first launch in smaller indications, but now we're getting into larger indications CLL. Julia, talk us a little bit more about the commercial setup now in the U.S., particularly in the first quarter results when it came out. Some of the investors might question, the quarter-over-quarter growth is 11% compared to the prescription we saw in the channel is much stronger, right, but 11% looks a bit weak. So how should we think about the potential for BRUKINSA market share gain and uptake?

Yes, definitely. Ziyi, good to see you again. Very happy to be here. In terms of BRUKINSA, I would say that we are very pleased with our initial launch success. And to just give some context around how we got here. As you might recall, we actually received the approval for the largest indication, CLL, for BRUKINSA in the U.S. at the tail-end of January. So since then, in the first quarter, obviously, you tend to see the quarter with many moving parts in general, whether it's the consideration that going into the first quarter, you might be seeing some patient insurance resetting or the donut hole impact for certain patients as well. So sometimes you are seeing a bit more gross to net pressure in the first quarter. That is expected to be normalized as you go into the second quarter and beyond. With that being said, despite the fact that the approval came in at the tail end of January and back in February and March, we are seeing quite a bit of uptake in the new patient starting the therapy on BRUKINSA for the treatment of CLL. Now based on what we are seeing from a volume standpoint as well as the uptake gains subscriber base, both in the existing prescribers and new prescribers, we are fairly pleased with our progress. As a matter of fact, our results in the first quarter were in line with our internal expectations, and I would also share that our internal expectation was relatively high given a few considerations. #1, as you know, our product BRUKINSA truly is the only BTK inhibitor that has demonstrated a superiority in head-to-head trial with market leader Imbruvica. In addition to that, we also offer better safety profile. Equally importantly, you might also have followed from a breadth of indication perspective in the United States, right now BRUKINSA offers the broadest label choices, which has 4, that includes CLL, MCL, MZL, and Waldenstrom. Last but not least, of course, our product is very competitively priced, being the lowest choice among the 3 options in the marketplace. Coupled with our very strong commercial execution, once again, we are meeting our expectation, and we are very much looking forward to closing out the second quarter, which obviously will be the first full quarter of CLL launch for BRUKINSA in the U.S. And that certainly can form as a basis in terms of what you can expect from a quarterly revenue perspective. And we are working very hard in truly turning BTK inhibitor BRUKINSA to be the choice in the marketplace.

For sure. Then 2 months to go before we see the second quarter. We're looking forward to that. And there has been 1 of the ASCO abstracts put out this time, we found a very interesting half of this has been BRUKINSA users in MCL setting actually being converted from other BTKs, and also 32% that's a switch within just 6 days of the start of the treatment. So have you seen the [ active trend ], what's happening in the CLL setting, particularly we have a better, compared to peers, data in the CLL setting.

Yes, I'm happy to start and please chime in. Yes. So I think a couple of observations. #1, as you pointed out, actually, we did observe very meaningful switch for patients that are being treated for indications such as MCL and MZL. As you might have followed, actually in the first quarter, Imbruvica has withdrawn their accelerated approval for those 2 indications. So when you have a dynamic like that that took place, it clearly created even more incentive for the doctors and the patients to make the choice of BRUKINSA. Now as it relates to the switch for CLL, clearly, we are at the very beginning of that launch, and the overall education of the doctors as well as the patients. But I would share that we also have started seeing the switch for CLL as well. Of course, if you think about the motivations behind the switch, part of that could be driven by intolerance due to just the safety issue inherent in Imbruvica, which as you know, actually the FDA has put a warning in their label making it clear that there is a 1% cardiac sudden death risk associated [indiscernible] is also just the fact that the availability of BRUKINSA, particularly when you think about the profile of this asset, inclusive of the efficacy advantage as well as the safety advantage. So all those factors that may have contributed to this phenomenon that we are seeing. But with that being said, once again, we are at the very beginning of the launch of this biggest indication in the biggest market in the world, and for a disease whereby you have a very big prevalent pool, particularly in CLL in the BTK inhibitor space. The expectation is that it's going to take time for us to truly get to the market share that we believe we deserve. And it's also going to take quite some time before your new patient share are fully translated into your value share. But with that being said, we are working towards our goal and things are absolutely on track in that regard. I'll Mark to chime in...

Just to echo and build on that a little bit. I think given our belief and aspiration that BRUKINSA is best-in-class BTK, will be the treatment of choice that physicians tend to see all of these disorders and the breadth of our label is really important. So by having indications not only on CLL, but also in Waldenstrom's, marginal zone, and mantle cell, even though those are smaller, if prescribers are having a positive experience treating patients with mantle cell lymphoma, we think that might have crossover effect and the willingness to prescribe in these other indications.

Then what's going to be the next step for BRUKINSA? Now we've got the CLL largest indication secured, and next step is going to be the LCL. We see some of the data at ASCO. It's also pretty interesting preliminary data. So any strategy for that?

So that question would be better answered by my colleague, the CMO for Hematology, Mehrdad Mobasher, who is attending EHA and then also the ICML. So DLBCL is a very interesting opportunity. Another interesting place where we have data is in follicular lymphoma. There's no currently approved BTK inhibitors in follicular lymphoma. our rosewood data in combination with obinutuzumab showing high response rates and advantage over current standard-of-care in follicular lymphoma. We think it is interesting in that space as well. So we do think that there are other avenues for BRUKINSA. And then, of course, we're very interested in portfolio combinations, so BRUKINSA including with both our BCL-2 inhibitor and maybe in the future with our BTK [ integrator ].

Well, then switching back to another key drug for the company, PD-1, in China. I think there has been a lot of investor concerns about are those innovative companies in China commercial? They're going to make money from selling drugs, right? Because you're facing a lot of pricing pressure in market, like PD-1, and you're going to see a lot of competitions. So what's going to be your view here? Are you going to be making money in the way you're going to make money here?

So we are very excited about China. We are pleased with the infrastructure and the capabilities we're building in China, and we are actually confident of our ability to generate very compelling profit in China over time. And this is why. So we've long believed that the innovative oncology market in China is big and growing. For perspective, last year, the market was over $16 billion, and it grew over 11% versus the year ago. Now if you look at what it takes to be successful in China, we believe they are a few [ months ] ahead. Of course, you needed to have very strong commercial leaders, you got to have an extremely scaled and productive commercial team. In addition to that, you wanted to make sure that you have a very broad and diverse product portfolio that you are commercializing, therefore, you could indeed achieve operating leverage. And in addition to that, of course, you wanted to make sure that your products are being on the national reimbursement list, so that would help you with better affordability and accessibility. Now if you look at what BeiGene has been able to establish in the last few years, we have done exactly that. So specifically speaking, let's start with the commercial leadership. As you might be aware, we have 2 of the most successful and highly respected pharmaceutical leaders in China that are leading our commercial team. One of them is Dr. Wu Xiaobin, the other 1 is Eva Yin. Wu Xiaobin is our COO of the company and the General Manager for China, and then Eva Yin actually is our Chief Commercial Officer for Greater China. Between 2 of them, if you look at the track record of leading success for the best pharmaceutical companies in China, multinationals, in particular, they have a track record that perhaps arguably are not to be rivaled. Now in addition to that, in the last few years, we've invested very significantly in building a significant infrastructure in China. Right now, we have over 3,300 commercial teams in China, and they are deployed extremely strategically. We not only cover the core markets, we also cover the areas that are a bit more remote and sometimes are characterized as broad markets. Now this deployment is extremely helpful, particularly as we manage through the COVID situation, when we found ourselves in China at any point in time, certain locations, particularly core markets might have been closed for cover situation. Actually, our sales team were able to bring our products to the patients where they truly were. Now in addition to that, if you look at the product portfolio, right now, we market 16 products in China commercially, inclusive of 2 cornerstone assets that we're developing internally: 1 is PD-1 tislelizumab; the other 1 is BTK inhibitor in BRUKINSA. And if you look at tislelizumab, it's actually a very inspiring story that could be indicative of our ability to truly drive market-leading position in China. For perspective, tislelizumab was actually launched in China from a timing perspective as the [ #7 ] product in the PD-1 space after multiple multinational products and products from Chinese companies. Fast forward to end of last year and beginning of this year, we already established the #1 position in the PD-1 space with tislelizumab, we command well over 25% in the value share in China. So go back to the success factors, having a product like PD-1, which has such a broad indication, to date, we've already received approvals for [ 11 ] indications. We basically have all the key incidents covered, whether it's lung cancer, HCC, [indiscernible], et cetera. But importantly, 9 of the 11 indications are already on the National Drug Reimbursement List. So indeed, we are providing a level of affordability and accessibility that is very much conducive to our ability to help more patients. So, all in all, I would say, we are extremely pleased with the progress, but the best is yet to come. Because if you step back, think about the marketing in China, in general, based on the current scale of the innovative oncology market and you apply the growth trajectory that we are seeing, then you could be looking at a market that easily could get to well over $20 billion, $25 billion over time. And then as a, A player in the marketplace, and that would perhaps only be 2 or 3 A players in the marketplace, you could be looking at a market share in value of the innovative oncology market in China of about 20%. Then you are looking at a revenue base of $5 million or $6 million. So you apply a reasonable gross margin assumption as well as the cost it takes to run this commercial infrastructure, you could very well be able to make compelling profits in China, and that is absolutely our commitment and aspiration in China.

Great. And also outside of China for PD-1, I remember last year, the PDUFA got postponed because onsite inspection cannot be done. Well, simple question, is it done now? And when should we be expecting [ production ]? I know, Mark, you're definitely working with Novartis a lot on the PD-1's global strategy and this has been really highly competitive market already, even for KEYTRUDA, we're going to see potentially the patent expire in a few years' time. So is it still worth investing a lot of dollars on the PD-1 and how do we think about that?

Yes. So I think to your first question, the initial FDA submission in second line esophageal cancer, the PDUFA date was delayed because of the inability to complete manufacturing inspections in China. We have guided that those inspections will be complete by the end of this quarter -- by the end of this month, and we are on track. So we are sticking to that timeline and don't have anything further to add at this point. More broadly, what I would say is that, as Julia was just highlighting, the most important point is we have a really strong portfolio of data around our PD-1. And we think tislelizumab is an outstanding PD-1 inhibitor. And virtually every Phase III study that we have run has been positive. So there's 2 facets to there. So 1 is we think that these are compelling datasets that we can take to global regulatory authorities. We do understand the feedback that FDA conveyed in the context that the Lilly-Innovent ODAC that is an important part of the overall regulatory strategy that Novartis is [ leading those ], but jointly we are taking forward. But many of the tislelizumab studies are multiregional studies, importantly within the GI indications such as gastric cancer, esophageal cancer, and others. And then we have also been able to submit more broadly an EMA, and those submissions are also underway, are going well. And then the last point I'll make is that, again, because this is such a really potent and effective PD-1 inhibitor that again is a cornerstone asset for our future development both in-portfolio combinations that we have at BeiGene as well as in-portfolio combinations for Novartis as well.

Got it. Well, I think beyond PD-1, people have paid a lot of attention to TIGIT last year. And I think overall expectation from an investor is probably getting lower after all those disappointing data. So how actually you guys are prioritizing the resources internally for the TIGIT program? Are you still looking forward to expand the clinical programs for that or you're going to cutting back?

So the strategic approach that we took to TIGIT was given the strength of the initial Phase II data from Roche, the CITYSCAPE study, which was unequivocally a very compelling dataset in randomized Phase II setting, and the fact that we had internal Phase I data from our 900-105 study that we presented last year at ELCC and also the World Lung Congress that we felt confident going direct to Phase III in a PD-L1 high population. That's our AdvanTIG-302 study. That study continues to enroll very well, and we've guided that we will complete accrual to that study this year. Now [ for there ], in tumor types where we did not have proof-of-concept data, we took the approach to in-house run randomized Phase II studies. We think that our organization has certain advantages based upon our global footprint, operating efficiencies that we can at high speed and low cost run these types of randomized Phase II studies. And therefore, we initiated 5 studies with our TIGIT in esophageal cancer, cervical cancer, hepatocellular carcinoma, small cell lung cancer, and in chemo combo and non-small cell lung cancer. Because all those studies kicked off at the same time, they have now all completed enrollment. The data is maturing. We'll be able to share some of those data later this year. But we are confident that we will have internal data that will guide us whether to make further investments in TIGIT as a mechanism in these additional tumor types.

Yes, for sure. Well, in the overall solid tumor space, I think lung cancer is definitely already being the space you have been covering, but there has been some of the missing spaces, for example, breast cancer, prostate cancer, right? So what you're going to planning to do to expanding into those specialties or you're going to just stay away?

So we intend to expand into new indications. So we have an R&D Day coming up next month. We have a very exciting portfolio of emerging assets coming out in the second half of this year. And again, we've guided 10 NMEs next year, and we believe that those will give us strong opportunities to enter these new tumor types. The tumor type selection to date has been largely driven by places where we believe that PD-1 would work. The canonically immune hot tumors. But to get into these less hot tumors, we think we need different therapeutic modalities, whether those are bivalent degrader, do small molecule targets, ADCs and those technologies -- those platform technologies are all coming in the next 18 months.

Great. Well, tell us a bit more about the upcoming R&D Day, it's going to be in July?

That's right.

Okay. Anything we should be looking forward to?

Well, I think at that time, we intend to share more about our strategy for future innovation, particularly in the early phase space and then also how we're going to forward development in these priority tumor types.

Great. Well, there's another thing about clinical development efficiency, right? I think BeiGene started with a very strong base in China, then expanding into global market, but still we are leveraging a lot of patients in China now. So compared to some of the global peers, how should we think about BeiGene clinical operating cost and efficiency when we are running those global MRCT, but we still have a decent operation in China?

So this is a wonderful question that we think a lot about. It's a nuanced question, and so far as the expectations are really different across the different phases of development. I think for Phase III studies, global regulatory authorities have been clear that there's a certain expectation of enrollment within that global region, and we have a sense of what those numbers are. And then if you parse that out, actually, the majority of the patients to be enrolled in the study are already allocated. So we are absolutely committed to global development of our assets, and we are, in our view, working very hard to meet the expectation of all of these global regulatory authorities. However, in earlier development space, the randomized Phase II studies, the Phase I studies, there we have a bit more flexibility again to leverage those operational advantages we have both in terms of cost and speed, which is not just in China, but in other emerging markets as well that can help us to generate decision informing data we think more quickly and at an advantage price.

Got it. Well, how much lower running the Phase II, Phase I trials in China versus in the U.S. or Australia?

I'm sorry, in terms of...

The cost.

Yes. I don't know if we have guided insofar as how much we think that we can save, but I would say that it is a substantial savings running in China and other emerging markets compared to running a global Phase II study. And then the in-house delivery rather than having a CRO-based delivery also leads to substantial savings as well, both in terms of cost as well as time.

Yes. Well, when we talk about running the trials, it reminds me of another thing is about infrastructure you're building in China and also globally because in past probably 4 to 5 years, since probably 2018, 2018 to 2021 has been the 3 to 4 years BeiGene expanded aggressively, right? Starting with, it takes about 3 quarters to adding another 100 persons and now getting into probably late 2021 and early 2022 only take less than a quarter to expand by about another 1,000 headcounts. So where are we now? Are we slowed down a little bit? Are we focusing more on the efficiency? Are we going to cutting down the cost and expenses? Any color on that?

Yes, definitely. So I think you are right, Ziyi. Over the last few years, BeiGene has invested very meaningfully in building a global infrastructure that is end to end encompassing the entire value chain. So today we have around 9,500 colleagues around the world operating on 5 continents, and if you look at the internal capabilities that we've built, of course, it is going all the way from having a research team that just exceeded 1,000 people all the way to doing clinical trials ourselves for the most part, and the clinical development team, along with our medical affairs team, has over 2,800 people. We do clinical trials in 45 countries and regions. In addition to that, we've also built manufacturing capabilities in house with both biologic and small molecule manufacturing capability already live in China, and we're in the process of building a biologic manufacturing facility in Princeton, New Jersey as we truly build a global network of supply. Last but not least, we talked about the progress was made from a commercial perspective which at this moment in time, we have over 3,800 people on the commercial side and bringing our products to patients in major healthcare geographies, including the U.S., EU, China, Australia, so on and so forth. So come back in terms of the pace of the investment and how our P&L might evolve over the next few years, we believe that we reached the inflection point. If you purely look from a financial perspective, for example, last year we actually generated product revenue of almost $1.3 billion, and that growth rate over a year ago was essentially 100%. And our operating expense grew less than 20%, so the product revenue has been growing much faster than the operating expense growth. Going into the first quarter of this year, that trend continued. Our product revenue grew 57% versus the same quarter a year ago and our operating expense grew 7.7%. So with this kind of foundation we've already laid and the consideration that we have so much catalyst from a top line potential perspective to really anticipate in the next few years whether it's realizing the full potential bookings on the global basis or it's also the consideration about realizing the optimal potential of this infrastructure we build in China. So you can anticipate that the revenue growth will continue to be robust for few years to come. And then if you take a very, very strong product revenue growth on the base, that is very scaled, you take the consideration that when you flow through from your revenue all the way to profit, you think about the progress we've been making also from a gross margin perspective. Just for perspective, in the first quarter of 2022, our overall gross margin was 75%, but in the first quarter of this year, we reached 80.1%. The most exciting thing is not just the improvement itself, but the drivers for that improvement are very sustainable. There are really just 2: #1 is as BRUKINSA globally becomes a much bigger contributor to our overall revenue base, it's a huge uplifting factor to our profitability. The other factor is given our internal manufacturing capability, with the capacity utilization ramping up, we are also looking at very substantial reduction in the cost per unit. So All in all, if you have strong product revenue growth on a very high scale, you have much more meaningful growth margin improvement over time coupled with open expense growth at a much slower pace than historically you've seen. So path to profitability is absolutely in our line of sight. Of course, with that being said, we are constantly being on the lookout to make sure that we are balancing the path to profitability, the timing to profitability as well as the path to value creation. You don't want to miss out on investment opportunity, whether it's organic or inorganic really just. Because you were able to achieve profitability 1/4 sooner, but with that being said, I would say that. This latest development with book cancer has completely DE risked our path to profitability, accelerated that pathway, and we are very excited about the future. The other factor is. Given our internal manufacturing capability with the capacity utilization ramping up, we are also looking at very substantial reduction in the COGS per unit. So all in all, if you have strong product revenue growth on a very high scale, you have much more meaningful gross margin improvement over time coupled with operating expenses at a much slower pace than historically you've seen, so path to profitability is absolutely in our line of sight. Of course, with that being said, we are constantly being on the lookout to make sure that we are balancing the path to profitability, the timing to profitability, as well as the path to value creation. You don't want to miss out on investment opportunity, whether it's organic or inorganically just because you were able to achieve profitability 1 quarter sooner. But with that being said, I would say that this latest development with BRUKINSA has completely derisked our path to profitability, accelerated that pathway, and we are very excited about the future.

Are we talking about breakeven in 3 to 4 years' time?

Anything is possible, right?

And there has been 1 thing people always asking in the past months is about like second wave of COVID in China, right? We started some of the reinfection start to emerge in April and May. Has that disrupted any of their business operations in China and is there any concerns we should be taken into consideration?

Yes. So interestingly, actually, I just came back from China. I was able to spend a month in China meeting with our team, our partners, and stakeholders. What I would share with our friends here is that while you are seeing some uptick in the COVID reinfection in certain ways, but the symptoms, by and large, are fairly manageable, and we are not seeing business impact that is meaningful in any way, shape, or form, certainly not to our businesses. So we continue to support our employees in the best way possible, but business is doing well, on track.

Yes, for sure. And Mark, in the upcoming 6 months to 12 months, any key data readouts we should be watching out for?

Key data readouts, we will have -- we will be sharing the data from the Phase III studies from tislelizumab later this year. And again, we'll be sharing readouts from our Phase II TIGIT study. So I think there'll be a lot of interest in both of those datasets. Insofar as other ongoing activities, as I mentioned, the randomized Phase II studies with TIGIT, we're actively getting started randomized Phase II studies for OX40 and LAG-3 as those assets emerge from early development into intermediate lifecycle.

Got it. Last question. Geopolitical risk and biotech funding has been 2 questions posing a lot of pressure on biotech stocks in China. So any concerns from you guys from this perspective?

No, I would say as you've all seen, we have a very strong position. At the end of Q1, we had $3.8 billion in cash and cash reserve. In addition, I've just shared quite a bit of our thought around our business trajectory and potential financial outlook. So we clearly recognize the rising cost of capital, and we are very, very diligent and rigorous in our internal planning and expectation as relates to return on investment. But with that being said, we are managing our business full speed ahead.

Great. Geopolitical risks? Okay, we're about the time, so we're wrapping up. Thank you very much, Julia, and thank you very much, Mark, for presenting. And everyone stay tuned for July R&D Day for BeiGene.

Yes. Thank you. Thank you so much.

Thank you.

Thank you.

Thank you. Thank you, Mark. Thank you.