BeOne Medicines AG (ONC) Earnings Call Transcript & Summary

Good morning, everyone. I'm Sean Laaman Head of U.S. Newcap equity -- Biotech Equity Research here at Morgan Stanley, and welcome to our Global Healthcare Conference. Before we begin, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have from BeOne Medicines, CFO, Aaron Rosenberg; and Head of Strategy, John Scotti. Welcome, and thanks for your time, gentlemen.

Maybe just to open sort of a macro question. Can you talk broadly about how the company has changed in the past 10 years as it's become a fully integrated global oncology company with capabilities to address industry challenges.

That's great. And thanks, Sean, for having us. It's great always to be here at the Morgan Stanley conference. So it's hard to go through everything that's changed in the last 10 years. I mean 10 years ago, the company was nascent. It was a company that had very little revenue, a couple of hundred employees and was just really had no significant commercial or manufacturing capabilities to speak of. so much has happened over that 10-year period with where today, we are a leading global oncology company. I think the hallmark of that capability difference is the investment across the value chain in our fully integrated business model from research with our high throughput research organization through ultimately what we believe is a key differentiating advantage for the company, our wholly owned global clinical development infrastructure, what we call our global development super highway. And then pulling that through the remainder of our value chain into manufacturing, into commercial and behind incredible brands like BRUKINSA bringing innovative oncology medicines to as many patients around the world as we can. And now our goal is to leverage that incredible capability and do so repeatedly with the cost and time advantages that we've created through that global development super highway for the next wave of innovation that I'm sure we'll spend a lot of time talking about today.

Awesome. Thank you. We're debating this a little bit in -- when we're just challenges to EBIT, but let's get straight into the solid tumor portfolio and before reaching into the [indiscernible] of the equation. So you framed 2026 is a solid tumor inflection point. You've got 5 programs moving forward that are pivotal. On the -- to start with on the CDK4 inhibitor, the 40395, how do we think about the registrational strategy in the sequencing across first and later lines, and what did the ASCO data change about your conviction in a best-in-class profile versus Pfizer's drug and the established CDK4/6?

Yes. Thank you. It's a great question. I think if you step back -- it's worth reminding everyone how we develop the molecule and design the molecule. The molecule was designed to be the most potent against CDK4 in the class and also the most selective. And ultimately, the therapeutic hypothesis behind that was, could you hit CDK4 the hardest while also sparing CDK6 and therefore, sparing the CDK6 mediated hematologic toxicity that impacts many of the real-world dose reductions and dose discontinuations that you see with the CDK4/6 class, including the 3 that are approved. What we saw in the ASCO data was that, that preclinical profile was really translating into the clinic. So just to remind everyone at ASCO, we showed in the frontline hormone receptor positive HER2-negative setting, a response rate roughly around 70%, which compares favorably to what you see for the CDK4/6 inhibitors, which is roughly around the low 50s. And a hematologic toxicity profile that is clearly differentiated. So we had the recommended Phase III dose 0 cases of Grade 3 neutropenia, which to provide some context, if you think about a drug like Ibrance, the rates of great through neutropenia are in the mid-60% range. And even for the competitive CDK4 molecule from Pfizer, at ESMO last year, they showed rates of Grade 3 neutropenia of 26.5%. And we think that's a function of our greater selectivity again for CDK4 over CDK6. What we also showed at ASCO is how the GI profile can be ameliorated with the coadministration with food. And when you turn out when you administer the drug with food, you substantially reduce the rate of GI AEs, and it really transforms the GI profile from that perspective. Of course, these are small patient numbers at this stage. But we are in the Phase III that is up and running now and enrolling very nicely. We are co-administering the drug with food. So ultimately, this is a frontline trial the market, as you're aware of in the frontline hormone-positive setting is quite large. And if that profile translates into Phase III, it will be very commercially relevant profile. GI tolerability that is no different, hopefully, than other agents with a very differentiated heme tox profile that also, by the way, enables combinations with other assets in our own internal pipeline, such as CDK2 degrader, CDK6 and the ultra potent BCL-2 inhibitor for solid tumors were developing. All of these are in Phase I, each of which or in some cases, has its own intrinsic hemetox. And so we feel like with our CDK4 inhibitor, we have the ability uniquely to combine with some of these other agents because we do not have a heme tox profile, it's that the other agents have.

Sure. Thank you. maybe ask you about some of the other programs. So we can spend a bit of time on your GPC3/4-1BB bispecific in liver cancer. So maybe, John, if you can size the opportunity and your path forward from here on that one.

Sure. That's an asset that we're very excited about. I think the reason why we're excited about it, have again, you look at the data we presented at ASCO in an oral presentation. HCC is a very high unmet medical need indication. The 5-year survival for HCC is on the order of what you see with pancreatic cancer. It's there unfortunately has not been a tremendous amount of innovation in this space. And what we've developed here is a first-in-class GPC3 4-1BB bispecific antibody and 4-1BB is a target that I think many folks are aware of. But what's interesting about our 4-1BB is we really feel like we've cracked the code from a scientific perspective on how to engage this access and do so with a novel binder, novel biology. We really spent some time preclinically to design this appropriately. And ultimately, how that's translating into clinical data, we saw roughly in the late line HCC setting 30% response rate, which for context here, the EMBRAVE-251 trial was presented at ASCO. That's a second line TKI. The response rate was 5.8%. The response rate in the frontline setting with the standard of care, which is PD-1 bevacizumab is about 30%. So we're seeing response rates in the late line setting that are roughly comparable to what you see in the frontline setting. We also announced at earnings recently that we fully enrolled a registrational -- potentially registrational cohort in China in roughly around 2 months. We plan to start a Phase III global trial in the second-line setting by the end of this year. And of course, we're looking beyond the second line and trying to move to the frontline setting as early as possible. From a market size perspective, this market is not small. It's actually a much bigger opportunity than many think. In the U.S., for example, there's about 35,000 patients across all lines, roughly equivalent incidence to CLL, just for some context, of course, the difference here is the duration of therapy, and that's the area that we hope to improve upon with this next-generation agent. In Asia, the prevalence of HCC is quite large. There's almost 300,000 patients with HCC in Asia. So it is a very substantial opportunity for us and is a first-in-class asset. We're moving as fast as possible. So excited about it.

And can you talk about your PRMT5 inhibitor. Can you talk about how that may compare if it's known to some of the competitors out there like Tango? And can you talk about the establishment of the relationship with Revolution Medicines and how companies will both benefit from that?

Sure. Maybe I can touch first on P25 and Aaron, you can transition. I think what we've developed is a molecule that is the most potent against PRMT5 but critically is brain penetrant. And we think that's critical differentiation, particularly in lung cancer, where upwards of 30% to 40% of patients develop brain metastases. It's a critical unmet need and it's an area where we believe we will be the only brain-penetrant molecule, assuming all 3 end up making it to lung, and that's going to be a very important area of competitive differentiation. At ESMO upcoming, we're going to present the first data set for this molecule, and we're looking forward to presenting those data. They will be -- primarily, this is a Phase I data set we're looking at targeted expansions, primarily in lung cancer. Again, we prioritize lung cancer. That's not to say we're not developing into pancreatic and also GVM, which we are. But this will be a primarily lung cancer data set, and we're looking forward to sharing the data.

And then this collaboration is another great example. I talked in the opener, just about the power of our global development superhighway. I think the ability to execute and have a transaction with a collaborative partner like Rev Med is a great example of the power of that capability. As part of the collaboration, we have the ability through a clinical supply agreement to study our innovative medicines with the leading RAS portfolio that RevMed is bringing forth. That includes our PRMT5, that includes our EGF met by Med as well as other early-stage programs. As part of the arrangement, we will conduct a clinical trial on behalf, testing our global super highway and providing that capability for RevMed. And in exchange, we will receive commercial rights to the romoportfolio for China commercial.

Sure. Yes, we've spent a bit of time in CDK4, the GPC 3 bispecific. When you step back and think about the opportunities on it, is it a B7-H4, you PRMT5 and your AADC, which of those opportunities excite you the most?

I think collectively, what we're trying to build here is an engine that can generate sustainable innovation over time. And what's so meaningful about this wave of 5 assets is that the CDK4 inhibitor only entered the clinic in December 2023. And it's already moved into the initiation of a Phase III trial in just 2.5 years. This is wave 1 is the point. And all of these assets are coming from a pool of substantially more assets that entered the clinic in this time frame. And so the way we think about the portfolio is this portfolio will continue to evolve over time, and we anticipate a cadence of solid tumor assets. For example, the assets that are entering the clinic now, we'll see what those look like. And next year, hopefully, we'll have a series of new assets to discuss while these mature in their respective registrational trials. So I know I didn't answer your question specifically. Each of them has its own opportunity. I think CEA, it's -- right now, we're going to be presenting data at ESMO in lung cancer. Obviously, that's a substantial market. Here, MT5 could be lung, pancreatic GBM. These are substantial markets. B7-H4, we're looking at studying the agent first in a Phase III in ovarian cancer maintenance. And there, the critical differentiation is not only do you need to have a PFS benefit, but that PFS benefit needs to translate to overall survival. In order to do that, you need to have a favorable safety profile in addition to a favorable efficacy profile and that's, I think, where we feel we are best positioned. And we talked about the PRMT5 when we talked about the GPC3.

Sure, sure. Thank you, John. And maybe a question for you, Aaron, but a lot of modalities going on, and it almost seems that whatever modality sort of emanates in the oncology field that B1 has one. But what I'm noticing more and more is you're getting this sort of top line acceleration, but the OpEx doesn't seem to follow soon. So you've got this sort of I think it's another appreciated earnings compound story going on in the background. So how should investors think about that?

So thank you. We're very proud of how we've evolved the financial profile of the company. it's easy to forget, but just a couple of years ago, this was a company that was continuing to make investments. It was only last year that we pivoted to generating GAAP profitability. And obviously, that's translating this year into increasing leverage, as you said, and most importantly, free cash generation. Candidly, we talked about the profile this year that we're tracking ahead of schedule in terms of both revenue. We updated our guidance on revenue and profit for 2026. We also did provide perspective that with all this opportunity that we talked about with the pipeline that we will continue to invest. Ultimately, this is exactly where our investors want us to put our capital. So we did provide some perspective that continued margin expansion would be modest as we move forward. We provided some perspective on 2027 expenses. As an example that one might expect 2027 expenses to track at a similar growth rate to what we saw in '25 and '26, that was sort of in the mid-teen level. So you used your own language about what the profile looks like, but we are investing. We're investing for long-term growth. And we'll continue to do so to make sure that we're putting our valuable capital in what drives long-term value. We're not tracking to a specific trajectory of margins. What we're ensuring is that we have sustainability and we're investing in the potential innovations that will matter for patients down the line.

Thank you, Aaron. Getting on to more of the sort of here and the now. So [indiscernible] putting up its highest new patient starts in more than 6 years. Global sales up 31% in Q2. What's reaccelerating the franchise at this stage? And how do you think about the durability of those growth rates versus a natural maturing.

Yes. So we spent some time on our last earnings call just talking about the drivers' performance, and we're very pleased with the performance in the United States, but really globally with BRUKINSA. Ultimately, this has driven by the differentiated long-term data that we have shared with BRUKINSA, both in the clinical setting. And then now what we're seeing repeatedly in real-world evidence. And we shared the study of 10,000 Medicare patients, which track both OS advantages as well as duration of treatment advantages for BRUKINSA, which is effectively the translation of that clinical setting into the real world. Growth is really driven by demand. You mentioned that we saw in Q2, our highest level of new patient starts since launch. Behind that is not just CLL performance, but it's the breadth and totality of their 5 approved indications, which is the broadest label in the class. We do see some advantages on duration of therapy playing out. Again, that's sort of the reality playing forward in our assumptions relative to the real-world experience. So all these in total are driving really strong sustained growth. And we think, obviously, this will translate to continued durability of the franchise.

Awesome. And also in Q2, you raised guidance, $300 million operating income by $25 million. What's really driving your conviction in raising those performance metrics?

It's what we're seeing in the marketplace. We talked about the strength of our U.S. franchise with BRUKINSA. We see it globally, really strong performance with our European business, where we're a bit earlier in the launch trajectory even earlier when you think about rest of world markets, important markets like Japan and Brazil. Ultimately, our conviction is driven by the differentiation of BRUKINSA and how that's translating to demand. And ultimately, that led us to increase our guide by $300 million, as you said, on the top line, and that translates to bottom line performance while we continue to still invest for growth for the long term.

Sure. And just thinking moving towards where we are in the back half of the decade, but just underwriting the growth in BRUKINSA for the back half of the decade and sort of what underwrites that.

Well, I think there's still plenty of opportunity. We're not satisfied with the share that we're capturing today. We have plenty of opportunity. We're obviously the leader from a value perspective, but even from a new patient starts, there's more opportunity to ensure BRUKINSA is prescribed in the marketplace for the patients where it continues to be, in our view, the best BTKI based on the totality of the evidence. We do have new indications that we believe will drive increased growth. We talked about are the Mangrove data, which is in the frontline MTL setting, the first chemo-free BTKI, which really provided from a hazard ratio perspective of 0.57. The best outcomes we've seen in a clinical trial in the frontline setting. MCL is not as large as CLL, but it's still about 1/5 of that opportunity. And importantly, MCL is a space where BTKis are relatively underpenetrated. So this is an area with a chemo-free regimen to really make a difference for patients and to drive growth for BRUKINSA. We have other studies which potentially read out in the years to come, including Mahogany, which is in the MZL follicular setting, and then ultimately, our broader hematology franchise in the combination with [indiscernible] and then ultimately with [indiscernible] degrader really to satisfy patient need across the continuum from the frontline setting through the late line setting in CLL and beyond with their approved indications.

Sure. Looking at ex U.S., where is Europe and the rest of the world in its trajectory? And is that the most underappreciated piece of the commercial story today?