Coherus Oncology, Inc. (CHRS) Earnings Call Transcript & Summary

Thank you all for joining Day 3 of the Bank of America Health Care Conference. Up next, we have Coherus BioScience. Presenting will be Denny Lanfear, CEO. This is Chris McCarthy speaking from the equity sales and trading desk. I'm a specialty salesperson in health care. Denny will be presenting, but you can ask questions via Veracast which, if there are any at the end, we will post to management. Denny, thanks so much.

Thank you very much. Let me first start my remarks indicating that all statements made by the company are forward-looking statements. They are subject to the customary qualifications and all statements made are subject to the company's SEC filings, including our most recent. Thank you. So let me first talk a little bit about the company's position with UDENYCA, which has been the most successful biosimilar product to date and how the company intends to leverage the success of UDENYCA across a broad range of other biosimilars over the next 5 years. UDENYCA represents a validation of the branded biologic approach in biosimilars, which was a novel approach to take to this market with a broad value proposition. I'll discuss that value proposition subsequently. But it includes our supplies, our contracting, our Coherus complete and a number of other factors. As you may know, the company achieved a 2019 final market share in excess of 20% with UDENYCA, notwithstanding the fact that it was the second biosimilar launched into the pegfilgrastim market. Further, Coherus achieved cash flow positive financials 2 quarters post launch, exceeding our expectations significantly. The company's underlying investment thesis is to, first, leverage the approach taken with UDENYCA, the other biosimilars that I'll discuss subsequently, that is to say, directly apply these to other assets and other therapeutic areas. In so doing, we will maintain strong financial position and sort of the pipeline growth in our long-term growth trajectory. The company is targeting having over a $30 billion end-market opportunity by 2025, which I will discuss. Now let me just say a few words about the growth strategy and the 3 key areas of licensing internal programs. Coherus develops products internally, which it fully owns, and also brings in products externally on an opportunistic and very selected basis. For example, you recently saw this with the Avastin biosimilar licensure from Innovent earlier this year. With oncology franchise, we currently are operating in a market opportunity space that was about $4 billion in 2018 just prior to launch. We expect to move forward with our Avastin biosimilar in the 2021 time frame of 2022 and launch that product. That brings the oncology market opportunity to about $10 billion or more inclusive of the projected Rituxan biosimilar occurring towards the end of that period. With respect to ophthalmology, the company has incentive biosimilar, which I'll discuss subsequently, which we project in the 2021, 2022 time frame. And then later in the 2025 time frame in Eylea biosimilar just 2020. This additional $6.4 billion in market opportunity provides the company with an excess of $16 billion or $17 billion in market opportunity over that period of time. Lastly, the company, towards the end of this year, will file a BLA for CHS-1420. This is our HUMIRA biosimilar. This is projected to launch on or before July of 2023. And this is about an $18 billion market in that launch year. What this means is that the company's overall market opportunity will grow consistently to $10 billion in '22 and past $30 billion in 2023. The company is also pursuing additional licensing and development opportunities in oncology. With respect to the oncology franchise, our launch success with UDENYCA was built upon preparation, a branded strategy and execution. With respect to preparation, we listened to our customers for the 2 years preceding the launch and garnered significant feedback with respect to their expectations of biosimilars in this space and how those would need to be positioned and aligned. We took a branded approach to strategy, focused on services, supply and value. And lastly, we recruited a top-performing team, which executed very strongly in delivering choice without compromise to the marketplace. Now with respect to strategy, we took a very customer-centered, value-focused approach. The core elements of our value proposition, first of all, are the services. We provide a comprehensive patient and provider solution, Coherus Complete, which has been a very important value-add for both these entities. Secondarily, we focused very sharply on supply, given that the oncology therapeutic space frequently encounters supply shortages with their products. We make our product only in the U.S.A. The supply chain is fully within the U.S., and we committed such funds prior to launch to be certain that we had abundant market supply capacity. Last year, we announced that we had over 400,000 syringes mid-summer. We launched the product with some 300,000 syringes in stock. With respect to pricing, our launch price was $4,175, which constitute a 33% discount versus Neulasta at that time. Therefore, it was very attractive to payers without diminishing the value proposition from the very first days. And lastly, we take a very tailored contracting approach for each market segment and market entity to deliver a win-win value proposition. This approach in the market delivered very strong results. The U.S. pegfilgrastim market in 2019 saw UDENYCA with an exit share of 20.5% versus 6% for Fulphila and some 73.5% for Neulasta. UDENYCA captured market share from both Neulasta Onpro and the Neulasta prefilled syringe segments. This market share of greater than 20% in 2019 with growth in 2020. Currently, we're at 22% at the end of quarter 1. Our net revenue for 2019 was some $356 million. Our 2020 Q1 net revenue was $116.2 million. Now this growth came from all 3 market segments. And there is significant potential additional growth opportunity within each of these segments. First of all, in terms of the segment, the 2019 Neulasta market shares were about 34% in the clinics, 40% in the 340B hospitals and about 25% in the non-340B hospitals. We work in each of these market segments and seek to have uniform share gains across those. The growth opportunity for 2020 is in accounts that already have adopted UDENYCA as well as those that have not yet initiated utilization. We observed single-digit unit growth in overall pegfilgrastim market in Q1 2020. This is consistent with prior quarters and suggest biosimilars are increasing patient access and the overall market continues to grow. Now with respect to oncology, monoclonal antibodies such as Avastin, Rituxan and Herceptin, as you have heard previously, the company sees these as excellent products that sell alongside UDENYCA in the oncology market. Avastin, which is a transaction just completed last quarter by the company with Innovent, is about a $3 billion market opportunity across 2017, 2018 and 2019. This molecule is expected to continue to play a significant role in lung, colorectal and other solid tumors as monotherapy or in combination with other agents. Rituxan revenues are about $4 billion in 2017 and rose to about $4.4 billion in 2019. It's the main stain therapy for non-Hodgkin's lymphoma and chronic lymphocytic leukopenia markets as well as rheumatoid arthritis. There are significant health care and patient access needs which are expected to drive adoption of Avastin and Rituxan biosimilars in the United States. We would expect these markets to converge faster than the UDENYCA market. Now let me talk a little bit about the ophthalmology franchise. Last year, the company concluded in-license agreement from Bioeq, which initiated the commercial phase of our ophthalmology franchise. With respect to the 351(k) filing, Bioeq decided to withdraw that BLA at the FDA's request, in lieu of submitting additional manufacturing data. This data will take about 4 months to generate and it's required for the FDA resubmission work. This has now been initiated. We anticipate resubmission of the BLA in the fourth quarter of 2020, and we expect launch in 2021, enabling Coherus to have a significant role in the biosimilar market formation for this product. In terms of the financial side, there was mid-single-digit million upfront plus other regulatory and launch milestones as customary, and the companies will share profits approximately equally on the backside. Further sentence, we expect relatively low competitive intensity due to the technical complexity of this particular product. We think that the critical factors for success in ophthalmology and oncology are highly similar. Commercial expertise should translate well. For example, both oncology and ophthalmology are part of the buy-and-bill reimbursement and contracting environment. Both have significant commercial and unmet Medicare need. This is about 50% in terms of oncology where the pegfilgrastim market exists and about 65% Medicare for the anti-VEGFs. There is a very important access and cost-saving impact in both these environments, ophthalmology and oncology. And secondarily, they are at a very large market opportunity. As a matter of fact, the ophthalmology market of $6 billion for VEGFs exceed that of the original market opportunity for UDENYCA and pegfilgrastims upon launch, which was about $4 billion. Lastly, and favorably, there's a concentrated prescriber base in both these. There is about 3,000 accounts in oncology that makes up about 80% of the product volume movement. In ophthalmology, this is about 450 accounts. This is distilled from some 20,000 ophthalmologists and 10,000 retinal specialists, comprising about 2,000 Lucentis accounts. Of those 2,000 Lucentis accounts, about 450 accounts, as I indicated earlier, comprise about 80% of the market. As a matter of fact, about 100 accounts comprise about 45% of the market. What this means is a large portion of the Lucentis volume can be driven by a small number of top accounts. And we believe the relatively efficient commercial investment will be needed to address the ophthalmology market space. And we have estimated that about 25 sales representatives will be required to address this market in the U.S. Now we think that a complete ophthalmology product offering includes both Eylea and Lucentis biosimilars. In 2016 and 2017, the entire market was about $4.8 billion to $5.1 billion, with about a 3- or 4:1 ratio between the 2. In 2019, it was estimated that the entire market for anti-VEGFs in the United States is in excess of $6 billion, about $6.4 billion, comprised of about $1.8 billion in Lucentis and about $4.6 billion in Eylea. The company's Eylea product, CHS 2020, is currently in preclinical development. We are currently concluding certain manufacturing exercises required at scale to supply both the Phase IIIs and ultimately, the commercial market. We anticipate that CHS 2020 will initiate Phase IIIs in 2021. And if the study meets its primary endpoint and the FDA approves CHS-2020, we anticipate a U.S. commercial launch in 2025. Let me say a little now about the inflammation franchise and CHS-1420, the company's HUMIRA biosimilar. There is, as you know, a very large HUMIRA biosimilar market, which we believe is very ripe for disruption upon biosimilar entry in 2023. HUMIRA is a product that has had significant price increases from launch. Around 2000, the product's initial launch, was priced at about $15,000 per patient year. Current list price of the product is in excess of $60,000 and perhaps even $75,000 a patient year. We believe that these chronic price increases in the broader anti-TNF space, including Enbrel, has created significant need for biosimilars and considerable pent-up pricing pressure. We therefore see massive decoupling of existing business structures when biosimilars come on the market for HUMIRA in 2023, at which time we forecast the overall market to be around $18 billion. Now at that time, upon launch in 2023, we believe that the payers and the PBMs and specialty pharma are likely to be the most significant influencers in terms of driving biosimilar utilization. We expect payers to drive significant share away from the originators in all market segments as payers mandate step-throughs for biosimilar use. The Coherus value proposition is, of course, very well positioned to address the needs in these specific market segments. Our strategy then is a payer and specialty pharmacy focused one where the management of the formulary will determine which therapies will be reimbursed and where the biosimilars selected to be dispensed when multiple biosimilars are covered are very important considerations for utilization. Coherus' value proposition targets the needs of these particular segments. The 351(k) filing in 2020 is supported by 3 positive meetings with the U.S. FDA over the past period. We anticipate a very competitive launch in the U.S. on or before July 2023 when the product is approved, and we further believe that Coherus' choice without compromised positioning will address specific needs in payer segments, consistent with services delivered by the innovator. As I indicated before, we expect biosimilar disruption to drive significant share away from the originator in all markets. And we believe overall market share of approved could be 10% for CHS-1420, leading to a potential of $500 million to $1 billion in peak sales. Let me close then with a few remarks, in terms of delivering on the promise of biosimilars. First, we have been very successful at delivering UDENYCA, our pegfilgrastim product, and expanding our oncology franchise. Further, to enhance our oncology franchise, we have acquired U.S. and Canadian commercial rights for Avastin biosimilar from Innovent with the option to commercialize the Rituxan biosimilar. Secondly, our ophthalmology franchise is now nearing the commercialization stage. We have in-licensed the leading Lucentis biosimilar to address the $6 billion anti-VEGF ophthalmology market, and we are making very good progress on our internally developed CHS-2020 Eylea biosimilar for potential launch in 2025. As I indicated, we expect to end the clinical trials next year. Lastly, our immunology franchise, supported by CHS-1420, targets a very competitive launch in 2023 in what is the largest biosimilar market. That concludes my formal remarks. I'll be happy to take any questions.

Denny, it's Chris McCarthy, Bank of America, again. There doesn't seem to be any questions in the queue. So from all of us at Bank of America, I wanted to thank you for your presentation, and I hope you have a good one-on-one meetings. And to everyone listening in, thanks for calling in. Thanks for joining the Bank of America Health Care Conference. Everyone, be well and be safe. Thanks so much.

Thank you. Thank you very, very much. We look forward to meeting you in person as soon as everything gets back to the new normal. Farewell.