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

Good morning, everybody. I'm Chris Schott from JPMorgan. And it's my pleasure to be introducing Coherus today at the JPMorgan Healthcare Conference. From the company, we have Denny Lanfear, the company's President and CEO. Looking forward to Denny's comments. But before that, I did want to remind everybody, this will be a 40-minute session. [Operator Instructions] So with that, I'll turn it over to Denny for the presentation.

Thank you, Chris, and thank you once again for inviting Coherus to present at the annual JPMorgan conference. It's a pleasure to be here. Let me first, of course, apprise you of the forward-looking statements on Page 2 and direct you to the company's SEC filings with respect to each of the company's products, CHS-1420, our Humira biosimilar, as well as UDENYCA, our product, and so on. Now on Slide 3, I'll just summarize for you our agenda for today. First, I'll make some remarks with respect to UDENYCA's performance. We are, of course, the leading pegfilgrastim biosimilar in the market. We are just coming up on 2 years launched into the pegfilgrastim market in the United States. I'll then make some additional remarks with respect to the biosimilar portfolio at Coherus. Our late-stage pipeline is addressing some $30 billion in market opportunity. And then lastly, I'll make some additional comments about the company's core capabilities, our financial strength, and how we intend to focus those capabilities and that financial strength on future growth opportunities for the company. First, of course, let me talk a little bit more about UDENYCA. On Slide 5, I summarized for you our market position. UDENYCA continues to deliver well for us in the market. We are in the business of saving money for the health care system. Some $2 billion has been saved since the launch of UDENYCA. We're very proud of that. Over $720 million in revenues have been recognized by the company since its launch in 2019. We have greater than 20% share of the overall pegfilgrastim market. And the company has earned several awards from various entities in the health care space, including the Healthcare Distribution Alliance for our star launch in 2019. Now on Slide 6, we'll talk a little bit about how things have looked over the past year or 2. First of all, of course, 2020 was a very turbulent year for the health care system, and of course, including UDENYCA, right? COVID created a set of uncertainties operationally for clinics and hospitals, and COVID continues to weigh upon the health care system here in 2021. However, I think the key message I will give you is that Coherus' commercial proficiency has been amply demonstrated last year during Q2 of COVID. And also, we are very happy with the way things are rolling out so far in Q1 this year, once again, with COVID. We have a large opportunity. 70% of the market share is still controlled by Neulasta, Onpro or Neulasta prefilled syringe. Current ratio there is about 55:15. We expect as COVID wanes, market gains at the expense of Onpro share will resume later in the year, perhaps the second half. We are very pleased also with the progress we are making with our on-body system, although we will refrain from making any specific disclosures with respect to launch timing or milestones for today. Let me talk a little bit about our biosimilar portfolio and our plans to address some $30 billion in market opportunity. On Page 8, you can see the various products which contribute overall to our market opportunity increase. Currently, UDENYCA is part of about a $3 billion market opportunity in 2020 dollars. We expect to come forward with an Avastin biosimilar, which is about a $3 billion market opportunity. And of course, you're aware of our plans developing our Lucentis and our Eylea biosimilars. Our Humira biosimilar, we project for approval and launch in mid-2023, adding some $16 billion to overall market pursuit opportunity, for a total of $29 billion. We intend to take the success that we have demonstrated with UDENYCA and the commercial proficiency we have demonstrated with UDENYCA and to leverage that and then demonstrate that into these other markets. I'll talk a little later about, of course, how the ophthalmology market is very, very similar with its buy-and-bill paradigm to the oncology market, and we'll talk about our plans and what the stakeholders are with respect to the Humira biosimilar and entering there. Now on Page 9, we summarized the Humira price hikes which have occurred in the past. The key point here is that this has been an extraordinary expense burdening the payers, and this expense has created significant pent-up demand for biosimilar alternatives. This product has had double-digit price increases over the course of its lifetime. And as you can see in the right panel, the list prices of Enbrel and Humira have marched ever upwards since its launch early in the year about 2000. This pressure, we believe, will create a massive decoupling of the existing business structures, particularly with respect to the BBMs (sic) [PBMs] and the payers in this space once the availability of biosimilars occurs in mid-2023. On Slide 10, we talk a little bit more about some of the key influencers which we think are important to consider with respect to driving utilization. The buying process involves several different constituents: the payers, the specialty pharmacies, the physicians and the patients. Each of these has a significant role to play in product selection. But you'd see that our focus primarily now is on the payers. Payers manage the formulary, and they determine which therapies will be reimbursed. We expect payers to have a significant share of power in selecting products and to drive share away from the originator if properly incented. Our value proposition is to address the needs of each of these specific markets, each of the specific market segments with a subsegmentation of each of these payers. It's of note that we think that the physicians and the patients will be far less likely to exert influence on product selection in the future post introduction of biosimilars. On Slide 11, we summarize some of the excellent data that we generated during the CHS-1420 Humira biosimilar development program. The BLA was submitted as per our guidance by the end of 2020. This product performed a global Phase III in psoriasis of over 550 patients and was well within the biosimilar guidelines as set forth by the FDA. The company is also progressing well with the manufacturing and launch strategy in preparation on or after July 1, 2023, as it is approved. We intend to be a significant player in this market and have made preparations and investments to facilitate that on all sides of our business, including manufacturing. Now let me say a little bit about our Avastin biosimilar in-licensed from Innovent on Slide 12. We project the BLA filing for the second half of 2021. What's important to note is that the Avastin opportunity scaled very nicely on top of the existing UDENYCA business. It is -- this business model is very highly synergistic with UDENYCA, with all the same call points and all the same market participants. The Phase III has been successfully completed by our partner, Innovent. What this means is that the significant costs have already been expended for this product, and that means that there are limited costs to bring this forward to registration and approval. This product has been slowed a bit, primarily due to COVID considerations, and moving back and forth between the 2 partners. Now on Slide 13, I'll just make a little mention of the Lucentis biosimilar in-licensed from our colleagues at Bioeq. We believe this product will generate significant cash upon approval. As you know, this product had some additional manufacturing exercises that were required at the behest of the FDA, which have now been completed. Our partner, Bioeq, is now set up for meetings with the FDA this quarter as per the plan, and we expect these to proceed on schedule. Once again, this product is one in which investments are very, very limited until approval, and we expect the commercial expenditures to be modest. The next asset in this product class of ophthalmology will be CHS-2020, which is a highly owned -- wholly owned, I should say, Eylea biosimilar, which is in development, with potential launch in 2025. In the left panel, you can see some of the excellent data that our partner, Bioeq, developed with this product in terms of efficacy. We also have excellent data in terms of ocular inflammation. We're very satisfied with the clinical data package as we move forward towards approval and launch. On Slide 14, I recapitulate for you how the oncology commercial capabilities will translate well in ophthalmology. In a few slides, I'll go down a few -- a little bit deeper in terms of how the buy-and-bill system works. In terms of oncology with G-CSF, you can see that the buy-and-bill reimbursement and contracting system and all the market participants there and the value chain there are very, very much the same between ophthalmology and oncology. It is very important to have access and a cost saving impact just like in oncology. Further, there is a significant commercial Medicare need in ophthalmology. As a matter of fact, in ophthalmology, this market is about 65% Medicare as opposed to about 50% Medicare in oncology with G-CSF. It's a very large market opportunity. Currently, there's about a $3 billion market opportunity with pegfilgrastim. This is about a $7 billion opportunity with Lucentis and Eylea in ophthalmology. Lastly, it's important to note that there's a concentrated prescriber base, about 2,000 accounts in oncology and even less, about 400 accounts in ophthalmology. Slide 15, let me just talk a little bit about our core capabilities and our financial strength, and how our development and commercial capabilities and strong balance sheet put us in excellent position as a foundation for our future growth. Now Coherus' capabilities set a strong foundation to pursue products both internally developed and externally sourced, such as you've seen with Avastin and Lucentis. With respect to analytical and process sciences, our foundation capabilities may identify and develop potential best-in-class biologics. I would note that biosimilars are even more difficult to bring forward analytically and process-wise than novel drugs, primarily because you have to replicate an existing molecule. However, as you've seen, we've been very successful in doing that on multiple occasions. Our analytical infrastructure in the company is very, very strong, and as you know, located in Southern California in an independent facility. Now our clinical and regulatory expertise also puts us in an excellent position to leverage into other opportunities past the ones we've disclosed today. We have a track record of executing clinical programs and have significant success in interacting with the FDA with respect to biosimilars. This know-how and relationships will serve us well as we approach other products. However, I'll spend the majority of my time here now talking a little more about our commercial excellence, our proven ability to maximize share in large markets and displace entrenched competitors. That is the business that we are in. On Slide 17, I recap for you some of our launch success, which demonstrates our capabilities. Overarching the buy-and-bill experience is particular capabilities with respect to pricing, contracting, distribution and establishing branded value as well as others. We have a very deeply experienced commercial and medical team deployed broadly across the United States that I'll talk a little bit more in just a moment. We have trusted relationships and thorough knowledge of providers, payers and GPO accounts across the buy-and-bill marketplace. This is a key factor which has contributed to our success with UDENYCA. We also, of course, have our best-in-class patient and provider services, including Coherus Complete. We target our value proposition. We are a trusted product and supply partner, and we have proven pricing and contracting capabilities. Slide 20. Slide 20 gives you a schematic of the buy-and-bill market in the United States, which particularly applies both to oncology and ophthalmology. This is a very complex ecosystem involving thousands of stakeholders across a variety of touch points. As you can see in the center of this diagram, you have the group purchasing organizations, which subordinated to them are both hospitals and clinics. They are responsible for the primary purchasing decisions in the contracting. You have the providers in hospitals and IDNs and clinics in the various segments. The providers interact directly with the patients. Patients require patient assistance, systems like Coherus Complete, for example. On the far left side, you see the distributors, the wholesalers, the specialties, distributors all play an important role. And lastly, of course, you have the payers, both government payers and commercial payers. As you can see from this diagram, there is a complex set of relationships in which value is delivered across this network. Value has to be very efficiently distributed across this value chain to be effective in this market. There's a couple of take home messages here that I would make. The first of all is that Coherus' competency in navigating these relationships that you see on this diagram is one of the core reasons for the very, very strong market showing of UDENYCA, both in its launch year and during COVID. The second point that I would make is that these dependencies require that value be allocated across the system. To some degree then, the system is self-regulating in terms of pricing. That is to say, draconian decreases in pricing can have negative effects on some of these market participants, and therefore, serve as a break. As you know at Coherus, we have very consistently been good guardians of average selling price. On Slide 21, I show you the 3 key segments. There's a couple of take-home messages here. Understanding the strategic priorities of these segments and the accounts within the buy-and-bill market is really essential. We understand all these segments. We understand how they operate, their profitability and how they do business. It is important to balance the mix across all these segments, and you'll hear from us on our calls how we seek to do that. Whenever one segment moves ahead in terms of market share, we seek to compensate the following quarter. You need to choose where to go with each of these segments, what your strategy will be, how to play and how to win in each of these segments. Again, it is this competency and track record which we seek to apply to our future products in the space. Now one of the important parts of our success, of course, has been Coherus Complete, our total support system of programs to assist with patient access and reimbursement. It's easy to get caught up talking about the economics of the system and the providers and the payers and the distributors. But let's not forget the patients. Patient support -- commitment to patients is key for Coherus and is one of the keys of our success. Reimbursement support provided by access specialists, field reimbursement managers to assist and streamline, patient support through financial assistant programs, co-pay cards. Coherus is very, very proud of the Coherus Complete system, and we will find that it will be directly applicable into ophthalmology, other oncology products as well as our inflammation overtures. Now on Slide 23, let me just make the last point for you. The strong financial performance and balance sheet Coherus has set the foundation for continued growth. The 9 months ending at September 3, 2020, we recorded $365 million in UDENYCA net product revenues, $120 million in cash flow and $503 million in cash and investments. The company is in a strong position. Our financial and corporate strategy is to diversify revenues with late-stage specialty assets as they are approved, to maintain expense discipline and evaluate growth opportunities that fit with the mission and capabilities. I'll now take questions.

Great. Thanks for those comments today. Let me just kick off with a few on my end. Maybe starting first with UDENYCA. It seems like the pegfilgrastim market as a whole had some impact from COVID as we look to last year. Just elaborate or just update us a little bit what's happening now. And how long do you think it's going to take to start to normalize the overall pegfilgrastim kind of volume share or volume growth, I guess?

That's a great question, Chris. COVID has certainly been difficult for any number of market participants in therapeutics, particularly difficult in places like oncology. I think it's remarkable how well the oncology provider system rebounded from COVID in Q3 and Q4 and went back into business. I think that was just excellent. We now have another surge of COVID here in Q1. We think that we'll be fine again with Q1. I don't have any predictions in terms of actual sales numbers for you. But COVID, I think, will continue to be a problem probably until April. If you look at some of the COVID curbs, whether they be in cases or death and so on, mostly throughout the country, you see them tapering off by the end of Q1. We think that most of the folks in the clinics and in the hospitals, all been vaccinated. So we think we're actually in pretty good shape. The bottom line is we think we can get back to share growth and taking share growth from Onpro probably in the second quarter forward in this year.

Great. And on that point of Onpro share, in terms of -- it seems like the non-Onpro business, you've seen some really nice share gains, but Onpro has been a little stickier. Do you think that is primarily driven by the COVID dynamics? Or are there other factors that play as we think about regaining or gaining share from Onpro over time?

Well, that's a great question. I think there's 2 factors. Number 1, I do believe that Onpro would have seen significantly more share erosion in 2020 had COVID not occurred. By the -- as you know, coming out of 2019, we are at about 20%. By the end of February, prior to COVID hitting, we are reaching upwards of 23-plus percent in the market. We're doing quite well with our plans. COVID then hit, and the ability to keep the patients at home one extra day became an important product selection decision, of course, for providers. The other issue, I think, is the various financial incentives that Amgen put in place in various quarters to retain their customer base. I see both of those rolling over in 2021, specifically in the second half of the year. And so I think that we'll have additional gains against Onpro in the second half. Also though, of course, the third issue would be -- there will be additional competition which we'll have to go after Onpro to gain share. And lastly, there's a lot of share there to be had. 70% about -- which is split about 55%, 15% between Onpro and the prefilled syringe.

Okay. Makes sense. At least based on how the Symphony data we're tracking, it seems like Sandoz is gradually starting to gain some share. Just talk about what you're seeing, I guess, on the ground in terms of dynamics with that competitor. And just any notable changes from Amgen or other players in the market as we see Sandoz kind of more present in the space.

I think that it will continue to be tough to have launches and to displace someone like Amgen in the market as long as COVID prevails. Sandoz is making some progress in the market. Because of the COVID overhang, they made probably less progress last year than one would have expected. I actually thought there would be greater market share gains. But I think they'll march right along. I have a high regard for the Sandoz team, and we'll have to see how all this plays out. But I think we are very good at delivering value to the market. We're -- of course, we have very competitive pricing. But our track record to deliver value, I think, has -- and our relationships really have held us in very good stead.

Okay. And then just as we think about Pfizer coming to market, is there anything different you'd expect with Pfizer versus what we've seen from a Sandoz or -- and trying to think about the other potential player coming here?

I think with all these, it becomes progressively more difficult for additional market participants to gain more share. I think that it's -- we're in a very good position being 20%, 25% market share here. I think you're in a stronger position to deal with the constituents, whether they be providers or payers, when you already have significant market share rather than breaking in from the bottom. That being said, I wouldn't discount Pfizer, but I think that Coherus has shown that we are very agile competitors and we know how to deliver value to the system.

Yes, yes. And maybe just a final question on this. I know pricing has been a big topic of debate with regards to UDENYCA. Just talk a little bit about the environment you're seeing. I think you've made some comments in the past that you're confident just with some of the market dynamics. We'll see a more stable environment over time. Just elaborate a little bit more how we should be thinking about price for UDENYCA as we look out to 2021 and beyond.

If you -- sure. If you look at, I think, the last ASP that came out, Coherus actually has a higher ASP than Amgen. And I think what that says is that we are very good stewards of ASP. We're very careful with our pricing. We don't believe that we should need to buy into market share with draconian price increases -- or decreases, I should say. We don't think that serves anyone. As I showed in the slides, there's an ecosystem here of relationships between folks. And while price is always attractive in the short term, there's a long-term cost to dramatically reducing price. You have less value to allocate among the market participants. Not to say there won't be price reductions or price pressure, because there will. And there'll be price pressure when additional market participants come in. But we think that we're doing a very good job of balancing market share price and maintaining our overall growth.

Okay. Great. Maybe just pivoting over to biosimilar Lucentis. I know you made some helpful comments during the presentation. But just how do we think about time lines of actually getting this filing in? And what are the -- I guess, is there any remaining steps we need to really think about in terms of just getting the actual filing into the FDA?

Great question. As you know, there was some additional work, some manufacturing work to be done with the European manufacturer. That manufacturer got tied up with some COVID-related efforts that took precedence. The work did get done. The Bioeq team got that meeting scheduled with the FDA. It's on track to happen this quarter. I'll be in a better position to give you something more definitive when I hear about how that program went and how that conversation went with the FDA and how the FDA views the data and what the path forward is. So we'll probably have something to say about that on the Q1 call, if not before. But I think they've made good progress with respect to the manufacturing over there.

Okay. And just on the time lines there. Just with a little bit of slippage on the time line, how does that affect you, the go-to-market strategy, or how you think about the commercial opportunity? Is there much of a change coming, a couple of quarters, maybe later than we would have initially anticipated as you think about the commercial value of the product?

We believe that we're very, very good at the buy-and-bill market in ophthalmology. We're as good as anyone, if not better. We think that we can deliver that product to the market and do well whenever we get our hands on and get into the market. And maybe that there is another competitor in the market first. However, we were second in the pegfilgrastim market and did just fine also. So I think there's a number of moving parts there as far as that. But I think that, that will ultimately be a very good cash generator for the company. It didn't cost us very much for the upfront and so on, as you know. There's a backside profit split. So we think we'll be all right. But we would really like to get our hands on it and get it out into the market. And we look forward to the results of that FDA meeting.

Okay. Great. And then biosimilar Humira, I know you talked a lot about it during the presentation, huge end market. I guess how do we think about the differences of a product like this versus, I guess, UDENYCA, where you've got more patient churn, you've got some stakeholders with many different financial incentives? But when I think about Humira, one of the challenges to me seems like you've got a maybe less patient churn in some of those users. How do you -- is there -- how do you approach that from a go-to-market strategy? Is there -- is this a very different approach than you saw with UDENYCA? Or what can you elaborate on, on that front?

Yes. Well, that's a good -- that, of course, is a good question, Chris. And number 1, that's a Part D product. That's not a buy-and-bill product, right? And what that means then is that the PBMs and the payers, as I said in my slides, will be the primary motivators of product selection, much less so than the physicians or the patients. So just like utility, for example, direct-to-consumer advertising has, might be a question in that regard. I think though that Coherus' proficiency is to understand how to deliver value to the market. That was the reason for our success with UDENYCA. We spent the first year or 2 before the UDENYCA launch, as you know, talking to all the constituents, understanding what they needed for adoption, right? What sort of pricing they needed, services and so on. Our strategy was a result of those conversations with the customers. We are now doing the very same thing with respect to the Humira market. We are understanding the motivations and the needs and the required value propositions for each of the key stakeholders, particularly the payers and the PBMs, but also the services, of course, which are necessary for the patients. Now the issue here, of course, is that you have not just one single indication. Humira is a product that is across 3 different indications: psoriasis, GI and RA, for example. So there's 3 sets of physicians that you have to address. Also, there's a broad spectrum of payers. There's the broad national payers, United, Anthem and so on. There's the regional BlueCross BlueShields and all those payers. There's the government payers and so on. So I think that you need to have a very concise, well thought out through strategy, how to establish a beachhead and expand that market with respect to not only the payers, but also with respect to the indications and how you're going to go forward. I won't say anything further as our market -- our go-to-market strategy, of course, is confidential. But I think you can rest assured that we are approaching this market very similarly and just as comprehensively as we did with the UDENYCA market. So we're fairly bullish that we'll be able to outperform there with Humira. And I would also add that we have made investments with respect to manufacturing scale to provide large amounts of that product to the market. And we have also a sting-free formulation, and we have a very, very nice auto-injector.

Makes sense. You mentioned that -- you launching comment is, you mentioned the different segmentations in the market of rooms, derms, kind of GI physicians. Will you be targeting all of those? Or do you think that there is one of those verticals or 2 of those that make more sense than the others, I guess? I was like kind of trying to get scale of your infrastructural need.

I'll graciously decline to disclose my segmentation penetration strategy publicly to you today, 2 years ahead of my launch. However, I would just say that there are some considerations, obviously, because those 3 segments operate differently, right? Enbrel is not in all those segments, for example, and so on. And what you have to keep in mind also is that both -- some of these patients are stable, right, on the drug. And so one of the big questions is, how do you get the switch patients rather than the fresh start patients and so on. So I think that it's a fairly nuanced and textured market entry problem. And -- but I think that we're making very, very good progress on our strategy. But once again, I hope you don't mind if I decline to say little more about that.

Sure, sure. A question just on the pipeline longer term. How do you think about evolving the biosimilar pipeline over time? You've obviously got a number of near-term opportunities that you've highlighted. But just as we think about kind of continuing to build the portfolio, should we think about more JV type structures or in-licensings like we've seen with either Innovent or Bioeq? Or would we think about more Eylea type situations where the company is internally developing as you think about where do you focus and how do you access those assets?

That's a great question, Chris. We strike -- we seek to strike a balance between organically developed products, such as Humira and Eylea, and those that we license in. If we license products in, they will probably be very late-stage and within commercialization, probably products that had significant clinical investment already done. You want to bring in products where you don't have to spend $100 million a year on Phase III bringing them into markets. It's one of the attractive things. So we'll take a look at that. However, of course, there may be some earlier stage products that have such benefit that they'd be appropriate for us to license in or even develop on our own. We view our talent of opportunity to be not just biosimilars, but broadly, other areas, in oncology particularly, where we can deliver on the company mission, and that is to displace entrenched competitors and deliver disproportionate savings to the health care system. That's the formula. I think that's a very attractive business model, and that's our intent. And that's the criteria that we screen against when we look for opportunities.

Okay. So there is the opportunity to look maybe beyond biosimilars of products that have maybe a similar characteristic in terms of the profile, I guess, so, is that fair?

Yes, absolutely. Particularly the products in which we could leverage the commercial capabilities of the company, our buy-and-bill expertise, I think, which is a really core competency. One of the key points that I made in the presentation for you this year was that we consider our competencies really to be in these 3 dimensions. First of all, our analytical and protein science capabilities. We are able to bring forward any protein moiety of any flavor. The biosimilar business prepares you well with respect to that because the analytical and process requirements are so rigorous. And secondarily, our clin-reg capabilities have proven to be just first rate. We're very confident in interacting with the FDA, deciding on clinical strategies and getting products approved. But we really see the crown jewel of the company being this commercial capability around buy and bill, particularly with respect to oncology, and being able to deliver value there for the patients in the system. So I think if you take those 3 things, I think that you're really in a very good position to continue the growth. Our ambition is to take the cash flows from the biosimilar business, invest them into products which will allow us to greatly expand the addressable market that the company looks at, beyond even the $30 billion over the next 5 years, to go even farther beyond that. And I think that's really a very good use of funds. And that growth strategy, I think, will serve our investors very well.

Great. And then just a final question, following up on that. Is the focus on the business development side or R&D side really focused now beyond 2025, beyond Eylea? Or would you look to bring near-term opportunities to market? I'm saying a sense of like, do you have enough on the plate the next few years, that this is really now kind of longer-term focus in terms of the capital deployment?

I think that there is still bandwidth for the commercial team to deploy against, particularly with oncology. We'd be very open to products that could be commercialized in oncology, '22, '23, '24-ish, before the Eylea and concurrently with the Humira biosimilar, for example. And so I think it's a question of being a bit opportunistic. But while we have the very long view in mind also, the '25 to '30 view, we think there's a few more things that we could do in terms of the shorter time frame between now and 2025 also. So that's very clearly in our sights.

Great. Well, I think we're about out of time. Really appreciate the comments today.

Thank you.

And thanks for joining us.

Thank you very much. Buh-bye.