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

Good afternoon, everyone. My name is Balaji Prasad. I lead the specialty pharma coverage from Barclays, and thank you for dialing in to Barclays Global Health Care Conference. Continuing the specialty pharma track for the conference, I'm pleased to introduce the management of Coherus. So we have with us today both Dennis Lanfear, President of Coherus and CEO; and McDavid Stilwell, CFO. So we may have just take a technical glitch while we get Denny to join us. There we are. Thank you, Denny. So Denny, thanks for joining us and McDavid. I probably [indiscernible] after the significant strategic shift that you initiated earlier this year, moving in away from biosimilars [indiscernible] to biologics [indiscernible]. So also congratulations on -- in sharing the rolling submission for toripalimab.

So I think, obviously, that's a part where -- firstly, can you take us through the native as to why you want drove that switch? I think we had questions from many investors asking, how do we think of Coherus now before it had a positioning as a niche pure-player biosimilar and now it is a biologic company, too. And what is the returns on both of these kinds of strategic initiatives. So Denny, I think that will be a good spot to start.

Well, thank you for that, Balaji, and thank you for inviting us to the conference yet again this year. So let me start with something that we did in 2016. That year, we initiated an analysis of the oncology checkpoint market. We spooled up an internal team to evaluate checkpoints. We called that operation checkpoint Charlie. And we went and we looked at all of the PD-1s and PD-L1s that were available globally and that were being developed. Now the primary issue that you bump into, of course, is that PD-1 s are very expensive to develop because you have to go after a number of indications. And each of those indications can be $100 million-or-more dollars. So when we looked at the price tag of doing a PD-1 at that time, it was in the neighborhood of $600 million to $800 million, which we, of course, couldn't afford. Now we didn't forget about that, though. And after our launch of UDENYCA in 2019, we hit breakeven around in about April of that year. And at that point, we activated an internal team called Fill The Bag, which had the focus of putting additional oncology products into the hands of the commercial team. In our view, the company's core competencies were 3-fold: number one, world-class protein development and analytics, which were required for biosimilars. As a fact, biosimilars are much more difficult, I think, than innovative products on the analytical side because you have to replicate deliberately what someone else did somewhat serendipitously. We also have very, very strong clin reg capability in the company, as evidenced by our ability to get our pegfilgrastim product, UDENYCA approved and get the filing done for 14, 20 other areas. But of course, the crown jewel of the company, and I think which has been the most visible externally is the competency in oncology commercialization, particularly an emphasis on Medicare Part B driven products, such as UDENYCA. It was our proficiency in understanding the dynamics and that market and how to align interest in that market to convert from entrenched innovators that we feel is the core competency of the company. So as we looked around for products with the fill the bag exercise, we look, first of all, of course, at all the various biosimilars that we're that were required. And we looked at all the Rituxans, Herceptins and Avastins, and you recall that we also did our first deal with Innovent, a Chinese biotech company for fast and Rituxan. However, we didn't lose sight of the PD-1 opportunity. For us, it's a significantly growing space and underlies the fundamental growth of the immuno-oncology space, estimated to be $25 billion in 2025, up to perhaps $50 billion in 2030. So the strategic question then arose, since we have these 3 competencies in protein chemistry and in clinical regulatory development and in oncology commercialization, how do we best deploy those to benefit the healthcare system, deliver savings, deliver access for the patients. And then, of course, deliver outsized returns for our investors. We felt that PD-1s were really the best way to do that, but there were some significant constraints there that we had to go through: Firstly, we wanted to find a PD-1 that had demonstrated clinical equivalent efficacy to KEYTRUDA. KEYTRUDA is an excellent molecule, as you know. And so it was very important to us that clinically, the molecule performed very, very well. We developed certain assays internally, cell-based assays and analytical assays, which allowed us to take a view into the mechanism of action of each of the PD-1s and also to understand, for example, in the case of toripalimab, what happens after it binds to the PD-1 receptor, how it is taken up actually into the CFT-cells and so forth. In 2016, we looked at about 20 or 25 PD-1s in our next go round the last 20 to 24 months, we probably had that down to 12 and there was probably about 14 that we looked at very seriously in the last 6 months. We first won in a PD-1 that had excellent efficacy, but also had a very broad label with a number of indications. However, we also wanted to be able to have access to follow-on complementary therapies, combination products with the PD-1. We felt this is where the immuno-oncology therapeutic area was proceeding in the period of 2025 to 2030. So long-term growth would be there. Now the Junshi deal was a very rare deal that fired on all cylinders and delivered for us in each of these dimensions that we thought was important. Unless we were able really to get a deal like this, I don't think that we would have been able to do this and turn our attention now to immuno-oncology as a growth engine for the top line for the foreseeable future. We are very happy with the way this particular agreement is structured, and we're very hopeful that after we get past the first indication for nasal pharyngeal, then we will continue to file additional indications with our partner, Junshi, into the United States, expand the label through lung, esophageal, urethral, triple-negative breast and some of the rest. So overall, things are moving so far. But I would just make one further note. When looking at the opportunity to spend $200 million with EYLEA and enter a $4 billion market in 2025, by the way, we'd already have beaten the Lucentis market by that time. And then which would go down to perhaps a $2 billion market by 2030. We think this is a far superior investment for our investors to go into a $25 billion market going to a $50 billion market for outsized returns and assured long-term growth. So that was our focus, and we think that in the long run, our results will be just excellent in this regard. But again, I have to really thank our good partners at Junshi, that we were able to strike this kind of a deal.

Right. Denny, and if I hear you right, you're saying that, while -- okay, there's an asset, which gives you a much earlier time to market, it's compiled on efficacy, and you have a strong commercial arm, which you're packing, obviously, to do an excellent job once it's out in the market, but this is an intensely competitive field too. And while the market potential, as you said, is very high so is the competition. So setting aside the commercial franchise and the commercial capability, what will make toripalimab a differentiated asset. What is its claim to fame now?

Well, I think that with respect to clinical data, our surveys with KOLs in the oncology space is that they tend to view them very similarly if they have similar results and data. For example, if you do a lung study, you have, are you in the right ZIP code with respect to progression-free survival and things like that. So we don't think there's a significant amount of differentiation with respect to the basic label claims to allow you to enter the market. We believe that we are experts at delivering a differentiated value proposition. In the biosimilar market with UDENYCA, for example, you have exactly that situation where you do not have differentiated efficacy. You have the same claim as the competitors as backed and as the innovators. However, we were able to do very well in the UDENYCA market in the first year, up to 20% penetration, which was almost 1/2 of the syringe business, actually, if you take a look at it. The reason for that was our our proficiency at de-bottlenecking Medicare Part B. And so this is something that we understand very, very well. We take the time to talk to our customers and understand what they need in order to adopt a product. We see the dynamic with the PD-1s being very similarly, and we think this is really our differentiated competitive advantage is our team and our ability to execute in this dimension. So we're very optimistic about how well we're going to compete with the PD-1s in immuno-oncology.

Excellent. Denny, can you help us understand maybe 2 different time lines how and when we can expect provision. So you started the rolling submission for nasopharyngeal carcinoma, what are the milestones that we can now look out for? And then secondly, as you have discussed other indications that this will be evaluated for, when should we expect or anticipate these filings to be started to?

Great question. Well, as you know, our partner, Junshi, filed the BLA for -- initiated the filing of BLA, I should say, for nasopharyngeal carcinoma. It was just last week. We were actually very pleased that they moved so quickly. We expected it a little later in the year, but we're very pleased that they initiated. Now that's going to be a rolling filing with the preclinical section first, followed by CMC, and then lastly, by the clinical. So this allows the FDA to parse out the workload. So it's in digestible parts for them. So we've guided to getting that filing completed this year. So we're fairly certain of that. And we'll see how long it takes to get that approval. With the follow-on indications, as we indicated most recently on our call, we are going to engage with the FDA straightforwardly here between now and the end of the year and review with them where we are on these other larger studies, that would include the lung study, triple-negative breast, esophageal, et cetera. And we will -- our ambition, I should say, is that we will arrive with the FDA at a registration strategy for these indications. After we have had those conversations with FDA, we'll be in a better position to let you know when to expect the filings, but Junshi has 4 lung studies underway that are large. They're either in non-small cell or in small cell. And so we think there's going to be a strong data package available for FDA. And we look forward to discussing that with FDA. The result of those discussions will tell us whether or not there is some additional studies that we need to do or not and just how they view that data and so on. But overall, we're fairly optimistic that we can proceed with that indication. We believe that we'll get at least one indication filed next year and additional indications, perhaps 3 indications over the next couple of years there with the study. So we think that will fall into place. Around that time, also, we'll have the opportunity to review the data on the 2 option programs, the engineered IL-2 and the TIGIT. We expect that to be in about 18 months. And so you'll see some action runs there. And then we'll initiate the later-stage clinical trials with those products. And then those studies then would lead to potential approvals, 2025-ish and beyond and I think the additional growth engine for the company. But overall, we look to position the PD-1 very broadly across immuno-oncology.

Great. Denny, maybe -- that helps us understand the timelines around the monotherapy. And maybe one final question on toripalimab before we go on to biosimilar, the commercial part of the franchise. We also have spoken about exploring this in combination therapy. So could you speak a bit more about the potential and when you could expect some kind of data readout -- initial data readouts in combination therapy?

Yes. I think probably combination therapy would be post 18 months from now in terms of efficacy data on those indications, but I think that we're still waiting for Hart-Scott-Rodino to close on this transaction. So we'll have a little more to say about this on our quarterly call in May. And hopefully, we'll get some additional feedback from FDA during that period of time also.

Got it. And shifting gears to UDENYCA has had its great movements, and it's had its styles to post-COVID. So as you know, as we come to maybe towards a phase where this, we will see the solution of COVID and going ahead. So how should we think about the market share and the pricing dynamics itself? I think that still continues to be your cash cow. And so critical for us to model the cash flows from UDENYCA and think of future assets. So how should we think about it now?

Great question, Balaji. So first of all, we're very satisfied with our 2020 performance in the face of COVID with UDENYCA. So this is a product that we achieved 20% market share, of course, the first year in 2019. Up until mid-February, say, just before covid hit, we were clipping only about 23.5% market share. So if COVID had not hit, I think that we would have had another extremely strong year with UDENYCA in the oncology market. As it is, as you know, COVID crushed oncology and therapeutics in general, significantly in Q2, although we still outperformed estimates in Q2, we had a little low in Q3 and which we clawed back some of the Onpro market share. But then again, in Q4, COVID came back with just another -- just a horrendous peak. So overall, though, we still ended the year at slightly over where we ended 2020 -- through 2019, I should say. So we're actually very pleased that we marginally increased market share and held on. It is true that we had to give a little bit of price in order to do that, but we are now higher-priced than Amgen or Mylan, for example. Where we don't give price easily and so on. But I think that it has shown, even in the face of the inherent advantages of Onpro through 2020, that we're very tough competitors and know how to work this market. Now I think the question is, going forward, as COVID recedes, how do we see things shaping up, right? That's a big question. So first of all, with respect to Q1 of this year, 2021, I think we signaled on our call, we feel that's going to be soft. And there's a number of reasons for that. First of all, we've had -- while we've had some market share -- marginal market share gains, we have had some price erosion in 2021, Q1 with respect to 2020. Secondarily, the MFN issues that arose in Q4 caused a bit of a stronger inventory ramp-up than normal in Q4. And so we have to burn off a little of that inventory there in Q1. The overall effect of greater Onpro's usage is to push our product mix by segment further into 340B, which is a lower margin segment. So as you know, we pushed evenly across non-340B clinics and 340B. And we try to push up the other 2 segments whenever one gets a little bit ahead. COVID made that a little more difficult in Q4. We had a little more 340B than we'd like. And so that's persisted. Now the other issue with Q1 this year also is this terrible storm that went through the middle of the country and really all the way from all the way down to Texas and snow on the beach is down there. And that really sort of halted a lot of oncology therapy. So maybe there's -- I don't know exactly if that's a week or 2 weeks or 3 weeks, but that also is another factor which I think you'll see show up. So overall, though, I think this all puts us in very good position for Q2, 3 and 4 in 2021. Specifically, we see COVID rolling off. And if you look at the COVID curves and the vaccinations, we think the country will be in very good shape, a return to normalcy, certainly by summer. We expect COVID also to recede significantly in the warmer weather with everybody outside. We think that 2021 will be an important year for us to gain market share against Onpro. They've been up as high as 62% during the COVID issues of 2020. I think they're currently in mid-50s, but there's plenty of market share there for us and the other folks to focus on. I think also there's been some sessions by the innovator with respect to things. And I think that gives us more operational latitude to prosecute our value proposition and so on. So I think that probably in later part of Q2, Q3, 4, I think that we'll see a nice uptake in growth, but I think that Q1 was a pretty tough quarter for the country as a whole, given the storms and given COVID.

Got it. So the early efficacy some kind of pickup, especially you're trying to recover shares for Onpro in Q2?

Yes. I think -- yes, I think this quarter, Cobi's starting to roll off a little bit, but we'll see how Q2, we'll update you on the call, we'll try to give you a forward look. But I think overall, the rest of the year, I think, is looking -- will shape up certainly much better.

Got it. Shifting to biosimilar HUMIRA. I think we, amongst numerous investors we speak to, there is still a significant amount of disbelief in how a material [indiscernible] can be for you. Everyone looks at the looks at the take competitors all coming within a span of a few months to a year, and it will be an intensely competitive space. And how should -- is there a way you can set a floor to what is a minimum share and revenue that you can achieve, Denny, and give some comfort to stakeholders around this?

Yes. 10%. We're confident we can hit 10% in this market, and I'll tell you why. We are the fiercest and most confident biosimilar competitors. We demonstrated that with UDENYCA. And even with a higher price and greater share, we understand how to deliver a value proposition in these markets to the constituencies there. Now it is true there will be a number of competitors in the biosimilar markets, but that's fine. We don't believe that we need to gain 25% or 30% or 35% of this market for it to have a significant impact on our top line. We feel that we can hit 10% or better. We've recently completed an extensive market analysis with a prominent consulting firm to double check our strategies going into this market. And we came away from that, fairly confident that we could hit our goals. We believe that there are segments of payers and constituents who will find our value proposition very, very attractive. We intend to focus there as opposed to the market in general. Certainly, folks like Amgen and AbbVie will have their own strategies in Pfizer, portfolio strategies, et cetera, and going forward. But this is an $18 billion market, although there's probably going to be some 40% price erosion that will happen fairly quickly in the first year or so to drive biosimilar conversion. We still think that's a substantial market for everyone. And if I can get 10% or better of a 40% discounted market, I think we'll be doing very, very well. We further think that the large payers will be predisposed to have step-throughs or put biosimilars farther up on the formulary than others. And I think this is important, not just from the viewpoint of new starts, these patients, but also switch patients. So stay tuned, we'll have a little more to say about the strategy going forward, but I think there's enough room for us in this market to meet our goals. And we're fairly confident of that, which is the reason why we came out on the call and talked about it.

Got it. Look forward to that. And maybe a quick question on biosimilar idea. Is there -- you've done a decent amount of work, I imagine till now, is there any way for you to monetize those in any way of format or partner with somebody who would want to take this and take it to to the goal post, any possibilities of that, Denny?

Well, I think it's fair to -- Balaji, I think it's fair to say that we don't have a high level of interest in partnering that asset off or do anything with it. That would create a number of issues: Firstly, let me say that we intend to do very well with our Lucentis in that market, although there's a $2 billion Lucentis market now, an additional $4 billion EYLEA. We consider that whole $6 billion market to be available to us. And certainly, the addressable market there is at least $4 billion: So number one, to create additional competitor to come into that market, it's probably not in our interest; secondarily, that's an early stage asset. The majority of the spend of that asset, the Phase IIIs and so forth were $150 million, $200 million lie ahead. That means that you're not going to get high double-digit royalties or big milestones or other kind of things in the market. So the financial incentives aren't there. Thirdly, by doing so, we would certainly have to take some of our internal bandwidth that we're now focusing on tech transfer, the PD-1 and so forth, to take this along and move it along with folks, and we're not really interested to do that. And if I also did a licensing agreement, I might find myself unable to do a secondary agreement where some third-party approaches us and say, "Hey, you have Lucentis. Would you like to sell our EYLEA." And so I didn't want to be conflicted either and be in a position where I'm competing against my own licensee for de minimis financial returns. So for all these reasons, we really don't have much of a focus on it.

Got it. Great answer, Denny. Thank you. Very helpful. As we hit the 25-minute mark, I think we covered some of the core questions around the company. And so thank you, and also thank you, Denny, for giving a seat to you.

it wouldn't be a zoom call, you didn't have technical difficulties, right, Balaji.

We have concluded conference and a great day to all of you. Thank you.

Great. Thank you very much. Bye.

Bye.