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

Good day, everybody. Thanks for joining us to the Bank of America Annual Health Care Conference. My name is Jason Gerberry. I'm one of the biopharma analysts at BofA, and I'm pleased to be introducing our next company presenter, Coherus and CEO, Denny Lanfear. So Denny, first off, thanks for joining us today.

Nice to see you guys again. Thanks for the invitation. Sorry for the technical.

Yes. No, it's only a few minutes delayed, but hopefully, we can send all our questions in. So maybe the first question I want to ask you is more -- how do you think the market should think about your strategy going forward in lieu of the in-license of toripalimab anti-PD-1 brand? And do you feel like it's a fundamental pivot in the company strategy to have a brand? Or do you think the company is still focused on finding areas of high-priced biologic in the U.S. where you can help the health system extract both cost savings and offer other sorts of value?

Well, thank you for that. So for us, the question was, can you reign to the company as a dedicated biosimilar company? How do we best deploy the core competencies and the capabilities of the company for a shareholder benefit and value accretion? So over the first 10 years, we raised over $1 billion, as you know. We've built a world-class protein analytics department, manufacturing, very, very strong clinical regulatory development. But finally, I think that our commercialization capabilities into oncology showed that we were able to really deliver value to the health care system but also operate in an environment with limited differentiation in biosimilars without resorting to dramatic cost cutting and so on. Given the sunk investments in these and given the fact that we would be launching several biosimilars over the next 2 years, for example, HUMIRA biosimilar in '23, Lucentis next year, all these various products that we have, in addition to UDENYCA, the issue really is how to best deploy that capital and those core competencies to the benefit of our shareholders. We felt that moving from biosimilar development to immuno-oncology development offered us a significant number of value-accretion advantages. So firstly, of course, instead of investing, say, another $200 million biosimilar development for something like Eylea, where we did our $4 billion market that would contract over the next 5 years, say, from 2025 to 2032 a couple of billion, with that same amount of money invested into immuno-oncology, we could enter into, say, a $25 billion market that would expand to a $50 billion market. The second issue really is that immuno-oncology was right in our sweet spot commercially, and we can leverage our team, our relationships, our mastery of the buy and bill, the dynamics, et cetera, to great benefit. I would say, though, that what really enabled this strategy was the ability to conclude the Junshi collaboration which contained a number of key factors that normally you wouldn't find in any kind of an agreement, right? So firstly, of course, we gained a PD-1, I think, at a very strong price. Some of the other participants paid $650 million for a product of $225 million. We paid $150 million upfront, and we also sold $50 million of equity at a premium. But more importantly, we were able to gain access to the combination products that constitute the immuno-oncology pipeline at Junshi that follow-on behind toripalimab, right, the TIGIT, the IL-2, a couple of other factors. And lastly, we are able to access these products and commit to development costs, which were capped. So our PD-1 contribution is capped at $25 million per year, right? There's hundreds and hundreds of millions that have been in -- sunk into that product and hundreds and hundreds of millions to go, yet our contribution is capped. Similarly with the TIGIT option and the IL-2 option, which are also both capped at $25 million per product per year in development contribution, besides the fact that the exercise price for both those assets is $35 million, which is, I think, well below some of the comparables other people have invested, even though they're very, very strong assets. So if you take all that in total, I think that the company's pivot to immuno-oncology was done because we were able to, and it really leverages our strengths, gives us the predictability as far as our expense line toward development and really positions us in the future particularly in the 2025, 2030 time frame for participation in continued growing markets. So that was a very, very compelling value proposition for us. And I think the last thing I would say is it probably took us almost 2 years to find, develop and close that transaction. We evaluated over a dozen PD-1s globally. We deployed proprietary assays to understand the preclinical readouts, the receptor binding, the post-binding T-cell internalization, a number of things and how that correlated potentially to the clinical story. And that was very important for us. So we were able to achieve a number of our objectives that we set out. It did take us a little longer than we'd like, but we're very, very satisfied with the results. But that's the rationale for it.

Okay. That's great. Now thinking about the TIGIT, the IL-2, as you know, oncology treatment paradigms change very quickly. So will you be more of a fast-follower where those ahead of you sort of derisk the clinical approach for those mechanistic approaches or should investors think about you guys as trying to stay in front of the field potentially and taking more clinical risks? Just wondering how you guys are thinking about leveraging some of those combination partners?

That's a great question, Jason. So we look at that really in 3 parts. And first of all, to enter the immuno-oncology market, you need a very well-performing, very safe and effective PD-1. And we think that the emerging clinical story for toripalimab is going to validate that. Secondarily, you're exactly correct. The TIGITs and the IL-2s are being validated at this time by others, as to say derisk. They're both in Phase III programs in various places. We will get readouts on the Phase Is from Junshi with those assets in probably 12 to 18 months. At that time, we'll understand to a much better degree how TIGIT and how IL-2 have performed in the hands of others in similar clinical settings with other PD-1s and will facilitate a fast-follower approach that I think would be significantly derisked. And I think, therefore, pretty advantageous. But lastly, we're also going to take a look at what I would characterize as the third leg of the immuno-oncology portfolio, which would be transformational products. Now transformational products are necessarily high beta, but they're something that really can have a substantial benefit. And so we're going to be very, very cautious in terms of proceeding there. But over the coming time and next year, you'll probably see us take a look at some other products, which can add real breakthrough benefit.

Okay. So we're a couple of years into this real-life living experiment to see how the U.S. cancer market evolves with competition. And it's never really been a particularly price-sensitive market overall. I kind of see some parallels in terms of your biosimilar experience to maybe the therapeutic fast-follower realm. And so I'm curious, as we look at UDENYCA, it's a complex marketplace. You guys highlighted that Amgen is sort of like coming down now more on price, but that was somewhat surprising to you. We had Mylan on yesterday. They were talking about their view is that perhaps Amgen's leveraging their portfolio and pulling some of the levers contractually. We see companies like EQRx, which are raising nearly $1 billion, trying to build a massive portfolio of anti-cancer drugs and maybe portfolio plays a factor in all this. You'll have UDENYCA, you'll have PD-1. So maybe what have you learned so far that you're willing to share as you're seeing this kind of evolve, maybe some investors look at the situation from a far end Afar and say, okay, near term, there's different codes and phasing, but steady state. Where does this all kind of shake out and this lowest net cost provider win?

Yes. Well, let me try to unpack quite a few things there that you mentioned. So firstly, I'd remiss the comment on the strategies of other companies and god forbid, it would be critical. But no matter what you do, when you sell 2 products together and you bundle them more and more and you seek to have portfolio advantage, you're required to allocate the pricing of those from an independent ASP, that is you have to allocate discounts. So there's no free lunch but -- in return to a bundling these things together and saying, here it is. Someone's going to have to pay or some products he's going to have to pay to its detriment. So a strategy in which you bundle assets together, I think, has to be very carefully evaluated. I'm not sure it's an advantage. And certainly, many of the folks that you talk to in the environment, be the providers and so on, would prefer to have individual choice with respect to these products. The second point that I would make, you've mentioned UDENYCA, not in the same breath as EQRx and PD-1s and so on in oncology, it is true that these are all in oncology. But I think there's some very significant differences. Firstly, UDENYCA is a biosimilar. And with respect to biosimilars, the objective there is to avoid product differentiation. As a matter of fact, you have to prove to the FDA that your product is not clinically differentiated. It has to perform within certain limits. You can neither be better than or worse than the innovator. So if you go into that market and you wish to be successful, you have to find other ways to differentiate besides the inherent molecular properties of your particular molecule. I think with respect to the PD-1 space, there is significant differentiation across each of those. As I indicated to you, we looked at over a dozen of these PD-1s, and they all behaved quite differently. Unlike a biosimilar, they all have different pharmacokinetics. They all have different binding affinities to the receptor. Toripalimab is subsequently taken up and internalized by T cells, for example. And so the molecules are fundamentally different. They have different sequences and different half-lives and different like isolation. And more so, when they're presented clinically, it's not an apples-to-apples comparison either. They're done in the context of high and low PD-L1 biomarkers, for example, even in the same general patient population, such as non-small cell lung. I think the way that you differentiate a PD-1 is with your clinical program, your efficacy profile, but more so, the products that you choose to combine it with therapeutically and that is a key part of our strategy. And that was the key part of our agreement with Junshi. It was very essential to us that we gained access to the combination products that would be combined with toripalimab in global studies. And if you take a look at that strategy, I think what you expect us to see is going forward with toripalimab in the future in conjunction with the TIGIT or IL-2 or some of the other things that Junshi remains working on, that's a very different strategy, I think, than going into the oncology market with a PD-1 and saying it's just good enough or as good as and then selling it alongside some additional assets. We think the way to differentiate is to have additional patient therapeutic benefit. And that was a real clear focus of ours. I'll just stop there. Happy to take any more questions about the market.

So I think it's a good segue to my next question, which is you guys are going to do the second half '21 R&D Day or Analyst Day. And -- can you maybe just set the stage a little bit? What do you think investors will learn there? Do you think it's going to be around some of those potential points of differentiation? Is it just more like here's what we have, here's the filing time lines? Maybe just -- what you can share today would be great to know.

I'll let David -- I'll let McDavid Stilwell take that one. McDavid?

Sure, Denny. So I think that you'll see us hold Analyst Days every year going forward. Our business is changing so rapidly. I think it will be important every year to provide a fulsome update on the pipeline and the data that's accumulated. So without pegging any agenda item right now, I think you'll see us discuss as fulsomely as we can, the immuno-oncology and the biosimilar pipeline in our fourth quarter Analyst Day. We'll do that every year going forward.

Okay.

Yes. And the other thing that I would point out, Jason, is in the second half of the year, we're going to be interacting with FDA alongside our partners at Junshi on the registration path of the various indications of toripalimab, and so we'll relay that information to you as soon as we can and as much as we can to give folks a really good idea of our expectations that we've started that already in our last conference call, as you recall last week, where we spent some time talking about the lung program for toripalimab, which entails 3 non-small cell studies, but a small cell study. Besides some other key things, the nasopharyngeal program, et cetera. So we'll give you greater and greater visibility to the clinical trials, the size of the trial. The subsets of the indications, the endpoints, when they were started, when they read out, when we're going to turn over the data cards, what are the potential filing dates are. I think that we mentioned on that call that we hope to get 2 indications filed next year and perhaps 2 the year after that. So I think it's a very exciting time. We're only 3 months into the Junshi collaboration, but we're very gratified that there's already a steady stream of positive clinical data coming away from toripalimab, and we look forward to that in the future. But we're fashioning the publication strategy to keep everybody up to speed and so on. So stay tuned.

Okay. Now when I look at the PD-1 market and -- so there's obviously a large number of indications approved. But when I look at, say, Keytruda, the market leader, a lot of the value is concentrated in 3 tumors, right? You've got lung, melanoma and renal. And I know that you guys have trials that could be sufficient for approval or registration purposes. You've indicated that you think your loan program is -- could enable a filing. So with the other major tumors -- because these are all studies that are being conducted, I believe, in China-only subjects, your confidence level that, I guess the studies in those populations in say, melanoma, renal, could also suffice for registration purposes. I guess it comes down to genetics and histology and whether or not the data from those patients would be representative to a U.S. approval?

Yes. Well, you're absolutely correct. We're focusing on the large indications. So far, all we've really talked about in any detail is the lung data and the lung studies. Those are the ones that are going to read out in the shortest term. And so we focus there. For example, we believe there's going to be a publication at a meeting later this fall with the interim analysis of one of the lung studies. So that will be very exciting to see and to watch for. The non-small cell -- the small cell study I should say is going to read out next year that has OS as an endpoint. I think that's going to be very exciting. So right now, we're just talking a little bit about while when we get off to R&D Day in the fall, we'll probably have a little more to talk to you about some of these indications. But Junshi has embraced a very broad development program, some 15 clinical trials, as you know. They certainly have done numbers of patients that you would expect in the tumor types that you'd like to see. And again, it was really this sort of approach that really engendered us to Junshi. This is a molecule where there was thousands of patients of safety data instead of hundreds of patients, and we looked at some very large companies, large teams with PD-1s, where they had 50 or 100 or 200 patient safety data. This was a key thing having thousands. So we think that the entire portfolio, we hear of studies to bear a lot of fruit ongoing in the future. But importantly, once again, we're in a great position for these combination products, which we really see as the sort of next-generation in immuno-oncology. It's something we haven't really touched upon, but we're in the planning stages now of these combination studies, whole formulation efforts and other ways to bring this to the next level.

Okay. Maybe we can shift gears to UDENYCA. And maybe just -- we're expecting, obviously, Pfizer, Sandoz perhaps try to make more conservative moves in the marketplace, but launching in a pandemic can be challenging. And as you guys have highlighted in the past, the pie for prefilled syringes isn't growing at the moment as a presentation form and sort of the value of on-body is heightened in a pandemic. I guess I wonder is there a risk that utilization of on-body and keeping people away from infusion centers, et cetera, become a trained behavior? Is that a risk at all from your perspective?

No, I think that our research with respect to on-body versus next-day injection indicates that patients prefer coming back the next day to get additional care and to connect with their health care providers. We've done a number of surveys in this area. I think the patients also do better when they come back and they check up on them. I think also that if you look at early part of last year prior to COVID, we're making great inroads against Onpro until COVID hit, cost to the headwinds. Now with respect to this whole market, I believe there's 2 key factors that -- to keep in mind. First of all, COVID is waning, and the majority of the people are getting vaccinated, particularly elderly, particularly people 45 and older who may come down with cancer. The second point that I would make is that Amgen's ASP has declined significantly putting them in a position, having less value to return to all the stakeholders in Medicare Part B space. So they've expended a lot of that ASP during COVID. It was hard, of course, then to sort of predict COVID was going to hit, of course, so they baked in these aggressive discounts beforehand. But that being said, we think that COVID is coming off and the patients being vaccinated and the health care providers being vaccinated, together with our strong ASP will give us an advantage in this market. And with respect to messaging, I think that the patients indicate that they like coming back the follow-on days. So we see that as a return to normal.

And is there any insight you have in terms of the competitive landscape right now with respect to Sandoz, Pfizer, and I believe it's -- Fresenius is a possible additional entrant later this year?

Yes. Our focus is primarily on taking Onpro shares from the innovator. We don't really focus on head-to-head competition with these other folks coming in. Folks who do come in will attempt to take share that has to be expected. The pricing is getting aggressive in the space, no doubt about it. But our focus of our team, which also now is back on the ground and vaccinated and seeing customers. Focus of our team really is the mind against Onpro share. And I think this is a very interesting point, too. In a counterintuitive way, the existence of Onpro and COVID has preserved a significant market segment, a big piece of market share, some 55% that we can now mind against for the next couple of years. So in that context, it may have extended the lifetime and the runway of the pegfilgrastim market and UDENYCA.

Okay. One thing I was curious about, and it's just -- there's not a lot of good information out there on this, but you have oncology practices that operate in these value-based paradigms, OCM, and I think there are ways that companies can garner utilization if they contribute to the sort of value-based initiatives, tracking, monitoring, adherence, those sorts of things. We hear about that a little bit, but not a lot. And I'm just curious from your perspective, you guys have been a little bit tight to the vest about your strategy, right? But is that in any way, part of how companies can work with providers in more innovative ways to kind of get entrenched in the therapeutic landscape?

Well, yes, the OCM model is, of course, sponsored by the government. I'd make a couple of points there. The first is they get paid for results. They get paid for outcomes. In that context, it's in their interest to fully utilize something like pegfilgrastim or UDENYCA, where the pharmacoeconomic benefit has been demonstrated in terms of reducing days in the hospital, the onset of fever or neutropenia in overall cost to the health care system. So I think that to the degree that it exists and people embrace it, OCM would increase the utilization of UDENYCA. Secondarily, though, any discounts or anything that the -- you use to drive utilization, those have to be allocated, and will hit your gross to that, regardless. So those are probably the 2 conditions I would spike with respect to OCM.

Got it. Okay. That's helpful. Maybe just shifting gears to HUMIRA. It's just so big, right? And nobody knows how to model it because there's just so many companies that are there, that are sitting on those settlements early 2023 and mid-2023. And so presumably, I guess, when you talk at least about UDENYCA, part of the strategy was building up a lot of supply at risks that you could come to the market and be competitive. And I think it's enabled you to get more of a lion share that early market versus Mylan. I don't know volumes are probably pretty substantial here. But just kind of curious, it's probably my back-ended way of trying to ask you about your strategy that you guys have been kind of tight-lipped about, but anything you can offer up to help people kind of think through that opportunity?

Well, we believe that supply is really essential in a large-scale market such as HUMIRA. We made significant investments, both last year and this year, which are outlined in our financial statements to increase scale and to be a very large-scale producer. So we intend to be fully ready when that market opens up and their agreement with AbbVie allows us to offer the product for sale and move forward to meet those demands. So those are already costs that we've allocated, in some cases, sunk. But I think that's very important to have very, very robust supply for that market, and that's been our strategy.

All right, Denny. We're up against our time, but I appreciate you joining us at the conference and sharing your insights and the latest development of Coherus.

Thanks very much. Look forward to talking to you again, Jason.

All right. Sounds good.

All right. Bye-bye.

Bye-Bye.