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

Good afternoon, everyone. My name is Balaji Prasad. I lead the specialty pharmaceuticals coverage for Barclays. And continuing on our spec pharma track for the afternoon, I'm delighted to present the entire management team of Coherus here. So we have Denny Lanfear, CEO; Paul Reider, Chief Commercial Officer; and McDavid Stilwell, CFO; and Theresa LaVallee, Chief Development Officer. Denny and team, thank you for taking your time to join us this afternoon.

So let's dive right into the questions. It's been around a year since you announced your shift to biologics and kind of a strategic shift away from biosimilars, at least no further investment in biosimilars. So as you look at the journey you have passed over the past 1 year, how successful do you think this strategy has been? And what could have been better? Are you happy with your progress as of now?

Well, first of all, thank you very much for inviting us to the conference. We're happy to be back here and person in beautiful Miami once more. We hope everybody is back again next year. So we think that we've made substantial progress on the mission, strategically moving and expanding our mission into immuno-oncology. Of course, last year, around this time, early February, we completed the licensing agreement with Junshi. As part of that agreement, we had option rights to TIGIT in the IL-2 plus ROFRs on 2 additional molecules. So that's going well. In the interim, since last year, we have the BLA filed for nasopharyngeal cancer. The prosecution of that BLA is going well. We're happy to talk about that. With respect to toripalimab, we've also turned over data cards in other cancers, such as esophageal and non-small cell lung cancer, both with excellent results. We're also working on hepatic cell cancer. Most recently, we optioned in TIGIT, a very nice TIGIT from Junshi, with co-development efforts with toripalimab, Dr. LaVallee will be happy to talk about that. So we think that overall, the pivot to immuno-oncology has gone very well. We'll be having an Investor Day at the end of this month. And there, we'll talk about a couple of products that were developed internally. We've also developed internal development capability. We have about half a dozen assets under development, 2 of which we'll discuss there. And I think that will give us a very complete set of immuno-oncology assets from commercialize with respect to PD-1 to late-stage Phase II/IIIs and then early preclinical phase. On the biosimilar side, I think we've shown very good progress with the execution. Our HUMIRA biosimilar was approved in December. Last year, we also got the Lucentis biosimilar CIMERLI filed. We reasonably expect the approval of that in August. Last year, we also reported successful pharmacokinetic data from our on-body system for the pegfilgrastim market, the UDENYCA on body. And so I think all of that is moving along quite well. I'm very happy with the progress that the company has made. COVID's been tough for everyone all around. But all in all, I think the strategic direction into immuno-oncology is going well.

Thank you, Denny. And quite a few things for me to probe in there. But firstly, let me start with, I think, where my discussions with investors are going on, I think you have, I would say, from announcing it last year to having the filing in and having a PDUFA in a month from now, traveled the journey very well. But when I speak to investors, I think the key challenge for most investors still seems to be commercial uncertainty around the entire I-O space as to where toripalimab is positioned and how successful it will be, what is the strategy around making it a success? I think if you can maybe expand a bit more on that and how we are thinking about it, assuming the profile is successful?

Sure. Well, first of all, I think that the strategy, and I want to give my colleagues at Junshi total credit for this strategy, of pursuing breakthrough status, orphan drugs, small indications, early to get on the market and establish the identity of toripalimab as an excellent molecule high efficacy, it's working very well. So that gives you a priority with the review at FDA and so on. And I think that's moving along. The other occasions that we're looking at, such as esophageal, Dr. LaVallee can talk to and be happy to say a few things on that. But overall, our strategy to get the smaller indications on and then move up with the larger indications, I think, is -- considering the pace. Theresa, would you like to say anything about the esophageal data, for example?

Sure. I mean, I think -- so one thing what toripalimab is that it has repeatedly read out, robust, clinically meaningful survival benefit in the studies that have been reported to date. And we continue to look at areas of differentiation of where we could see different activity. So we know it has some interesting pharmacological properties, like binds to the FG loop. It's a novel epitope. Epitopes matter on antibodies, where they bind on the antigen. It has higher affinity. It has strong internalization properties. So while that's interesting pharmacology, what does that mean to a patient? And so when we look at a number of the studies that have read out, both the non-small cell lung cancer and the esophageal data which was just published in cancer cell, we see that there is activity independent of PD-L1 status on the tumor. So that's quite different from the pembro data that showed better activity in PD-L1 high versus PD-L1 low. So we'll continue to keep exploring that and looking at those areas of places where the activity may be serving an unmet medical need. But the other aspect is having PD-1 as an anchor, so it's not just -- I don't think Coherus went in to say we're going to be a PD-1 company, but to build an I-O franchise. So when you look at an I-O franchise, really PD-1 has to be the basis of that. So then the TIGIT program [ liv ] going in combination, so when we look at really making the T cell better and maximizing the antitumor immunity based on activating the T cells, and then the pipeline to follow. So having a PD-1 that's demonstrated survival across multiple tumor types lends itself for combination strategies to then broaden and to get more a larger patient population that can get benefit from I-O.

Understood. Thanks Theresa. So you're -- if I understood you right, what you're saying is the differentiation is going to be around the efficacy and also not just that this is it, but it's basically putting the door strategy into the I-O space, and you'll be expanding further in combination with this. So could you please discuss a bit more about the TIGIT opportunity and what -- how that would differentiate further versus existing I-O drugs?

Yes. And I think as we've spent the last decade in immuno-oncology, the field, we've learned a lot about what works and doesn't work, and positioning even how to treat patients with PD-1. And so we're starting to see combinations come forward more than CTLA-4, more than PD-1, had positive LAG-3 data from the MS, and there's been a couple of reports of positive data in combination with PD-1 pathway inhibitors and TIGIT. And from a biology sense, that makes perfect sense is that the 2 pathways have a lot of crosstalk. And in fact, the TIGIT pathway has been shown to be important even for the PD-1 activity. So having that crosstalk between the pathways on the T cell and really adding the inhibition to relieve that to allow maximal T cell fitness and really get good antitumor immunity, makes a lot of sense. So we're really excited about the TIGIT program and being able to position it well in many of these tumor types that we've seen activity with PD-1. And so we've -- as Denny mentioned, we've in-licensed it and looking to have clinical trials ongoing later this year.

Understood. And this is something that we discussed around 3 weeks ago when we caught up after the earnings. And I think couple of factors which throw -- which are thrown in the air, which causes -- which has caused decreased uncertainties basically around Lilly and what happened with the [indiscernible], right, and also causing confusion about the pricing strategies, so what is the commercial route for success? Is it pricing? Is it -- there's a clinical differentiation, as you said? And how will pricing play in this? And it's also a...

Yes. I would just say, with respect to pricing, we think it's best to comment on pricing post approval. So folks talked a lot about pricing prior to getting their PD-1 approvals. After we get approval for NPC, we'll talk a little bit more about pricing. But certainly, pricing is an issue, but the science is the issue also. And as Theresa indicated, we think that we're developing a well-differentiated story for toripalimab that has implications for efficacy in some particular patient types. We also have not completed our conversations yet with FDA. Now the Lilly is a -- ADCOM was a bit of a big deal. So during the course of this year, we're going to continue our conversations with them and see exactly how to refine our approach in non-small cell lung cancer. But with pricing, I would just say that our view has never been to offer draconian discounts or to massively disrupt markets. We would rather work within markets to make them more efficient and achieve our market share objectives.

I think going by how we saw you come into the market with UDENYCA, where you necessarily were not the initial price disruptors. So I think that's a similar strategy that we could expect?

Yes, I think so. With the UDENYCA, we are never the first person to cut price. We believe in being good stewards of ASP in aligning all the individual constituents on the Medicare Part B side. But we were able to achieve in excess of a 20% market share in the first year and surpass certain competitors, even though they had lower prices. So we think that pricing is only one part of the story. And we look forward to -- with respect to toripalimab, fashioning a very cogent value proposition for the customer base and then very effectively prosecute it, very much like we did with UDENYCA. I don't know if Paul was going to make any additional comments on our approach to the NPC market or those patients and so on.

Just -- I would just like to add that nasopharyngeal carcinoma really is the high unmet need, and we would be the first and only PD-1 inhibitor with the potential to change the standard of care in first-line treatment in combination with chemotherapy. So we're going to bring to the market a scientifically advanced data set in this high unmet need population, and it will deliver unsurpassed efficacy in that tumor, and then we're going to build off of that. So just want to dispel any myths that this is not a cheap Chinese PD-1. This is a high science molecule. And I think the validation in the peer review of that science with ASCO Plenary, publication in Nature Medicine and then NCCN has already picked it up as a reference in the guidelines before even approval validates really that the science is leading the way for what we believe will be a very successful commercial launch.

And just to dovetail on most Paul's remarks that we'll see continued data readouts through this year with toripalimab. We just saw the esophageal data, for example, and we'll see some additional data hepatic, but we will also see some small cell data probably around midyear, which we think would be very interesting. That's another problematic patient population, low PD-L1, largely instead of -- so throughout 2022, I think you'll see us continue to build the track record of toripalimab on the ground with the science, as Paul pointed out, in terms of efficacy.

Great. Maybe 1 final question on toripalimab, then I will switch over the biosimilars. As you said, NPC only drug potentially to be approved unmet need. Can you size of this market -- again, probably around a couple of thousand patients, but can you size this market and maybe give an indication of what this means in terms of the commercial opportunity for you?

Yes, as a rare cancer, when you look at claims data, you think that there's annually probably 2,000 patients treated for nasopharyngeal carcinoma. Some of those patients get treated with localized therapy, whether it's radiation, surgery, which is a very difficult surgical procedure given the location of it. But once patients transition into systemic therapy, we'll have a label, if approved, in the applied setting. And so the commercial opportunity for us is to really get every one of these newly diagnosed patients entering systemic therapy on to toripalimab in combination with chemotherapy. The other nuance to this market is that it could be undervalued because as we've been engaging with head and neck specialists now since we acquired the product they'll oftentimes code it as head and neck cancer. So I'm not suggesting that the market is massively bigger, but it's likely larger than what the claims data suggests which just gives us additional opportunity. Now that being said, if there's patients already in the treatment flow that have not yet received a PD-1 and they're progressing second, third-line therapy, our data there with our POLARIS study, which was included in our filing, would enable us to capture those patients. So really coming in at the time of approval, we'll look to capture all of these patients within their treatment continuum to really establish that new standard of care, which is exciting for Coherus and our first entry into immuno-oncology.

Great. Shifting slightly towards the biosimilar side and we're coming up with sort of a major launch with HUMIRA next year. I think there is still, I would say, going by the conversations ahead, still reasonable degree of uncertainty as to how the market is going to pan out. And you have various entrants coming through over the course of 2023. Your market expectation is strong [indiscernible], and secondly, you also spoke about the non-stinging formulation as a key differentiator and advantage for you. So could you comment also about that?

I'll take one of those, and Paul kick the formulation over to you. So our conversations with payers would indicate that significant supply capability with low pricing is the primary driver of conversion and commitment followed by some other things. So we made investments, $35 million, $45 million investments over the past couple of years. We've got a very large scale with our CIMERLI HUMIRA biosimilar product to be able to drive the price down and to be able to provide supply guarantees. We also expect to have 3- or 4-year dating with that product so we can build up that supply and then service the market. We think this will be very, very important. Paul, do you want to comment on the formulation issue?

Yes. I mean we intend to bring a product presentation in an auto-injector, very high gauge needle, with our proprietary sting-free, citrate-free formulation. So it will look nearly identical to the reference product. And just to iterate what Denny said, in our vast research with payers and PBMs, it's going to be price and supply. And then allowing their specialty pharmacy networks that are aligned into those payer vertically integrated systems to be able to dispense it. We'll be able to deliver all of that at the time of launch. And there's been a number of questions in our one-on-ones about interchangeability and our perspective on interchangeability. And I think what we're operating under is with the payers and PBMs have told us, which is it's a nice-to-have attribute. And then if you can compete on price and supply and deliver on those fundamental things that they've converted markets for biosimilars versus references, it's a pharmacy pathway. And so they have a number of utilization management controls in place to drive their formulary choices. And so we -- plus we think it's a melting ice cube because interchangeability is really only against the reference product. So as HUMIRA business continues to contract over time, the role of interchangeability becomes less and less of an attribute. So we believe we're going to come to market at the time of formation with a very compelling value proposition for payers and PBMs and at the same time, meet the needs of clinicians and patients on this therapy.

Yes. I think the second half of that -- just to build on Paul's remarks. It's true that you have to show up with the right price and the right product and not sting and all those, but all companies are not created equal. And I think the second part of success is really execution. And what Coherus has shown they can do, particularly like with the UDENYCA market is really strongly to execute on the commercial side. And that's why we're confident of achieving our market share numbers. We've taken a look at these markets, and we feel quite confident that we can get where we want to be. I think our company is right sized to compete in these markets. We bought through the challenge for a number of years. And so this is a market we're very excited about going into.

Great. And Paul, going away comment, is it fair to assume that you're not conducting any switching studies and you're not investing into that?

At this time, we have -- we are not going to pursue any interchangeability studies.

You're not pursuing interchangeability?

Yes. We think that the issue of interchangeability is a bit overdone. There's only one team who's going to have interchangeability that would show up in July of '23, and that will expire in July of '24. Some of the major players already been in the market 18 months by then. So we don't see the changeability playing a big role from July 2024 onward. We think that where will largely be over by that time.

Great. Maybe one final question on biosimilar HUMIRA. Denny, when we spoke about this for the first time in 2020 -- early 2020, I think your math around this was that assume that the market compresses -- $20 billion market compresses to $4 billion to $5 billion, we'll have 10% of it, $400 million, market share. Is there something that is still revolves out there, outside risk to that number?

So our own -- it's hard to say how far the market is going to contract. Certainly, it's an $18 billion or $20 billion market now. I would say within the first year that market will go down 40% to 45%. I think that's fairly consistent with AbbVie's own estimates and comments, although I wouldn't endorse all the rest of their estimates and comments. But I think so. I think you probably get 50% 18 months. And I really don't know how far the market is going to go down from there. But I would say that in the last 2 years, I indicated we made substantial investments in scale. We're at very large scale in steel tanks, for example. And we've driven the price of our fully loaded oil injector down really significantly just into the double digits. And we are very confident we'll be able to compete on the basis of price and volume without any issue at all.

Got it. We have a couple of questions on the biosimilar side still. I do want to ensure that I can get like Denny's views on capital currently. Where do you stand with regard to grant cash in the books? And any capital raise that you anticipate? And more importantly, how do you foresee your capital allocation shifting now between previously and 2020 now?

We ended the year with $417 million. Shortly after the end of the year, in January, we entered into a credit facility with Pharmakon for $300 million. The first $100 million tranche a term loan, the second $100 million tranche will pull this month to refinance convertible notes. And then there are 2 additional tranches, $50 million each, one upon the approval of toripalimab, one upon the approval of CIMERLI that we'll use as growth capital. So I think that we're very well positioned, assuming that the star is all online and that the launches go according to plan, I think that we're very well positioned for the next few years. Of course, we are launching new products, and product launches are expensive. And we anticipate 3 to 4 new product launches over the next 14 months. So the operating expenses for Coherus this year, we said it would be about $415 million to $450 million. A significant portion of that is towards inventory build for those new product launches. So I think that we're well positioned.

Got it. Great. We have 1 minute left. So I have to choose between biosimilar lucentis or our OB. So I'll choose OB. So what are the next steps now? And as I think about -- trying to model and think about what was the market share and again -- I mean, you had a great -- very successful launch UDENYCA in the first year and pricing took it down thereafter. But -- when investors look at this opportunity now, how much of the 50%, that's still with innovator, do you think your on-body injector could regain?

That's a great question. I think we'll do very well in that market. And when we launch it next year, I would say, certainly 25% to 50% of the market, something along that order, depending on how things go. But it is a $1 billion segment, it's a very large piece. It's one that Amgen has had themselves. So we look forward to competing there. We have an excellent device. We have a very successful pharmacokinetic study. We're spooling up a number of directions around that now. But I think that, that's a market that has waited a long time for biosimilar alternatives. Lastly, I'd say we had our national sales meeting last week in Phoenix, and a number of folks came up to me and said that the customers are very, very anxious to get their hands on it and just waiting for us to show up with the on-body device. So I think customer acceptance is going to be very robust.

Great. Just to confirm, Denny, did you say 25% to 50% of the onboarding injector market?

That's correct.

Okay. Great. And lastly, do you expect to see any competition on the [indiscernible] with its own on-body product?

I'm sorry, competition where?

For the on-body version, anytime in the near future?

That's hard to say. I think that the pharmacokinetic studies, in particular, difficult to execute with pegfilgrastim even if you're going to [indiscernible] to syringe. So going on-body to a syringe is another level of complexity and difficulty. But I would assume if somebody achieves that, they'll probably [indiscernible] want to take a look at it.

Got it. Okay. So with that, we're out of time. And Theresa, McDavid, Paul, Denny, thank you so much for your time and for joining us here in person.

Well, thank you.