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

Our last presentation slot of the Bank of America Annual Healthcare Conference. My name is Jason Gerberry, I'm one of the biotech and spec pharma analyst at BofA. And I'm joined by Coherus Biosciences and CEO, Denny Lanfear; and Theresa Lavallee, Chief Development Officer. So first off, thanks for joining us in the last slot of the day.

Thank you. Thank you very, very much, Jason, for having us today, and we're happy to come to the conference here in Vegas.

Great. Great. So maybe at a high level, can you talk a little bit about the evolution of Coherus and the strategy, right, initially very biosimilar focus? Now you've got the IO assets and you're evolving. And I think kind of like a route commonality amongst everything is there's inefficiencies in the health care system and kind of the charge of the company, right, was to, I guess, bring products to market that can help alleviate some of the burden on the health care system. And so maybe just talk about how the pivot with the Junshi license and the assets that you brought in, how that tweaks the strategy from a biosimilar-focused company to what you hope to become in the next 3 to 5 years.

Great, certainly. Well, firstly, we founded the company in September of 2011 on the back of the Affordable Care Act and BPCI Act. There was significant opportunity at that time, which we saw to increase patient access, deliver savings to the health care system. And I think we were very, very successful with that. We moved a number of products forward, 2 of those products have been approved. One of those products was launched, of course, UDENYCA, which did $356 million first year out, did 20% market share. Of course, we're very bullish about other products as we go forward. But I think the biosimilar market has evolved to a certain point in 10 years have gone by. And it's true. We have always been driven by patient benefit. And what we see in an innovative immuno-oncology is the opportunity to increase the survival of patients. Patients in small cell lung cancer, for example, under immunotherapy go from perhaps 10.4 months to 12.4 months in terms of overall survival. And we believe that there is a significant opportunity here to impact that survival across a number of these cancers, particularly because of PD-1. Theresa will talk a little further about PD-1s and our view as they being the linchpin to being an immuno-oncology company. But Overall, I would say that the transition from a biosimilar company to an innovative immuno-oncology company is going well, and I'm happy with that progress. It's proceeded at pace. In the last year, for example, we did the agreement with Junshi. We followed that by building the internal team with immuno-oncology-focused Chiefs. Dr. LaVallee now is my Chief Development Officer, Dr. Raj [indiscernible] is my new Chief Medical Officer. I also have a new Chief Commercial Officer, Paul Reider. And we are continually now building the company out focused on immuno-oncology. We've also made improvements at the board level. We had previous Board members focused on biosimilars. And now we have, for example, Dr. Lee, a new comer, who's joined the Board, and he's the former Chief Medical Officer of UnitedHealthcare, which may be very helpful for us. [indiscernible] has just joined us from the Cancer Research Institute. I think we just announced her yesterday. Charlie Newton has just joined us, a strategist and a former investment banker, and so on. So we've been building out the company, I think, in a number of dimensions with the portfolio, I think, is coming together well. We're very happy with the data that is reading now with toripalimab. We see its mechanism of action as being differentiated, particularly with respect to PD-1 on the surface of T cells. Theresa can talk a little bit about that. I'm happy also with the progress the company has made with respect to getting the products approved. Last December, the YUSIMRY product was approved, our HUMIRA biosimilar. We look forward to launching that next July. We're teed up, I think, in very good shape for the [indiscernible] approval of the Lucentis biosimilar in early August, which is also coming up. It's true we've had a little delay here with tori with respect to China and being able to get there because of COVID and so on, but that's something basically beyond our control. Overall, though, I think, the strategy is quite sound. I think it's a rare company that has 4 product launches that they look forward to over the next 12 or 14 months here between now and next summer. I think that we have a very good long-term strategy with respect to the recent analyst meeting that we had, for example, in New York, which you're kind enough to attend. We projected $1.2 billion to $2.4 billion in top line sales in 2026. And we did that also, I think, in the context of a very well-controlled expense line, right? While we're going to approach markets that are 10x the markets that we have now, we only project perhaps a 20% increase in our cost structure. So we look forward to leveraging our existing cost structure across the organization, commercial development, manufacturing, et cetera. And I think we'll do quite well. And we really look forward to the launches next year. And just back to the cost for us a moment, there are some investments there that we have to make. You've got to be able to manufacture the lots and so forth in order to meet these markets, and we have to do that now and Pulse team has to scale up with respect to being able to approach these markets. But overall, I think, the strategy is sound. The company is on good footing. So I think we're doing very well. It's a bit of a tough market.

Yes. So with respect to biosimilars, you guys have shown a good track record of being scrappy and out punching larger established players with UDENYCA. And you've got a number of additional products. Should the Street look at -- on the one hand, like the predictability of product launches and perhaps the durability of a biosimilar over time could vary, and that makes for a challenging public equity story, but the IO assets could offer more of that consistent linear growth. So should we think about biosimilars as enablers in a way, right? Like you get good profit, it subsidizes the spend that you do to build out kind of what would be the more durable long-term part of the business, which would be the IO assets. I'm just curious if that's the right way to think about it.

That's exactly right, Jason. That is the way we think about it. We have made investments in the biosimilar products over the past decade that we can now reap the benefits from, for example, with YUSIMRY. We think that's going to be a great product. We believe we're going to be very successful getting the 10% or better market share that we've targeted. Paul's got a very, very sharp team working on that. And I think that, that $18 billion is probably the biggest bonanza product opportunity ever to come down the line in biotechnology or pharma. And of all the folks that are there, I think, we are the ones really that have the commercial executional track record to go forward. We feel the same way about [indiscernible], we're very bullish. That's a $6 billion to $8 billion VEGF market that we're going after. We think that the best place to approach that market is in the middle, not down at the bottom, going head-to-head against the Avastin reformulation, not up at the top right away where you have Eylea into the middle of the market where you can readily expand and that's been our strategy. Yes, it is true that the biosimilar assets do incur growth, they plateau and then they roll over as more market entrants come, that's unavoidable. And whether that's a 3-year cycle or a 5-year cycle or whatever, the fact is you have to stack a few of those up in order to get a continuation of your revenue growth. But on the other hand, the immuno-oncology markets, where you are able to positively impact patient survival, I think, have a much different sort of growth profile. Once we get toripalimab approved, we look forward to generating sales of more toripalimab every single quarter going forward with that product and then also bringing on additional IO assets. But we think the sort of nondilutive strategy of funding the development end of the business through the biosimilars and then realizing stable and growing solid revenue top line growth, while controlling cost is a great business formula. We're a little old-fashioned that way. That's the way we did it with UDENYCA. Got out there to get the sales, pull the cost down and just make money in the old-fashioned way.

And once you've launched HUMIRA, OBI, Lucentis, these biosimilars, additional biosimilars, we kind of have this $100 million to $200 million cost of development. Will you look to add more to kind of plug into the portfolio? Or were the investments kind of beyond that -- this next wave of biosimilar launches be focused more on IO?

Certainly, HUMIRA is an exceptional product being so large at $18 billion. I don't know if it's possible really to grab another product either to dovetail with it, or replicate that kind of benefit. Some of these markets, I think, can get a little tough. Our view would probably be to leverage toripalimab as a differentiated and excellent PD-1 and instead bring in assets in oncology and immuno-oncology to dovetail in that mechanism of action and grow the oncology end of the business for the top line as opposed to the biosimilar end of the business.

I'm just curious, it seems like very few players have gone after STELARA, which is pretty big. I think it's approaching $10 billion. A lot of people, through our coverage of Teva, are somewhat excited about that opportunity. Just curious maybe why you guys maybe think to go after that opportunity if you're interested in that opportunity.

It's not so much that we didn't go after it. It's that we had to sort of place our bets back in the day. We weren't -- we didn't have quite the pocketbook of engine as some of these other folks. So we put our bets where we did. I think pegfilgrastim, obviously, it was a great bet. We selected, for example, Enbrel and HUMIRA to pursue. Enbrel, of course, ran into some patent issues. HUMIRA, too, there's a delay there. But Lucentis is another one where we invested and went forward. I suppose that if a STELARA transaction came by and that was attractive to us, we would do that and made [indiscernible] well with YUSIMRY. But on the other hand, not at the cost of compromising the immuno-oncology portfolio. But you're right. I think it's an interesting -- it's certainly interesting opportunity. We do get incoming overtures from time to time around these kinds of things, we take care of all of it.

Yes. Okay. So maybe we'll spend maybe the next 10 minutes on IO and then maybe some biosimilar questions because I know IO is a really important part of the story. And just maybe, Theresa, the toripalimab, the delay. Can you just maybe speak to the dynamics for resubmission and timing considerations there for MPC? And then we'll talk about some of the clinical programs after that.

Sure. Yes. So we received a CRL at the PDUFA date. That is on a quality issue, a CMC issue that we think is readily addressable. So we're actively going after meeting with the agency, ensuring our complete response is complete and then plan to resubmit this summer. So the wonderful thing is CRL is never something to be joyous about, but having it easily addressable, the clinical data is -- and repeatedly stated by the FDA to be impressive and adequate. So we plan to resubmit and then try to get the inspections done, which is really the big issue to achieve the approval.

And MPC is on the niche year side as a tumor, it affects a lot of, I guess, Asian-Americans, which would be the market that you'd be going after. How readily identifiable is that population? My understanding is that a lot of them are using pembro, which is not approved for that indication. And so as an approved therapy, your ability to I guess, garner utilization and displacing kind of this off-label approach?

Yes. I think our colleagues, Paul and Raj, have teams that have really engaged the community through medical affairs and the commercial look and what Paul has told me is that the a lot of the head and neck docks are coding MPC is a subtype of head and neck cancer that way in order to have access to it. I mean we think it's very interesting that the NCCN guidelines have referenced our studies before it's approved, which is really not typical. And so the strength of the data and the community and engaging the community and the cooperative groups till once it's approved to then have that market penetration, I think, we're very engaged and excited about.

And I would just add that part of Paul's efforts with commercialization is the awareness of these docs. There is some is some miscoding. And what we have found is that as we have communicated with the physicians and these docs, we've actually got an outreach where people have had these patients and they've asked this, for example, for compassionate use in some cases and so on. So I think that it's an absolute unmet need. We will be the new standard of care, the only approved product for that. And I think our benefit to patients is in our data, and it's quite impressive. So I think we're going to do pretty well. It is a small market, but it's probably larger than estimated.

Okay. Now when you did the license, at that point in time, FDA leadership had communicated that programs with China-driven studies could be approvable in established PD-1 markets and then they walked it back in a very high profile set of editorials and ADCOMs. And you guys have subsequently said, hey, we're not going to go after some of these large established tumor markets like frontline lung. So how are you thinking about taking on true clinical risk in settings with a PD-1 or a TIGIT that hasn't been validated versus trying to -- my sense after you did the deal as it was kind of more of a fast follower strategy where you at least try to mitigate some of that clinical risk.

Theresa, do you want to take that one?

Yes. So I think, importantly, toripalimab has repeatedly delivered robust clinical data. So it's a solid molecule and delivering survival advantage across a breadth of indications. The question is how to take that to an approval strategy in the U.S. So things like non-small cell lung cancer, it would take a large Phase III study that would start now. Looking towards the combination strategy probably makes more sense for that indication using toripalimab as an anchor to things like TIGIT. We're still very interested in that and think the biology speak to there's opportunities in that disease to look at that combination and the pipeline that we're bringing forward. And there's other indications looking at another combinations for toripalimab and working with our partner, Junshi, that have a number of Phase IIIs teed up or ongoing to add that multiregional component. So the rules have changed, we get a better understanding of what the rules are and then taking this really terrific molecule in looking at clinical trials that it can add benefit to patients is the overall strategy.

And you guys probably know this question is coming next, but after the Roche update, how are you thinking differently, if at all, about combining PD-1 and TIGIT in the lung setting in the PD-L1 high subgroup?

Well, I would say, to paraphase Mark Twain, we think the rumors of TIGIT's demise are greatly exaggerated. At this point, a bit overdone, but I'll let Theresa handle the rest of that.

Well said, Denny. So I think, one, we need to see the data, right? And we also need to look at the totality of the press release. I mean they did mention that the PFS and OS are numerically higher. So how much of the miss is it? How is the statistics set up between the alpha split between PFS and OS, understanding that. I mean in some ways, it could put us in a better position, sometimes going second is -- will enable our trial design to be more adequately controlled to hit those numbers. The other aspect is it's a PD-L1 versus a PD-1, which we anxiously watch as the data get reported and look at the data from our own studies to see if that really confers some differential benefit. I mean the way the biology is set up, I would think, with the cross talk on the T cell, a PD-1 and a TIGIT would be better than a PD-L1 in and a TIGIT. And then thirdly, toripalimab, as Dennis mentioned, has some differentiation. In that, we've shown in the CHOICE 1 study that non-small cell lung cancer as well as the NPC in the esophageal cancer studies that our activity is independent of PD-L1 in combination with chemotherapy, whereas the Roche data really showed that the tiragolumab with atezo was only showed benefit in the PD-L1 high. So that might be an area to really look at and we plan to do that in the clinic this year.

Yes. What about the -- is it -- didn't they have an active amount of silent TIGIT?

And there's a lot of debate in the field over what's the best FC backbone and their's is an active FC, a competent FC whereas ours is FC sideline. So that may or may not confer differences.

Yes. And the sales target, the aspirational numbers, I think, you said it was $1.2 billion 2025 or 2026. How much of that is IO? I think it was $100 million earmarked for MPC at some point in time, but it seems like you're embarking on a lot of additional studies that will drive the future value of the IO franchise. And perhaps it's a little too early to characterize the revenue contribution from that. It's going to be more probably the second half of this decade where we start to, as investors see kind of what that opportunity really is for you guys. Is that a fair summary?

I think it's fair to say that post 2025, in approvals of various indications, you'll see stronger revenue growth in the portfolio as a function of the IO oncology assets, yes.

Okay. And I assume that there is an interplay with your biosimilars in the sense you -- I don't think that your success with UDENYCA was because you had sales force out there pounding the pavement so much as there are probably other ways that you were able to get that utilized by practices. But just thinking about the -- you'll have some oncology assets through -- in relationships through the UDENYCA and OBI, hopefully, so how you leverage that as a sort of you spring yourself into the IO setting?

Yes, I think that's right. I think the more you have to say at a particular call point to a physician, the better. Certainly, there's 95% overlap, I think, between the PD-1 call point and the UDENYCA pegfilgrastin call point. So any other product that we put in the bag will add focused around that I think will be highly leveraged and synergistic and of course, we're on the outlook for things like that. But overall, I think, as the decade progresses, as I indicated earlier, you'll see the company enjoy the sort of cost leverage where we don't have dramatic increases in spending or dramatic increases in headcount. We run the company fairly leanly as it is. You have to manufacture the drugs and so forth. But I think there's a lot of room for increasing our top line without substantially increasing the expense line.

And Theresa, are there any, I guess, 1 or 2 high-profile clinical readouts for the IO franchise in the next 2 years? Just wondering what you would point us to is like probably the biggest 1 or 2 readouts to focus on?

I mean we're really excited about getting MPC approved. We really think that's an underserved market and really bringing it to market. And then we also have talked about we have a small cell lung cancer study that will read out this number. And that's really a patient population that's been grossly underserved in the space. And then we're super excited about getting the TIGIT study going in the U.S. and looking at the activity in combination with tori.

The small cell, that's frontline and most regional?

It is all China. So it is a Phase III in combination with chemotherapy run by Junshi in China. But it's a very underserved patient population and the effect, the magnitude of benefit could give more regulatory flexibility.

I think it's also a low PD-L1 type condition isn't it?

It is a low PD-L1 tumor type, which might give more benefit than was seen with pembro and nivo and that could really bolster the differentiation of toripalimab.

Which is just to underline that, this is exactly what we saw for example, in the esophageal study where the low PD-L1 patients did just as well as the high PD-1 patients. And molecules like pembro did not, right, where the curves were more overlapping. So we think that was a validation of the mechanism of action. Not that all cancers that have low PD-L1 might be responsive to this differentiated mechanism of action. So -- but I think this is going to be very interesting with small cell.

Your benchmark would be atezo in the small cell lung?

Atezo and durva are approved in the frontline setting, and they have given a 2 to 2.7, I think, month overall survival advantage. Yes, fairly modest.

So looking forward to that, maybe shifting in the last 6 minutes or so biosimilars. So Lucentis, I think, the messaging is, we've been inspected. We've got in August PDUFA. If I'm remembering correctly, it's my third day. So my facts might be -- okay, so it seems like things are progressing. You and your partner had some equipment dynamics with the regulators that maybe delayed the go-to-market, you'd be second, I presume to Biogen. I think Teva has a filing. So just maybe talk about that opportunity because it seems like you guys are pretty bullish about the broader VEGF opportunity here and not to just think about Lucentis specific sales as sort of indicative of the market.

Well, I'll take the first part of that. I think that the -- our view is that the file is progressing very well. We don't see any impediments to being approved on time, the actions with the agency, which we declined to comment on, but I would characterize as very positive and give us confidence of an August approval target. I think if you look at that market, as I indicated in my opening remarks, I think that's a very interesting market to go after from this center of it. There is a significant unmet need for a biosimilar in that market. It's not served by, for example, the reformulated Avastin of the bio more than Eylea. So our overtures in that market so far indicates a significant amount of enthusiasm for doctors to have that sort of choice to go into that market. And there's a high degree of therapeutic interchangeability between, for example, Eylea and Lucentis right? And so I think there's the opportunity to go into that market and talk to all of those physicians. They all started with Lucentis back in the day. There's a very high concentration of those physicians as far as their practices. So additionally, what I would say is that it's not a market where we have to have a real significant boots on the ground effort to get to the accounts that we need to. And lastly, I would say is we have a very, very good molecule. That molecule is non-glycosylated so you just have a naked [indiscernible] sequence, which is exactly the same. We have this very same formulation as the innovator. And so we don't think there's going to be any issues with regard to inflammation, infection. Some of these issues that have plagued other ophthalmology products, new products as they've come into those markets that make the doctors a little leery. So we think it's an educational effort with parts of the providers, get them comfortable with that. And that's something I think that we did very well with UDENYCA, education, cooperation, understand exactly what they need, debottleneck the whole process. So we're going to take a similar approach.

So I know that in this field, there's this migration to every 12-week dosing and even Eylea, a subset or a portion of patients are every 12-week. With Lucentis, is it being used every 12 week or maybe with a meaningful size subset of patients? Just wondering how physicians would look at the profile.

Do you want to take that one, Theresa?

I actually don't know.

Yes. Sorry, I don't have the answer to that one on the dosing frequency.

Yes, it's fine. All right. So a couple of minutes left to [indiscernible]. So your high concentrate status of that. And I know that a lot of people focus on that is an important factor, supply and supply commitments is an important factor to commercial success. Just curious, I know you've already talked about your supply commitments.

Yes. I think we have. And you're right, Jason. If you stack rank what's important to the deciders in this case, which is the payers, it's supply first and foremost. And of course, we've made big investments, and we've addressed that. So we're pretty happy with that position. The issue with the formulation is that it's not so much high concentration is you really don't want it to sting. Not that the payers wouldn't embrace something that stung anyway because all the low concentration HUMIRA, the citrate-based formulation, of course, is done for many years, and it's fine. But we were very careful when we developed the HUMIRA formulation 5 or 6 years ago that we had a nonstinging formulation. So we did that really just a matter, of course, it's an arginine-based formulation. So we feel very well prepared. And I don't think there's really a discernible difference between injecting the low concentration nonstinging and high concentration onstinging as far as patient comfort or time of injection. All that being said, regardless, we pursued high concentration formulations but under development for some time. And we expect -- that's your wife calling. We expect to launch that directly after getting into the market. So it's something we stayed slightly behind. It won't be right at launch, but it will be directly thereafter. So again, our strategy in that market is to show with all the boxes checked for the payers.

My sense is that for the big payers, they're going to go with 1 or 2 biosimilars and AbbVie on a discounted basis. And so is the thinking to play for those bigger chunky accounts and volumes? Or is there room to operate at the margins here because it's such a big market?

Well, you're right again. There's a number of ways you can put the puzzle pieces together to get to your 10% market share. Folks like UnitedHealthcare have 10%, 11% in the U.S. market, that's just one. And there is -- so you can cobble together coalitions of a large player and regional players, et cetera. But to your other point, though, yes, the way they construct the formularies, it can be one of one, you can offer those incentives. That's probably financially best for the payers or perhaps 1 of 2 or so on. So we think it will probably look like that.

Okay. Great. Well, Denny, Theresa, thanks so much for joining us at the conference and looking forward to the updates.

All right. Jason, thanks for having us today.

Thank you.