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

Okay. Good day everybody. My name is Ash Verma. I'm a SMID cap biotech and spec pharma analyst at UBS. And with me today is the Coherus team. With us, Denny Lanfear, who's the CEO; Paul Reider, Chief Commercial Officer; and Theresa Lavallee, who is the Chief Development Officer. Thanks for joining us.

Thank you very much for the invitation to the conference, and we're happy to talk to you today, Ash.

Great. So just maybe start off like with a quick, very brief outline for the company for people that might not be familiar, just like take a couple of quick minutes and then to the questions.

Very well. Coherus is a biotechnology company focused on developing products in immuno-oncology to extend patient survival funded by the sale of FDA-approved products. We are in the middle of launching about 5 different products over the last 18 months. That includes UDENYCA which is our pegfilgrastim product, which has two presentations. Soon, they have three presentations for the market. Similarly, our Lucentis biosimilar, LOQTORZI, our PD-1 and YUSIMRY, our HUMIRA biosimilar.

Great. So thanks for that. So just maybe we can start off with UDENYCA. So I mean there's been quite a shift in the pricing and the volume dynamic here. You do have new presentations that you outlined. Just help us understand like how does the next few quarters look like and what are the pushes and pulls for this product?

Sure. So UDENYCA is a product that we launched in January of 2019. We achieved 20% market share in the very first year with that product, although we were second to launch and 6 months behind Mylan. That product has done well historically for us, but we knew that, that space will get very, very competitive. So what we did is we developed two additional presentations for that to be able to provide a total solution for the market. The first of those was an auto-injector, which allowed self administration for the patients. And the second one is the on-body device. Amgen's on-body device Onpro currently has about 44% of the 1.2 million units per year. We have developed an on-body device, which we filed. Unfortunately, we received a complete response letter from the FDA on that in the past couple of months, and Dr. Lavallee can give you some additional color on the progress we're making with the agency in terms of getting that approved. We refiled that within 2 weeks, I think, from the CRL, and we're very optimistic about its approval. The on-body device is very, very important for us. And the other issue that I would point out here is we have taken a very long view of this market. The UDENYCA market, as I said, was about 1.2 million units. Our share increased this year from about 10.5% to about 16.5%. We anticipate significant share gains next year particularly with respect to the 44% that Amgen owns with their Onpro with our on-body device. So we should easily pick up double-digit increases there in that particular space. We've been very protective of our ASP. We currently have an ASP that's very strong. It's a good basis upon which to launch these additional presentations now. And our payer coverage has increased also from about 30% in Q1, almost double we project for Q1 2024. So our strategy in that market is to now focus with these three presentations moving forward to gain significant additional market share over 2024 by virtue of having these three presentations and also to focus on increasing the margins. One key point here is that the additional insurance coverage will allow us to pursue certain segments that have better margins than others. Some of the segments are less attractive and most profitable. But next year with these three presentations, we think that our profitability per unit will increase, and we'll be in a much better position as far as driving that business forward.

So just on the on-body, I mean, so I have two questions. One is just, do you believe that you have freedom to operate and any kind of litigation or any locking and tackling that needs to go through? And this is separate from the FDA approval question. So that's one question. And then the second thing is that in terms of the pricing for -- would it be more of a higher price compared to what you have right now with the oncotype formulation or would it be subject to similar pricing declines that we have seen in the other part of the market?

Yes. So I'll let Paul handle the pricing question. Second, I'll address the first issue with respect to legal concerns. We were very careful when we went about developing this device. We developed a de novo device specifically for this application. So we did not, for example, adopt a previous device and adopt it to the application such as the Innovator did. So in such context, we're very comfortable with our intellectual property position. And I would say that we are very cognizant of the IP around this as we went forward. It doesn't mean that someone can attempt something post launch, and maybe they probably will, I don't know. But I think that we're very, very certain that we have appropriate IP coverage for the device. It is completely de novo design for us.

Yes. Sorry, just on that, so at this point, right? I mean, you have had the filing in to the FDA so the R&D safe harbor is off. So technically, if someone was going to litigate you, they would have had the chance to do that by now. So does that give you any kind of confidence that maybe there is no blocking?

I would respectfully decline to comment too much on such legal issues or expectations. But Paul will be happy to address your question with respect to the pricing of the on-body system and how we look at that. Paul?

Yes, Ash, maybe like the auto-injector, our on-body device when approved will be reimbursed at the same ASP. That will have the same Q code as the current prefilled syringe presentations, which is why our strategy has been to be very disciplined with managing our ASP because when we move into the on-body space, now our reference is Neulasta Onpro. There's only one presentation. It's the innovator as opposed to the prefilled syringe segment, which has gone under increasingly more competition, and you were battling in that space. Here, so now we have a lot more flexibility with how we decide to now price and contract within the segments because now we're really only anchoring against what's the price of the Neulasta Onpro. Today, our ASP is at $900 advantage to the Neulasta innovator. Why that's important is because that's how doctors get reimbursed on the ASP. So higher ASP, higher reimbursement. So when we're talking about just the economics, we feel we can bring a very strong value proposition. What we also haven't disclosed are some of the unique features and benefits of our on-body device. We'll do that when we get the launch, but we believe those will be meaningful for the customers. And so we'll be able to bring not only what we believe will be a device which will create more value for them based on the device features but also on the business side.

I think it's also fair to say there's a very palpable enthusiasm at the customer base for the product. It's anxiously waited. We very consistently get calls incoming. And I think this is really can be quite a successful product for us. But the long-term strategy of the business, I think, is working out well. We've been able to protect the ASP for the long term. So we'll have good pricing to be able to launch these additional presentations. And we're going to go head and do that. At the same time, a lot of other competitors have over indulged in price cutting and had to exit the market, and we don't intend for that to happen to us. We intend to monetize this market in a very steady way over the long term and to be the robust, consistent partner in the space.

So switching gears to CIMERLI, so yes, like the third quarter update was pretty encouraging. Anything that you can comment on there? Do you see the use coming from initially is it more from the innovator or new patients? And as we look at subsequent quarters, I mean you kind of reiterated your guidance as well and going into next year, what is the competitive dynamic look like to you?

We're actually pleased with the launch. We had this issue of having given the Q-code out of the way. We told the Street that with the Q-code, things would accelerate. Indeed, they have. We have 50% quarter-over-quarter increase, I think, from Q2 to Q3. So that's very good. I'll let Paul talk a little bit about where the business is coming from with respect to CIMERLI.

Yes. CIMERLI is really accelerating as we expected, driving that has been a combination of the Q-code, getting through that reimbursement hurdle. But also, we're now seeing in the marketplace the real-world evidence that CIMERLI is delivering on its clinical profile as expected. So again, biosimilars are new in this category. Retinal specialists highly attune to safety. So we had the early adopters jumping up what's really driving the utilization in Q3 was the Q-Code real-world evidence. And the doctors now are using it on new patients as well as conversions from Lucentis, the innovator, as we expected. But also we're seeing conversions from patients that were starting on Avastin and the doctor wants now to transition them to a branded agent to improve on their clinical efficacy. And so those are the two largest sources of business for us, new patients and conversion from those two products.

With respect to the long-term outlook for that business, it's important to note what we found that the ophthalmology segment operates quite a bit differently than oncology. In oncology, when you have products like PFS, pegfilgrastim, there can be very rapid switching between those two. They are highly unchangeable. However, ophthalmologists have very long-term relationships with their patients. They're injecting them for 5 or 10 or 15 years. So what we found is ophthalmologists are in this to quickly change a patient unless they're very, very certain of the therapy. And once they get a patient stable and moving forward, they want to stay with that. So I think it's fair to say there were some hurdles in getting CIMERLI into the market and getting the conversion going. But on the other side, we think that's very sticky in the long term. So as we build the patient base up, we continue to think that the number of units will grow. So I think this business will be fairly stable out when they -- I hope the biosimilars show up. And we think that will happen probably in first half of '25 sometime perhaps, give or take. But I think that it's going to be a very consistent business for us in that view.

Yes. What about the YUSIMRY, anything that you can share on what are the near-term expectations for 2024/'25? Can you get the business from there?

I think that the HUMIRA biosimilars are the toughest of all spaces in the biosimilars. What we have said about that is our trajectory there will be consistent, but shallow and the inflection will be in 2025. AbbVie retains, I think, about 99% market share. I think it would have been imprudent to spend on a sales force that put boots on the ground to try to pull through with that, given the formulary positions. But I think things will change in 2025 with the IRA, and that's when I think that business will significantly pick up. Until then, I think as a ramp, it's upwards, but somewhat shallow. And I think everyone is having that same issue. Amgen and all the rest of the market participants are finding that's a tough market to convert with the innovator there.

So just moving on to the next product, LOQTORZI. So great job on getting that approval. It has been against all odds, and I'm very impressed with how you turned that ship around. I guess like -- just in terms of like the launch prep, what are the things that you are working on right now that can drive a quick update. And just one question that I had on this is that the -- so I mean, [ SDN ] guidelines can go a long way in making something standard of care. When do you plan to apply for it? And how quickly can we get to see an update on that front?

No, thanks for the question, and thanks for the compliment. I'll let Paul chat a little bit about NCCN and the launch prep, which I think he's been very thorough. But I want to thank Dr. Lavallee and her team for getting this over the line. There was a trip to China for both of us. So back in July, which is a somewhat tough trip. We actually went through and looked at all the production facilities the same way the FDA did a month previous. I think there were some doubters that we could get a PD-1 approved with Chinese-only data, but we thank the FDA for living up to their promise of approving us. And this is a clear example, I think, of regulatory exclusivity. This product, though, is very, very exciting for us. This is our first IO product. This is a great indication. A couple of thousand patients. We think that in the long term, this will allow us really to establish ourselves in IO. The margins are great here. So this is a business really where, let's say, not to disclose price which we haven't done, but let's say that your price was $10,000 a vial. I've got 20% royalty to my partner, but then you have COGS that are in the few hundred dollar range, and I think that gives you very good margins. So we look forward to this being a very nice building marginal business with very good profitability. And we look forward to selling more LOQTORZI every quarter after we launch. And you think the trajectory up to market peak, 2.5, 3 years is going to be very steady. With respect to how steep that adoption curve is and what we have done to prepare for that and so on, I'll let Paul talk about the launch prep.

Yes. We're really excited about this. There's few opportunities in oncology, where a company can own a tumor space, and that's our intention here. Based on the fact that we'll be the first and only FDA-approved treatment for nasopharyngeal carcinoma based on just exemplary data Phase III study with both PFS and OS demonstrating with chemotherapy the opportunity to extend patient life, and this is really meaningful. And doctors have been hungry for a new treatment option in this space. What we've identified here in this space is really a market that's fairly concentrated. There's about 2,200 oncologists that drive 80% of the treatment. There's 100% overlap in the accounts where these doctors practice to our existing UDENYCA customer base. The LOQTORZI gets synergistically and efficiently integrated into our existing oncology infrastructure. So it will be highly efficient there. What we've done, though, with a rare cancer is you got to find these patients. And so we've invested in information technology tools so that any time there's an NPC patient treated, it triggers a claim. That claim routes back to our local field representative. We don't have the patient information, of course, but it tells us that doctor is treating a patient. We can make an immediate call point on that to help inform the doctor of their LOQTORZI data and make the LOQTORZI chemo prescribing decision. At the same time, we'll also -- we built through our npcfax.com, the first NPC patient community. And we did that because there was hunger for more information in the marketplace about nasopharyngeal carcinoma. Right now, I think we've got about 2,200 NPC patients or their caregivers enrolled in our community, which means now they've given us permission to communicate with them. So prior to approval, it's been largely disease state, that converts over to LOQTORZI-branded information. So now these patients will be informed and educated when they can speak to their doctor about their treatment decisions. 60% of these patients are on chemo-only regimens right now. So now either the patient, the doctor will know that they could immediately add LOQTORZI to that chemo regimen. And with Theresa's great work, we have a broad label, which means we have data and now we have a label that LOQTORZI puts chemo in all lines of treatment. So if there's patients just starting on first line, we want to be the new standard of care. If they're on second line on chemo, add LOQTORZI. So that's really our approach here in the early stages of launch. We expect NCCN, hopefully, to have a decision by the end of the year. And we remain confident that based on the level of evidence and the totality, we should be category 1, which is the highest level. And we believe then payers will not place any hurdles based on the totality of evidence there.

Great. So one of the questions that I've been getting, I mean, look, the stock has been under a lot of pressure and just what people are trying to establish is the cash runway that you have and with the burn that in the business and some of the new product revenue coming in, like how can you accelerate that to bridge to profitability in the near term? And that is one of the main questions that investors have right now, like given what the stock reaction has been. So anything that you can outline to kind of understand and get more confidence that you can build the gap to profitability heading into 2024?

So that's a great question. I'm happy to handle it, Ash. So we're in a transition year. Number one, we launched in the past 18 months, CIMERLI, the UDENYCA auto injector. Now we've got toripalimab, YUSIMRY, we're waiting on the on-body. So we're doing a lot of launching of products, and those products are now picking up. We are waiting the on-body and the -- obviously, the on-body complete response letter was a speed bump for us as far as the revenue model. We look forward to getting that approved straightforwardly. But all these things are moving, I think, directionally in the right way. And year-to-date, I think we -- our SG&A plus R&D expenses are some 30% less than the same period last year. So at the same time, even while we're doing so many launches with such commercial intensity, we are also reducing our cost structure, and we will continue to do so. As I said on the call, we are very cognizant in our revenues and our expenses must come into alignment, and we actively very actively manage that. In 2023 in Q1, we did a reduction in workforce, about 60 people that yielded savings about $25 million or $30 million. We're taking a hard look now at 2024 across the board, expenses, head count and costs. At the same time, not jeopardizing the growth of sales. As I said in the call, we are constrained our R&D spend until the middle of 2024. And our clear objective is to reach cash flow positivity by the end of next year. And to do that, I think that we're going to have to drive the top line. We're going to have to really, really control the expense line. But we've shown that we can do that. We're optimistic about the uptick in UDENYCA. We look forward to increasing the profitability per unit there. I think that the toripalimab launch, the LOQTORZI rather will be very, very helpful. But we're highly focused on that. We have models internally which get us there by the end of next year given our assumptions. But we're really taking a very nuance look at the whole picture, but it's something we're completely focused on. The other point that I would make is we have global rights to the assets that arose out of the SURF transaction, casdozo, which was the 388 molecule plus 114 plus our ILT4, which we're filing, we have external interest in those. We are able to monetize and do partnership deals. We're out-licensing those in 2024. We'll look forward to that. Any free cash that comes in, we will focus on paying down our term loan. So we are highly focused on the term loans. We've gotten very expensive at these interest rates. I think it cost us about $36 million to $37 million here in 2023. But where any free cash flow that comes up, we're going to focus it there. But I can assure you that we are very focused on driving the business back to profitability, and we'll make whatever tough decisions are necessary to go ahead and do that.

Great. Great. Thank you. With that, we are out of time. So -- but it was a pleasure to have you. So looking forward to interacting more and good luck.