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

Ladies and gentlemen, thank you for standing by. Welcome to Coherus Ophthalmology Franchise Divestiture Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jami Taylor, Head of Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining us today. I am Jami Taylor, Head of Investor Relations at Coherus. Earlier today, we issued a press release announcing the divestiture of our CIMERLI ophthalmology franchise to Sandoz in a $170 million upfront all-cash deal. That announcement is the sole and primary topic of this call. With us today to offer insight into this news is Denny Lanfear, Chairman and Chief Executive Officer of Coherus. Available during the Q&A portion of our call today are Bryan McMichael, Interim Chief Financial Officer; and Paul Reider, Chief Commercial Officer. I would like to remind you that today's call includes forward-looking statements regarding Coherus' current expectations about future events. These statements include, but are not limited to, the following: statements regarding how we will use the proceeds from the divestiture, whether the divestiture will allow Coherus to reduce head count and overhead costs, projections of future growth, and whether the closing of the divestiture will occur in a timely manner or at all. All of these forward-looking statements involve substantial risks and uncertainties that are beyond our control and could cause actual results, performance or achievements to differ from those implied by the forward-looking statements. These statements are not guarantees of future performance and are subject to substantial risks and uncertainties, including risks and uncertainties about our ability to complete the divestiture on a timely basis, or at all, and risks and uncertainties inherent in the clinical drug development process that are discussed in our press release that we issued today as well as the documents that we filed with the SEC. Forward-looking statements provided on the call today are made as of this date and we undertake no duty to update or revise any forward-looking statements. With that, Denny, I'll now turn the call over to you.

Thank you very much, Jami, and we are very pleased to host this call today announcing this exciting and important development for Coherus, one that is fully aligned with our stated strategy of focusing our business on oncology, where we continue to demonstrate positive momentum and sustainable growth. For this reason, otherwise, the divestiture of our CIMERLI ophthalmology franchise optimizes value for our shareholders. It's the right deal at the right time, right value for us. Let me now review the transaction and point out its advantages for Coherus. As Jami indicated, first, it's $170 million upfront all-cash deal with Sandoz with additional payments for inventory. Importantly, this monetizes our noncore assets outside of oncology. Further, it addresses our term loan debt and reduces our interest payments. It sharpens our focus and drives alignment of our capital structure to our strategy as we previously discussed with you on our last earnings call. Most importantly, it advances our mission for a sustainable and growing business in oncology. Further to the proceeds of this transaction, there is an estimated additional $20 million in payments for product inventory on hand and will add to our balance sheet cash. Now this transaction was possible because it is a reflection of Coherus' commercial excellence, particularly in the buy-and-bill space in the U.S. The transaction includes the transfer of CIMERLI biologics license application and supporting commercial infrastructure. This infrastructure includes the ophthalmology sales force and select field reimbursement. It monetizes our expertise in buy-and-bill, which remains and will fuel our success in advancing Coherus' retained oncology franchises and pipeline LOQTORZI and UDENYCA in its 3 presentations, which I'll describe in just a moment. Further, we provide Sandoz with access to our proprietary franchise management system and commercial software which has been key to our success, both in UDENYCA and in -- with CIMERLI. Now the CIMERLI divestiture, as I indicated, enhances our focus and synergies across the commercial portfolio with our products. Paul Reider, our Chief Commercial Officer, is here today to take your questions on this topic. But importantly, it focuses our commercial and marketing efforts singularly in oncology, where we project continued growth. It leverages that footprint in oncology, with some 90%, 95% overlap in the call points. As you know, LOQTORZI is about a $200 million market opportunity has recently been launched. It is the only I-O treatment with preferred category 1 designation, under NCCN in combination with gemcitabine and cisplatin and the only NCCN regimen in second-line treatment and later. We are pleased with the launch of LOQTORZI, distributors are stocked, the patients are dosed and our sales ramp now being initiated. With respect to UDENYCA, as you know, last year, in 2023, we experienced strong quarter-over-quarter revenue growth. We now have a strong ASP to support our Q1 2024 on-body launch. We have 3 presentations which provide long-term market share growth, the autoinjector, the prefilled syringe and the on-body. The autoinjector demand is increasing nicely. We'll have a little more to say about that on our quarterly call in March. And significantly with respect to UDENYCA franchise, the payer coverage has nearly doubled versus 2023. Now one of the more important things we wanted to achieve this year as I have discussed with you before, is bringing our balance sheet in alignment with our revenue structure. This transaction, importantly, has a potential to reduce our debt when closed. Such potential is reduce our term loan exposure by 70% and thereby reducing our annual interest rate payments by some $25 million. It also provides us the opportunity to reduce our noncore burden. We will now move forward with the plans that we discussed on our last call to reduce head count and reduce our overhead costs by singularly focusing on oncology. So lastly and most importantly, as I said, it advances our strategy and sharpening our focus on building a sustainable and growing oncology business with LOQTORZI and UDENYCA. We believe our recent achievements demonstrate our continued momentum in this direction. The launch of LOQTORZI, the approval of UDENYCA on-body and presentation of positive Phase II clinical data with Casdozo, our first-in-class IL-27 targeted antibody at ASCO GI last week. As you can see from our pipeline slide, our products are moving well through mid-phase clinical trials with Casdozo now in Phase II in 2 indications, lung and liver, CHS-114, our CCR8 molecule, which is highly selective moving forward, Phase I/II and the filing of CHS-1000, our ILT4 assets. Before we go to the questions then, let me just recap for you the direction of the company. We are committed to building a sustainable, growing oncology business and continue to make good strides. This transaction extends our runway that reduces our cash burn and advances our efforts to align our expense structure and our revenue structure. It executes on the strategies to sharpen our focus on and quickly advance our oncology portfolio of marketed first and best-in-class development stage assets. It greatly enhances our commercialization and marketing networks where we have strong synergies across revenue stage products, LOQTORZI and UDENYCA. And lastly, this transaction was made possible as it is a reflection of the value of our commercial excellence, primarily, and I would say, in Medicare Part B buy-and-bill in the United States. With that, operator, we're happy to take questions.

[Operator Instructions] The first question comes from Yigal Nochomovitz with Citigroup.

Could you just run into a little bit more detail as far as the -- the thinking behind this transaction? Obviously, CIMERLI is one of your best products growing, I think, almost 50% last quarter. So could you just talk a bit about what the profit margins are and what you achieved for this transaction in terms of a cash flow multiple because it looks like the product was growing very, very nicely? And what the -- if you could talk about the net -- the net profit margin on this asset.

Thanks for your question, Yigal. We'll have a little more to say about the impact on net profit margins with respect to the divestiture on our call in March. But I would just point out to you a couple of things -- key things with respect to the CIMERLI franchise. As you know, and has been previously disclosed, the CIMERLI asset was in-licensed, I think, for about $1 million in 2019. And I think this monetization is a good outcome for the company. Importantly though, unlike for example, LOQTORZI or even UDENYCA, CIMERLI has a gross profit split of approximately 50% represented as a royalty, which impacts the margin significantly. However, like UDENYCA, it has a low single-digit, mid-single-digit royalty, which is soon to expire. And LOQTORZI has a 20% royalty with very, very significant margins. Of those 3 products, this was the least profitable of the three. More so to the point though, this transaction allows us to reduce our term loan debt importantly and allows us to focus the company very, very sharply on a growing and sustainable oncology business. So we felt that it was prudent at this time to reduce our debt. bring our balance sheet in alignment with our revenues. And I think that this transaction and the value of this transaction is a strong reflection of the company's ability build in the buy-and-bill space, Medicare Part B. One other point that I would make is post close, we will talk a little more about how we'll be able to make certain changes to our cost structure, both in terms of head count and in terms of our overall reduction in expenses to bring things into alignment as we go through 2024, which, as we previously discussed, is one of our prime drivers.

Okay. Got it. And then just 2 quick follow-ups. Given that your -- this is now an even sharper focus on oncology, as you note, is there any potential that you might do something similar in terms of divestiture with the HUMIRA biosimilar? And then at one point in time, I believe you had talked about an Eylea biosimilar, but it sounds like, given this announcement that that's less likely or unlikely.

Taking your last question first, we would not be proceeding with an Eylea biosimilar as we are exiting the ophthalmology business, so on. With respect to your HUMIRA question, I would just refer you to our recent JPMorgan presentation in which we described our core assets in oncology, LOQTORZI and UDENYCA and noncore assets outside of oncology, CIMERLI and YUSIMRY.

The next question comes from Douglas Tsao with H.C. Wainright.

I guess, Denny, you addressed a lot of my questions, but I'm just curious, what made you think now is the right time to necessarily execute this transaction versus perhaps waiting a little bit longer, obviously, CIMERLI seems poised to have a really strong year, and I understand your point that it's your least profitable product, but perhaps would have given some investors some comfort in terms of your performance into 2024? And should we interpret this as a vote of confidence in terms of what you've seen both with the UDENYCA on-body as well as LOQTORZI just in the early stages of their commercialization?

Thanks for your question, Doug. I would make a couple of key points. First, the service oncology merger of last summer accelerated our move to immuno-oncology and provided us with a robust portfolio of pipeline assets focused in the tumor microenvironment. Secondarily, as you know, we were recently gotten the approval of LOQTORZI in nasopharyngeal cancer, and are quite focused on expanding and owning that market. Similarly, we also now have the approval of the on-body for UDENYCA and the on-body autoinjector is picking up in terms of market penetration. With respect to the timing, we believe that this particular point in time, allows us to address some of our balance sheet issues with respect to our leverage and our term loan, and at the same time, facilitating completion or our move to immuno-oncology.

The next question comes from Chris Schott with JPMorgan.

This is Ethan on for Chris. First, I just wanted to get your latest thoughts on pipeline prioritization and if today's sale changes any of the time lines on those investments?

Thanks for your question. No, this does not change the timing of our pipeline. I would simply point out though that we recently announced that we would no longer be prosecuting the development of the TIGIT asset and return that to our partners at Junshi. This is less of a reflection of TIGIT as it is a reflection of the very high-quality pipeline we're able to put in place vis-a-vis the Surface Oncology merger of last year, particularly our IL-27 asset Casdozo was moving along very nicely, recently showed some excellent progress in liver and lung. And we feel that, that being a first-in-class asset, the competitive profile is just far superior to TIGIT. Also considering, of course, that Casdozo has a single agent monotherapy activity and TIGIT does not. But you do make a strong point that does allow us to focus more sharply on the I-O pipeline and our assets in the tumor microenvironment for further development.

Great. And then one more question, just more broadly, any updated thoughts on Coherus' time lines to profitability following this deal?

Yes, great question. You can expect more color on that on our call in March, our fourth quarter call. But this divestiture now will allow us to focus the organization, streamline certain operations, reduce headcount, reduce COGS, reduce manufacturing costs, reduce royalty costs, et cetera, and sharpen our focus and creating efficiencies internally. We'll have a little more to say about that, but one of the key things that I like about this transaction, it allows us to have a more efficient streamlined organization in 1 therapeutic area.

Congratulations on the deal.

The next question comes from Colleen Kusy with Baird.