Coherus Oncology Inc (CHRS) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Coherus BioSciences quarter three 2015 financial results conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce the host for this conference, Coherus CFO, Jean Viret.

Good afternoon, I am Jean Viret, CFO officer, and it is my pleasure to welcome to the Coherus biosciences third-quarter 2015 financial results conference call. Joining me this afternoon is Denny Lanfear, President and Chief Executive Officer, and Dr. Barbara Finck, Chief Medical Officer. At the close of market today we issued two press releases.

The first press release issued with Baxalta, reported that CHS-0214, our etanercept biosimilar candidate, met its primary efficacy endpoints in its Phase 3 psoriasis clinical study. The second press release highlighted Coherus third quarter 2015 performance. These press releases are posted in the investors section of our website at investors. Coherus.com.

The conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes statements about the company's current operating plans, financial guidance, objectives and intentions with respect to future operations and products including Coherus' expectations regarding its ability to advance its CHS-1701, CHS-1204, and CHS-1420 biosimilar drugs candidates, and initiate and complete its PK bioequivalence bridging study for CHS-1420, complete its BLA-enabling studies for CHS-1701, trial BLAs for CHS-1701 and CHS-1420 in the US, file an MAA for CHS-0214 in the EU, obtaining a favorable outcome in connection with its petition for IPR, and receive milestone payments for collaboration agreement with Baxalta.

As such, we are subject to risks and uncertainties that we discussed in detail in our documents filed with the SEC, specifically Coherus' quarterly report on form 10-Q for the quarter ended June 30, 2015, and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Coherus has a policy to not comment on financial performance or guidance during the quarter, unless it is done through an appropriate public disclosure. Coherus retains its policy and practice to not update financial performance or guidance during the quarter unless required by law.

On today's call, Denny will provide the clinical and business highlights. Barbara will provide additional information on our clinical results today. I will provide financial highlights on the quarter ending September 30, 2015, and then we will open the call to your questions. Denny will close the call with a few concluding remarks.

With that, I'd like to turn the call over to Denny.

Thank you all for joining us on today's quarterly call. I will first encapsulate the results just briefly about the 0214 etanercept biosimilar program. Dr. Barbara Finck, our Chief Medical Officer, is here is to add a few more key points regarding that study for us.

I will give you a brief summary on where we are in terms of the CHS-1701 pegfilgrastim biosimilar. As you know, we are advancing that one toward filing in Q1 of the BLA 2016. Then I will discuss the CHS-1420 program briefly. As you know, the Phase 3 is underway there and we'll talk a little bit about today's IPR.

So, first let me recap what we think is a very positive development for the program and the company. Which is the demonstration of bioequivalence for CHS-0214 in psoriasis and I will let Dr. Barbara Finck then give you more details about the study and the data. Barbara?

This was a very large study. It was a global study with multiple, multinational sites. The study enrolled 521 subjects with chronic plaque psoriasis.

We did not fully unblind the study as it is ongoing, we unblinded the study only at the group level. We don't know which group is which. We just call them group A and B.

The results are solidly positive, in that the study met the two bioequivalence primary endpoints. The first one was the 12-week mean percent change in the PASI, or positive psoriasis area and severity index score, compared to baseline. The second primary endpoint was the 12-week proportion of subjects that achieved a 75% improvement in the PASI, again, compared to baseline.

There were no clinically relevant safety signals in either treatment group. And at this time, we're not discussing the antibodies as this is early. This was a 12-week endpoint and the most relevant time to look at anti-drug antibodies is at the end of the study. So, we will be speaking about that later, once the study is complete. Denny?

Thank you, Barbara. We are of course very happy with this result. We think this really represents a very significantly positive development for the company in a few key dimensions.

First of all, commercially, Enbrel is certainly a very large product, some $8.9 billion in 2014, according to EvaluatePharma. And as you may recall, we have licensed key ex-US territories to Baxalta, and also to Japan, to our good friends at Daiichi Sankyo. I think what's important to keep in mind here is that this demonstrates that the company clinically can execute on a global scale. And we look forward to the Phase 3 results from the RA study, which you know is ongoing, and we anticipate talking about that in the first quarter of 2016.

We continue to believe the study will support our previous guidance towards MAA filings in the second half of 2016. We expect to initiate some additional studies, there, in 2016, comparing the PK from the 0214 drug material used in Phase 3, with the drug material intended for commercial use and Enbrel manufactured in Europe.

In terms of this product and the demonstration here today, we believe this constitutes a validation of the company's platform, both in terms of the technical and scientific virtuosity of the team, but in other key dimensions as well. I think it is worth noting that etanercept is a very difficult molecule, and is worked on as a biosimilar only by two other top-tier teams who have been able to advance it up into Phase 3 like Coherus.

In terms of analytics, particularly etanercept, presented a very complex set of challenges for the company, which were successfully met. It has a unique fusion structure as you know, a high number of disulfate bonds in the [hend] region of the molecule, making its characterization quite difficult. It has a significant glycosylation, and also, significant formulation and stability challenges. All of which are the subject of intellectual property filings with various parties.

In terms of our process science, and our molecular tuning capabilities, I believe it shows we can replicate one of the most complex originator molecules successfully and as I said, I think this particular molecule represent a very high bar for biosimilar market participants. Lastly, in terms of clinical and regulatory capabilities of the company, we believe this shows, Barbara and her team can execute global programs on a global scale. And these programs, we believe, will support global, harmonized, regulatory findings. We also want to take this opportunity to thank our colleagues and partners on this asset. Daiichi Sankyo in Japan, and Baxalta.

In terms of Baxalta, a few things which occurred in the last quarter -- in September of 2015 as you know, Coherus completed a stock purchase agreement with Baxalta. And pursuant to this, Coherus sold to Baxalta an aggregate of some 390,167 shares of common, at an aggregate proceeds of about $10 million. Secondarily in the last quarter, on October 15, Coherus received a $30 million milestone payment from Baxalta pursuant to our license agreement of August 30, 2013. This milestone payment was related to the successful demonstration of drug stability for 0214, and as you all know, this is one of the key issues with the program.

Now let me talk a little bit about 1701, the pegfilgrastim biosimilar. That program proceeds on track, as you know. On October 1, we announced top line results of the pivotal pharmacokinetic, pharmacodynamic study which supports our plan to file the 351(k) in Q1. In addition, during the last quarter we completed enrollment of some additional healthy volunteers in the (inaudible) study, pursuant to supporting this BLA and now we have currently over 300 patients enrolled in this study.

In terms of the PK/PD study, we will not focus on that too much. It's been the focus of earlier conversations. We refer you to our previous press releases and our conference call when we address this particular program -- I should say study -- in significant detail. However, we will continue to guide you to Q1 2016 BLA filings, and at that time, we will talk about finalization of our commercial strategy which we think is an appropriate time frame, when the BLA gets filed.

Now, let me turn my attention to CHS-1420, our adalimumab biosimilar. As you may recall, in August of 2015, we initiated dosing of the Phase 3 study, filing the BLA in the US in the second half of 2016. As previously announced, the Phase 3 study in psoriasis was initiated and will enroll, and we anticipate that continuing to move on very well. The second point I would make here, is that the bridging study is one of the key issues in terms of the drug product from the Phase 3 that we will address.

Let me talk a little bit about today's IPR in terms of the adalimumab biosimilar. Today you may note that we filed with the US patent and trademark a petition for inter-parties review pursuant to AbbVie's patent number 8,889,135 entitled, methods of administering anti-TNF alpha antibodies directed to treating rheumatoid arthritis in human subjects via administration every 13 to 15 days of 40 mg of human anti -TNF.

I will not get into a debate here or obviously, play a conversation of the particulars of that, I think it's very, very well encapsulated in the petition which you are free to read. It is posted on the website. But I will say the primary arguments here are based on firstly, the prior clinical trials and dosing regimens involving adalimumab which predated the filing date of this particular patent. Fundamentally, there was a lot of clinical activity in the public domain prior to the filing and that's what we cite in our petition.

With that, I'm going to turn it back over to Jean for review of the financials and then we're happy to take some questions.

I will now review financial highlights for the third quarter of 2015. Revenue was $7.2 million as compared to $16.1 million in the third quarter of 2014. Lower revenue in the third quarter ended September 30, 2015, over the same period in 2014 was due to the recognition of a $10 million substantive milestone from Baxalta earned in the third quarter of 2014.

In addition to the collaboration and license revenue recognized over the estimated period of the collaboration. Research and development expenses for the third quarter 2015 were $68.2 million, compared with $18.5 million for the same period in 2014. Increases in R&D expenses over the same period were mainly attributable to a increase in clinical and manufacturing costs associated with the completion of clinical trial enrollment for CHS-0214 Phase 3 studies, the enrollment of CHS-1701 BLA-enabling studies, and initiation of CHS-1420 Phase 3 study in psoriasis.

General and administrative expenses for the third quarter 2015 were $10.2 million, compared to $4 million for the same period in 2014. Increases in G&A expenses over the same period were mainly attributable to increased employee-related expenses, increased legal and accounting services in support of being a public company, an increase patent legal expenses related to prosecution of patent filings.

Net loss attributable to Coherus for the third quarter 2015 was $71.3 million or $1.86 per share, compared to $7.9 million or $1.79 per share, for the same period in 2014. Cash and cash equivalents totaled $153.7 million at September 30, 2015, compared to $206.1 million as of June 30, 2015, and $150.4 million at December 31, 2014.

In April we announced with Baxalta an amendment to our CHS-0214 etanercept biosimilar collaboration agreement, under which, in aggregate, we could expect to receive milestone payments of $130 million. In May, we completed the enrollment of CHS-0214 Phase 3 clinical studies on [rheumatoid] arthritis and psoriasis, for which we will receive a $35 million milestone payment from Baxalta.

Recently, as Denny mentioned, in October we received a second $30 million milestone payment from Baxalta, by related to the successful demonstration of drug product stability for CHS-0214.

Now I would like to open the call for questions and then Denny will conclude the call with a few remarks.

Our first question comes from the line of Chris Schott from JPMorgan.

Just had -- first, AbbVie recently laid down argument for no biosimilar Humira through 2022 based on a serious of method of treatment patents, I would be interested in your views on that IP and what type of hurdle that represents to biosimilar Humira?

And my second question was on the J code was finalized for biosimilar reimbursement, and I was interested on any thoughts you might have on how that could affect pricing dynamics for biosimilars overtime? Thank you very much.

Hi Chris. Thank you for your question. We are aware of course, that AbbVie laid out a patent strategy for protecting Humira through 2020 and so on.

I think our response to that is our IPR. We believe the dosing patents and therapeutic use patents in the case particularly of rheumatoid arthritis are not valid based on prior art, as we argue in the petition. So I would just direct you to the petition.

But I would also say that there will probably be additional IPR activities by various parties going forward around these patents, insofar as there is a lot of interested biosimilar market participants. And these patents would constitute potential blocks to getting on the market. So it's probably all I will really say about that.

As time goes on we'll see how the patent office responds to this IPR. I think that will take another six months or so. We'd be happy to revisit it then.

In terms of the J code issue, which is another very good and timely question, we support the biosimilar forum's position on this, which is seeking to bring this reimbursement into alignment with the FDA approach through a legislative [technical difficulties]. As you know, CMS is applying a multi-source model to biosimilars, which really is contrary to the FDA approval and development paradigm as they've stated.

These biosimilars are not multi-source drugs. They are particularly single source drugs. They are all unique. And a number of things come up, when you try to apply a single source paradigm to them. We believe the FDA was quite appropriate and wise in how they laid out the development paradigm and this runs orthogonally to that, so we support the paradigm that the FDA has gone forward with.

Lastly, thought, I would say that we believe that this reimbursement policy by CMS is not in the best interest of fostering competition in the biosimilar marketplace, insofar as biosimilars, I think, are a very, very powerful tool to bring rational pricing into some of these markets and to bring in competition.

So into the extent that the J code will inhibit additional competition in these markets, which we believe it will, we think it runs contrary to see CMSs overarching desire to rationalize prices and foster competition. I think their intent is correct, but I think their means is not. I hope that helps.

Great and thanks very much for the comments.

Our next question comes from the line of Tyler Van Buren from Cowen.

With respect to the 1701 program, just curious if there's been any further interaction with the FDA since you've reported the initial data on clearly the comparator acting strange, as well as if we should expect to get an update before you file the BLA?

I will let Dr. Barbara Finck, the company's Chief Medical Officer, respond to that.

As you know, we generally do not discuss our interaction with regulatory agencies, just one of our policies here at Coherus. I can tell you the program continues as planned and we have not changed our guidance on the program. I think I will leave that

We believe we're fairly complete, at that time Tyler, that we spoke about this last month. If there are any material developments on this program in the context of that study or anything else, we will certainly bring those to your attention.

Okay, great, I appreciate that. And a follow-up maybe some early thoughts on the commercialization strategy for next year?

Yes. As you may recall, we had discussed the -- talking more about the CHS-1701 commercialization strategy here on this call. And that was the consequence of our plan to file in Q4 or the option to file in Q4.

When we moved it up to Q1, we think it's wise for us to take this additional time to contemplate the commercialization strategy for the product, prior to filing. However, I would say that, as we have said in many other forums, we believe this particular product has a very reasonable commercial footprint associated with it.

It's very different, for example, than some of the anti TNF commercial exercises and things which would be needed. With a big difference there. Again, we'll probably have a little more to say about that at the time that we file.

And then secondarily I would note that in the first half of 2016, we'll spend some time taking a look at how to proceed with our anti TNF portfolio, both in the US and globally, with Humira for example, and we will try to understand what is the best way to maximize the value that to shareholders. You'll probably hear more about that around towards the end of the first half of 2016. At which time I think the study will certainly be fully enrolled and well underway a number of other developments in the space will have happened.

Thanks so much.

Our next question comes from the line of Morgan Williams from Barclays.

First is a question around the IPR for Humira. I know you should say we should see IPRs on this same patent from other filers. I'm just wondering should we expect to see additional IPRs on the Humira estate from Coherus?

And with regard to other biosimilar candidates you have in development, do you think the patents covering dosing are more likely IPR targets in the future? And finally, could you just let us know the timing for the pegfilgrastim immunogenicity study results?

Thank you, Morgan, for your questions. You had quite a few questions, let me see where I can start.

First of all, I believe that the dosing and therapeutic use patents are somewhat more up front and center than other patents. In terms of moving on towards the market.

Because you basically have to embrace the originator's treatment paradigm. If the treatment paradigm is every two weeks with 40 mg, you pretty much have to do that to proceed on to the market. So that brings a lot of attention to the dosing patents themselves as potential targets. Whereas with other patents, you can potentially engineer around those patents or find other ways to do things and so on.

One would reasonably expect for various parties in the biosimilar space to turn their attention on a number of these things as time goes on. Given the commercialization, timing of Humira biosimilars and the primary composition of matter patent coming off in December of 2016 and the amount of time that it takes to move through an IPR process, if you back all that timing out, I think you probably arrive at more IPR activity in the next few months than not. And I think that's what you could reasonably expect.

In terms of these patents themselves, there's an important point I want to make, which is we believe that it's important to distinguish between intellectual property, which really protects innovation as opposed to preventing competition. And so, there's a lot of an intellectual property here to take a look at and we have folks that take a look at this quite actively and a lot. But I think it's important to keep that in mind.

It may be that all of these patents have to be adjudicated separately or so on, and they probably will. But that's, I think that's really the key issue around this particular set of patents and products.

In terms of our own IPRs and plans, I think it would be unwise for us to talk about our legal strategy so I won't do that. But as I said, I think from time to time you'll see other folks who are engaged in the space. Such as other large companies are moving forward, bumping into these.

In terms of it immunogenicity studies on 1701, certainly you'll hear about that sometime in Q1 of 2016 as we plan to file. We will probably have something to say to that prior to the filing. I think that is the particular timing there.

And if I missed any of your questions, I'd be happy to go back. Thank you.

I am showing no more questions in the queue. I would now like to turn the call back over to Mr. Jean Viret.

Actually, Denny will conclude this call. I will pass it on to Denny.

Thank you all for joining us today.

Of course we feel very good about meeting this biosimilarity criteria for the of 0214 etanercept biosimilar. We haven't talked too much about the other products in the pipeline, but we have of course, presaged that will have something more to say in the first half of 2016 about the pipeline and the follow-on products. Again what I think is really important to keep in mind here, in terms of 0214, this was a very, very difficult molecule in a number of dimensions, scientifically, clinically, regulatory, and otherwise, and I believe the only the really top teams were able to wrap themselves around it and move forward with success.

We think this portends good success for our follow-on pipeline, our wave two assets. We'll have more to say about that and we look forward to talking to you again. All right. Thank you all very much for your calls today. And we look forward to talking to you in the future. Goodbye.

Ladies and gentlemen, this does conclude the program you may now disconnect.