Coherus Oncology Inc (CHRS) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen welcome to the Q4 2015 Coherus BioSciences Inc. earnings conference call.

(Operator Instructions)

I would like to introduce your host for today's conference, Dr. Jean Viret, Chief Financial Officer. Sir, please begin.

Good afternoon. I am Jean Viret, Chief Financial Officer. It is my pleasure to welcome you to the Coherus BioSciences fourth-quarter and year-end 2015 financial results conference call. Joining me this afternoon is Denny Lanfear, President and Chief Executive Officer; Dr. Barbara Finck, Chief Medical Officer; Matt Hooper, Senior Vice President General Counsel; and Dr. Lisa Bell, Senior Vice President Global Regulatory Affairs.

Today we issued two press releases. The first press release reported that we entered into an agreement for $100 million of senior notes, converting at a 60% premium with new investor HealthCare Royalty Partners, who led the transaction with a $75 million investment. And it was joined by three longtime existing investors, KKR who contributed $20 million, MX II Associates who contributed $4 million, and KMG Capital Partners who contributed $1 million.

The second press release highlighted of course fourth-quarter and full-year 2015 performance. These press releases are posted in the investor resection of our website at www.investors. Coherus.com.

This 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-0214, CHS-1420, CHS-5217 and CHS-3351 biosimilar drug candidates; initiate and complete bridging studies for CHS-0214; complete its PKD study for CHS-1701; file BLAs for CHS-1701 in the US; file an MA for CHS-0214 in the EU; file at least one IND on a second biosimilar pipeline candidate and enter into collaboration for CHS-1701commercialization ex-US and for its immunology anti-TNF pipeline.

As such, they are subject to the risks and uncertainties that we discussed in detail in our documents filed at the SEC, specifically Coherus' annual report on form 10-K for the year ended December 31, 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 highlight the progress and goals of our Company. I will provide financial highlights for the quarter and year ended December 31, 2015, and then we will open the call to your questions. Denny will then close the call with a few concluding remarks. With that, I would like to turn the call over to Denny.

Thank you very much Jean, and thank you all for joining us today. I will start out with a brief review for you and then go on to the 2015 review and the 2016 guidance.

I think 2015 was a good year for us. We made some significant progress on all fronts. Firstly on the clinical front, we advanced all three wave 1 assets toward the regulatory filings. CHS-1420 as you know is in Phase 3, 1701 is moving very straightforwardly toward the BLA filing, and 0214 as I will talk about in a moment has reported on two Phase 3 studies. We have also talked about the pipeline a bit, and we have announced two new programs there: the Avastin biosimilar and the Lucentis biosimilar, and you will hear more about those as we go on in the year.

On the manufacturing front, we struck a strategic agreement with KBI ensuring commercial supply for our lead asset CHS-1701. And as we look forward now to the commercial operations and the commercial footprint, we have added some key pieces to our leadership team. I think you have previously seen the press release regarding Jim Daly.

We have established our commercial advisory board there, and further we have announced our therapeutic business unit strategy. On the corporate and financial front, we have strengthened our capitalization of the company, we've brought in over $300 million of cash via non-dilutive partner equity, and our most recent private placement of convertible notes which we will discuss subsequently.

Let me now talk about some of the 2015 highlights for each of the programs. I will start with the oncology therapeutic franchise where of course the lead asset there is CHS-1701.

In 2015, with study 04, we met the primary endpoints in immunogenicity study in healthy volunteers, and this study was initiated in 2015 and completed in 2016. The study now will go on to support the BLA filing.

We also met the pharmacodynamic endpoint as well as the Cmax PK endpoint in a pivotal PK/PD study that we initiated in March and we completed in October. You may recall the results of the first period, Neulasta had an anomalous result, and we did not meet AUC for that and will be doing a follow-on study. However, Coherus believes the program is acceptable as is to support the marketing authorization application in the EU.

In terms of study 05, we have initiated the follow-on PK/PD study in January which will now be part of the overall package to support the MA application in the US. Secondarily, with the oncology therapeutic franchise, as I indicated earlier, we announced a pipeline addition, CHS-5217m which is an Avastin biosimilar.

In terms of the immunology, that is the anti-TNF therapeutic franchise, I will start with CHS-0214, the etanercept Enbrel biosimilar. There of course was study 04, we met the primary endpoints in a Phase 3 trial of psoriasis, and we announced those results in November 2015. With study 02 for the Enbrel biosimilar, we met the primary endpoint the Phase 3 study in rheumatoid arthritis, and we announced such in January 2016.

With CHS-1420, the adalimumab biosimilar was study 02. This is a Phase 3 study in psoriasis. We initiated this in August 2015. That study is now proceeding quite well.

Lastly in the context of CHS-1420, as you know, we filed petitions in the US patent office for a interparty review of AbbVie's US patents 889135 and 9017680 and 9073987 relating to 40 mg biweekly dosing of adalimumab for rheumatoid arthritis. Lastly in terms of the ophthalmology therapeutic franchise, we have announced the addition to the pipeline of CHS-3351, which is a Lucentis biosimilar.

Let me go on now to the 2016 product guidance. First of all in terms of the oncology therapeutic franchise, I will cover CHS-1701, the pegfilgrastim biosimilar.

In the first half of this year, we intend to complete the follow on PK/PD study, this is study 05, by the end of the first half of 2016 and file the 351(k) BLA in the US directly thereafter. Further, upon that, we will initiate commercial partnering discussions for certain ex-US territories for 1701.

In terms of the immunology anti-TNF therapeutic, franchise for the etanercept biosimilar, we intend to complete two Phase 1 bridging studies addressing certain manufacturing changes and further of course to file the MAA in late 2016 for this product. With CHS-1420, adalimumab biosimilar, we will complete the Phase 3 clinical trial in psoriasis, the enrollment of such in the first half of 2016. And then we will complete the Phase 3 clinical trial itself in psoriasis in the second half of 2016 with the 351(k) BLA to be filed in the US directly thereafter.

Concurrently with that, we will initiate partnering discussions for the immunology anti-TNF therapeutic franchise as we proceed through 2016. Lastly, you can expect us to file one investigational new drug IND application for a second biosimilar candidate this year.

Now let me turn my attention a little bit to the financing as Jean mentioned, the $100 million in senior convertible notes. Over the last couple months, we have received several unsolicited financial overtures from various entities in terms of financing opportunities for the Company.

As you can see from today's announcement, we chose two teams: first, HealthCare Royalties who have known for quite some time and together with KKR, who was an existing mezzanine investor of the Company as well as others, KMG Capital Partners and MX II are both represented on the board of directors.

In terms of selections of these investors, what was quite important to us our investors who understand the substantial long-term market opportunity for biosimilars, the $100 billion of market opportunity that lies out there of drugs coming off patent by 2020. We also sought investors with a very strong track record and a long-term vision that is aligned with our milestones.

We feel this is a long-term business, there's great opportunity in the biosimilar space. We feel that the recent advisory committee meeting with Deltron demonstrates that you can advance these products to the satisfaction of the regulators, and we think therefore the time over the next couple of years will be ripe as we proceed with these products and move forward. This is a long-term business, and we selected investors with strong track records who understand this very clearly.

Our objective with this financing was to complete all of the activities associated with the regulatory filings, that is to say the BLA filings of our lead wave 1 assets :1701, 0214 and 1420. This includes the manufacturing exercises, the qualification lots, the preparation for the BLAs and all the requisite cost surrounding them.

We expect this financing to carry us through these regulatory filings of all three of these wave 1 assets, and further we expect financing to carry the Company through the approval of our first filed asset which is 1701 sometime in mid 2017. This was important to us because we believe this -- these milestones reflect very important and relevant inflection points for our investors. The reason we raised $100 million is because wanted to be in the position of delivering that inflection to our investors as we went forward.

We will be happy to take some additional questions about the financing during the Q&A period, but let me turn it back now to Jean Viret for the financial overview.

Thank you Denny. I will now review financial highlights for the fourth quarter and year end 2015.

Total revenue for the fourth quarter 2015 was $10.2 million as compared to $6.5 million in the fourth quarter of 2014. The increase over the same period in 2014 was due to the increase of commission in Baxalta collaboration revenue as a result of achieving three development milestones totaling $100 million in 2015, including two milestones in the fourth quarter of 2015.

Total revenue for FY15 was $30 million as compared to $31.1 million in 2014. The lower revenue for the full year 2015 over the same period in 2014 was due to a full recognition of a $10 million substantitive milestone payment from Baxalta earned in the third quarter of 2014 in addition to collaboration and license revenue recognized over these assumed period of the collaboration.

Research and development expenses for the fourth quarter 2015 were $51.54 million compared to $26.9 million over the same period in 2015. R&D expenses were $213.1 million in 2015 compared to $78.2 million in 2014.

Increases in R&D expenses were mainly attributable to a transition to Phase 3 in biologics license application enabling studies for CHS-0214,CHS-1420 and CHS-1701 as well as manufacturing efforts to support clinical trial supply and product registration activities. This impactful additional cost associated with the preclinical development of second wave product pipeline and personnel expenses.

General and administrative expenses for the fourth quarter 2015 were $11 million compared to $6.2 million for the same period in 2014. G&A expenses were $36 million in 2015 compared to $17.6 million in 2014. Changes in G&A expenses were mainly attributable to employee related expenses, legal fees to support the intellectual property strategy and accounting fees and services relating to compliance with section 44 of the Sarbanes-Oxley Act of 2002.

Net loss attributable to Coherus for the fourth quarter 2015 was $52.4 million or $1.35 per share compared to $29.1 million or $1.47 per share for the same period in 2014. Net loss attributable to Coherus was $223.3 million or $6.01 per share in 2015 compared to $87.1 million or $10.64 per share in 2014.

Cash and cash equivalents totaled $158.2 million as of December 31, 2015 compared to $153.7 million at September 30, 2015 and $150.4 million as of December 31, 2014. We ended the year with a cash balance that is higher than last quarter's and last year's balance.

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. To date in May, we completed the enrollment of four CHS-0214 Phase 3 clinical studies in rheumatoid arthritis and psoriasis for which we receive a $35 million milestone payment from Baxalta. In the fourth quarter, we see the second $30 million milestone payment from Baxalta that related to a successful demonstration of drug products stability for CHS-0214 and the third payment of $35 million related to a successful achievement of certain manufacturing process goals for CHS-0214 as well.

With $100 million proceeds from the sale of convertible notes and our strong cash position at the end of the year, we're in a solid financial position to execute on the completion of three key development milestones that Denny highlighted, namely the completion of our BLA registration program in filing of the BLA for CHS-1701, the completion of our clinical programs and filing for BLA MMA for CHS-1420 and CHS-0214 respectively.

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

(Operator Instructions)

Chris Schott, JPMorgan.

Just two here. First can you elaborate a little on the goal of seeking partnerships for the non-oncology products? Just elaborate a little bit more on what you are ideally looking for in a partner here. Is this one partner per vertical, one partner for all the assets? Trying to see what you're ideally looking for there.

The second question is on the expanded pipeline as we think about Avastin and Lucentis. Can you give us a little color on interested the Company in these targets?

What about the end markets or the competitive landscape makes these ideal targets for a company like yours? Is it technical difficulties, the ability to commercialize yourself, et cetera? Would love any color there as well.

Thanks Chris for your question. First of all in terms of potential anti-TNF partners and the issue of one partner per vertical or three partners per vertical, certainly the Company would prefer to have one partner across all three verticals as opposed to parsing each of the therapeutic areas separately into separate partners.

We believe there is significant interest for the anti-TNF franchise. As you may recall, we primarily did the IPO to fund the phase 3 studies for 1420 that you read about somewhere, so we would fully own that globally which we have. We also retained rights to the etanercept biosimilar in the US should that market open up.

We think there is a lot of complementary therapeutic approaches on the commercial side with the anti-TNFs, and we think there are several parties who would be quite interested in that alone. However, the ophthalmology franchise is quite interesting in and as of itself, as is the MS franchise. We will have more to say about the MS franchise and that study.

You may recall that that will read out sometime around the end of May, end of June, maybe toward even the end of the first half of 2016. So we will hear a little bit more about that then.

In the other issues surrounding the partnering, I think we will decline from going a little further with right now, but I think you can expect the Company to start to explore this more as we go forward. In terms of the ophthalmology, why we chose to pursue that, we had a number of partners who approached us -- I should say potential partners who approached us -- who were quite interested in the ophthalmology assets and their developments. And we felt the therapeutic area was one in which it could be readily partnered because of that interest.

Lastly in terms of oncology and Avastin, we think that one of the key things that people are looking for is cost savings in the environment. Certainly with new therapies coming forward, the opportunity to save cost with more bundled approaches to the products present savings for the system creates headspace if you will for new therapies that are coming down the line.

In talking to a number of market entities, GPOs and physicians and others, we felt the Avastin opportunity was one that would dovetail well with the pegfilgrastim on the commercial side. And that was one of our key issues there. Did you have a follow on question?

Yes, one quick follow-up. Biosimilar Humira, just wanted to get a quick one from you, your perspective on the Amgen IPR decision on AbbVie's formulation patents. What does this mean for the market, and can you confirm if you need to see those patents invalidated before you bring your formulation to market here?

Let me give that question to Matt Hooper who is the Company's General Counsel. Matt?

Thanks Denny. Chris, first of all in terms of our thoughts about the result, I think it is fair to say that Amgen had some very compelling arguments. But I think what happened is the patent office on formal grounds felt they had not put their case on the record effectively.

It turns more on formality I think than the substance of their argument. And frankly I don't think that outcome is really -- gives us any signals our clues how the patent office might handle our IPR on the dosing patents.

Which is to say we don't think that we would use that particular outcome and project it across all the IPRs for Humira, adalimumab, et cetera. But if you read the review, you will come to some of the conclusions that as Matt pointed out and the remarks were clear.

The second part of your question, Chris, was focused on whether or not we would see the validation of these patents as being critical. I think this gets more to legal strategy and specifics about our own formulation developments, which we really generally are not commenting on at this time.

Douglas Tsao, Barclays.

To start, when we think about the second wave generation products, 5217 and 3351, I think you said in terms of your 2016 guidance you would get an IND from one and advance one into the clinic. How should we think about which of those will necessarily go into a clinic first? Is it simply which is ready given development timelines, or is there some sort of prioritization?

Hello Doug, thank you for the question. I think if we were prepared or otherwise wanted to disclose which product we would go first in the clinic, we probably would have disclosed that at this point. I don't mean to avoid your question, but what I would say is by next quarter, we will have a little clearer idea.

In general, we are parallel tracking several products of course in our wave 2 pipeline. There is actually as you may imagine more than two, so it takes a while to move all of these forward in a parallel fashion.

We will probably make a decision on which one to advance sometime by the end of first half of this year. We may also choose to file both of them at the same time, but we will leave that for another day and our next call.

In terms of the etanercept product, we saw Santos submit their BLA. Just curious in terms of what would make you change your mind or get you to submit that for potential US approval?

Thank you for that. To be clear, we intend to submit the 0214 BLA in the US for approval.

The question remains whether we would launch, launch it in the face of patents, which I probably would decline to do. However, we have had several meetings with the agency on 0214, that particular program is being conducted under the auspice of the USDA, so we intend to file.

Will that be this year?

We have not yet provided guidance on the filing timing, and as you may well imagine, that timing is dependent upon a number of developments, some of them of course outside of the control of the Company.

Ken Cacciatore, Cowen and Company.

Have a question around your IPR challenge of Humira. I just wanted you all to maybe educate us a bit on how this process plays itself out if they accept your petition.

Can you talk about what actual interaction there is, the process itself in terms of the evidence you can present or arguments you can make either via submitted briefs or actual discussion of your expert witness from the folks making the decision? Can you talk broadly, and then I have a follow up question.

Ken, thank you for that. Again I will let Matt Hooper, the Company's general counsel, address that question for you. Matt?

Hello, generally speaking the IPR process is a fairly streamlined process. And the first stage that we are obviously in right now is whether or not the patent office will actually take the IPR up, and that is called the institution decision. If they in fact decide to institute the IPR, what then takes place is essentially a trial, a mini trial in the patent office where both sides will have an opportunity to cross examine each other's experts.

We expect that AbbVie would put in a declared testimony, and there would be an opportunity for us to depose those witnesses and challenge the content of their expert testimony. And they would have obviously the same opportunity to do that with ours. Depending upon the evidence that is generated in that process, there will be a limited ability for both sides to contribute additional evidence into the process, but it is fairly limited.

Was wondering, not ever thinking about the worst case scenario, but a scenario where the IPR is maybe the petition is not taken up. Can you discuss your recourse at that point in terms of litigation, a little bit of the pathway going forward?

Ken, actually as you know, there wouldn't be any estoppel effect from the failure of the patent office to institute the IPR. In a situation where the patent office does not institute, all of the legal arguments would be available to us as they would be to other parties.

So you can go ahead and pursue litigation in the federal courts if you would so choose at that point?

That is correct.

Ken, I just wanted to add one point to the IPR conversation remarks, is that we felt both of our experts were very thoroughly grounded in the field. Sharon Bowman in particular had tremendous expense both at Amgen and Genentech with development in the pharmacokinetics of monoclonal antibody drugs. So we feel our experts and their testimonies are important.

(Operator Instructions)

Alethia Young, Credit Suisse.

This is [Grant Hester] in for Alethia. As both 1701 and 0214 head to the market, can you comment on how the commercialization strategies there might be similar but also different between the two assets?

Hello Grant, we wouldn't get into specifics in how we intend to market 1701 versus 0214, but I think the key thing to keep in mind is that the pegfilgrastim market is an episodic non-product care market. So it is one which people come in for therapy, they are on therapy for a while and then they leave therapy. It has concentrated sites in the clinic, in the hospital, and the channels are primarily GPO driven as you know.

On the other hand, the etanercept market is quite different. That is a multi-indication and a chronic care market, so you have psoriasis, rheumatoid arthritis in these markets. You have patients who are on therapies for a very long period of time, and what that presents of course is switching if you want to get to the chronic care patients versus first starts, et cetera.

There is, think there is an arguably higher competitive intensity with the anti-TNF markets than you would see with pegfilgrastim. However, all of that being said, we think that the pegfilgrastim market with its attendant oncology focus is a good place for us to go, something that we could self commercialize within reason, whereas the anti-TNF market is a larger market in which is the reason why we would seek partners who are already in that space.

I'm showing no further questions.

Thank you very much for joining us today on the call, and thank you for your informed questions. I would just add that the Company will be at Cowen next week in Boston presenting. We will be happy to chat with any investors or analysts who care to attend and go a little further into the Company's plans in the financing.

Thank you very much today for joining us as we move forward to 2016. We will be sure to keep you informed, and we look forward to talking to you on our next call. Bye.

Ladies and gentlemen, thank you for joining today's conference. This concludes the program. You may now disconnect. Everyone have a great day.