Coherus Oncology Inc (CHRS) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Coherus Biosciences third-quarter earnings conference call. My name is Donovan and I will be your conference operator for the call today.

(Operator Instructions)

As a reminder this conference call is being recorded. I would now like to turn the call over to Patrick O'Brien, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Donovan, and good afternoon everyone. After close of market today we issued the third-quarter financial results press release. This press release can be found on the Coherus Biosciences website.

Joining me for today's call will be Denny Lanfear, President, CEO and Chairman, Barbara Finck, our Chief Medical Officer who dialed in remotely, Lisa Bell, our EVP of Global Regulatory Affairs, Jean Viret, our CFO, Matt Hooper, our EVP and General Counsel, and Michael Fleming, our SVP of Commercial Strategy.

Before we begin our formal remarks, I would like to remind you that we will be making forward-looking statements with respect to product development plans, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ from these statements. A description of these risks can be found on our most recent Form 10-Q on file with the SEC. In addition, Coherus Biosciences does not undertake any obligation to update any forward-looking statements made during this call.

I would now like to turn the call over to Denny.

Thank you, Patrick, and thank you for joining us today on our call. We will review the Company's first wave products: CHS-1420, our adalimumab biosimilar, CHS-0214, our etanercept biosimilar, CHS-1701, the Company's pegfilgrastim biosimilar. In that case, also regarding 1701 we will also provide some color on the Company's progress in terms of the commercialization of this product and then we will also provide you an update on licensing.

In terms of CHS-1420 and in terms of Q3 events for our Humira biosimilar, we reported topline results from the ongoing phase 3 clinical study CHS-1420-02, on psoriasis with 545 patients which are randomized for this study. As you recall, all primary endpoints demonstrating similarity between 1420 and Humira, with respect to percentage of subjects achieving 75% improvement in psoriasis area and severity index, the positive 75 score at week 12 were achieved.

The 95% confidence intervals for the difference between the groups, fell well within the pre-specified margins and both CHS-1420 and Humira were similarly well-tolerated with similar safety profiles in this study. Secondly, the Company was awarded a fourth US patent 9,382,317 on formulations excluding surfactant and polyol. The Company's general counsel, Matt Hooper, is available during the Q&A for additional questions regarding this particular patent.

In terms of subsequent events impacting the product, let me just discuss the 166 developments of earlier this week a bit more. First of all, as previously announced, the Company received a decision from PTAB denying institution of our IPR, pursuant to the AbbVie 166 formulation patent.

And while we are disappointed with this development, I would like to make the following statements regarding our formulation efforts and our intellectual property position. First, we believe that key scientific arguments may not have been appreciated, or may have been overlooked by the panel. The Company will be filing a request for reconsideration to further point out subtleties of certain arguments.

Secondly, as you know, the Company has developed a variety of options to address formulation IP with Humira biosimilars and we will be initiating a pharmacokinetic study in the first half of 2017 with a formulation that is not impacted by the 166 patent. The Company will decline to comment further on its legal strategy concerning additional formulations, and we will continue to assess the AbbVie IP state, related risk and legal options which may be available to us.

Now in terms of other developments with 1420, there are some ongoing studies. Two other minor studies -- the 1420-04 study and the 1420-05 study are underway to enable registration of the autoinjector configuration and we expect to complete both of these prior to the filing.

In terms of manufacturing, we continue with our process qualification lots in Q3 in support of the BLA, and these are proceeding as planned. Let me talk a little bit about CHS-0214, the Company's etanercept biosimilar. Last month, we announced results of two pharmacokinetic studies involving 0214, our biosimilar candidate for etanercept.

Study CHS-0214-06 was a phase 1 pharmacokinetic bio equivalent study, that is, a PK/BE study, comparing CHS-0214 versus European Union Enbrel. This study achieved the primary PK/BE endpoint, as the 90% comp [incentibles] for the geometric mean ratio of two groups, or within the 80% to 125% for all PK parameters.

For the CHS-0214-07 study, this was an additional nonpivotal phase 1 bridging study, intended to characterize differences between two process approaches. As anticipated, the study provided additional relative viability data for CHS-0214. As planned, Coherus is moving forward with the MAA presubmission meetings, which are expected in the first quarter of 2017.

These will review the complete CHS-0214 program prior to its filing, and the planned marketing authorization submissions will occur directly thereafter. During the quarter, we regained all development commercial rights, previously licensed for Europe, Canada, Brazil, the Mid East, and other territories from Shire, plc as previously announced. I will discuss licensing implications of this subsequently.

Now let me discuss the Company's lead and most advanced product, CHS-1701. As reported last month, the US FDA had accepted the filing of 351(k) biologic license application for CHS-1701, our pegfilgrastim biosimilar candidate. The Biosimilar User Fee Act -- BsUFA -- action date for this is June 9, 2017.

At this point we expect the FDA to host an advisory committee for our product, and look forward to any such an announcement from the agency. Now, I would like to touch upon some of the commercial considerations for this product. During the Q&A, we have Michael Fleming, who is the Company's Senior Vice President of Commercial Strategy. He can take questions on that.

Let me start with a fly-by of some of the commercial updates. First, let me say that the acceptance of the 1701 BLA triggered the formal initiation of our commercial launch planning activities. In recent news of the delay in the (inaudible) pegfilgrastim biosimilar leads us to believe that we will be the first biosimilar pegfilgrastim candidate to be approved and to compete with Neulasta.

We further believe this first-in-market position represents an excellent opportunity to bring significant value to oncology patients, physicians and payers, while relieving cost pressures in oncology brought on by a variety of things, including high cost new therapies. We've made significant progress in the recruitment of our commercial leadership, initiated the build out of our value chain, and initiated the development of marketing strategies, campaigns, and programs, which I will review shortly.

Let me provide a little color there. Let me start with an update on recruitment. We will be using the same teambuilding strategy that we have applied to other functions of our platform. We're hiring industry veterans with strong track records, relevant and directly related domain experience, who can bring expertise, relationships and insights to bear on a strategy for success.

For example, we have recently hired a Vice President of Marketing with deep oncology buy-and-bill experience, good relationships within the oncology supportive care space, including over a decade of Neulasta experience. Earlier we hired a Vice President of Sales who also came to us with decades of related experience in oncology supportive care, including Neulasta.

Our organizational plan includes key functions such as, market access and reimbursement, pricing and contracting, key accounts, as well as marketing, sales, and commercial analytics. Now in terms of marketing and sales, we expect to staff a small specialty oncology sales force focused on biosimilars of approximately 50 reps and perhaps a dozen key account specialists.

Of course, we're judiciously getting our staffing based on key regulatory milestones, as you would reasonably expect. Let me talk a little bit about now the commercial strategy progress and some of the activities that are completed or underway. First of all, we have completed our segmentation of the market and further, tested the value proposition with our various stakeholders.

We're now making very good progress building out the value chain, which includes activities like establishing state licenses, securing third-party logistics providers, and development of a trade strategy. We've also identified and built our commercial vendor base, including communication agencies, hub services providers and third-party data providers.

We have also developed our positioning and branding strategies to support next year's launch. Additionally, we have completed a number of physician surveys to understand price elasticity of demand, impact of the On-body system on our plans, as well as overall enthusiasm for embracing pegfilgrastim biosimilar known factors.

In anticipation of a few questions you may have on your mind, let me make a few comments regarding market potential of the product, the On-body system and some additional considerations. Let me first address the issue of the product market potential, and I'll start with the perceptions of the biosimilars.

One of the key things we have sought to understand is the pent-up demand for biosimilars and the sales potential of this product in the space. Now with the Zarxio launch, Amgen communicated on their call recently that biosimilar penetration of Neupogen is 40% and growing. We see this performance as encouraging for acceptance of biosimilars in the US oncology marketplace.

Our research data suggest that there's a much greater pent-up demand for long-acting biosimilar pegfilgrastim than for the short-acting filgrastim like Zarxio. It is difficult to handicap precisely how far biosimilars will penetrate the Neulasta market. Its a function, of course, of several variables, including the number of competitors at the discount level, the originators competitive response, as well as others. However, based on the EU experience and our understanding of demand, we would expect to see biosimilar pegfilgrastim penetration in the US to approach the 70% to 80% level.

Let me turn now a little bit to some of the considerations regarding the On-body system. From time to time I receive questions and implications for the sales potential. Let me say that our market research suggests that On-body has a convenience factor mainly for patients who have long travel distances to chemotherapy clinic or hospital. We believe that this underlying convenience value proposition is relevant to a far smaller percentage of the patient population than current penetration estimates would reflect.

This is substantiated by our own research, which suggests that a large driver for the On-body use is more economic than patient-centric, primarily because it's offered at a lower price than the pre-filled syringes and is currently unopposed in the market. We believe this is a very large market with more than enough room to accommodate both the biosimilar pre-filled syringe product format and the On-body format for patients who truly need it.

In conclusion, let me say that we expect to do relatively well in the pegfilgrastim market upon launch, particularly if we're the sole biosimilar market participant as envisioned for some period of time. We will be providing some additional color on how we see the markets and their potential for shaping up for us on the next earnings call.

Lastly, before turning things over to Jean Viret, let me touch on licensing.

In terms of the anti-TNF products, the timing of regaining the CHS-0214 rights from Shire positions us to bundle our anti-TNF product together if desired for licensing, given that we have complementary and overlapping product offerings in key major territories. On CHS-1420 we continue discussions with our potential partners, including the 166 considerations in our plans for continued program progress continue to guide our first half 2017 transaction guidance.

In terms of US oncology, we continue our efforts there to license key parts of the oncology portfolio ex-US, particularly in Europe. And we continue to guide to a first half 2017 transaction.

In terms of CHS-131, let me comment further on that. We have made some very good progress, which is our oral small-molecule relapsing-remitting MS product. You may recall this completed a successful phase 2b in July. The relapsing-remitting MS market is approaching 20 billion, and we believe a safe, well-tolerated and convenient product will find opportunity in the treatment paradigm. You'll hear more about this in the next six months or so as we continue our licensing efforts for this product.

With that product summary out of the way, let me turn to Jean Viret, the Company's Chief Financial Officer who will review the Company's Q3 earnings results.

Thank you, Denny.

Cash and cash equivalents total $159.7 million as of September 30, 2016, compared to $220.9 million as of June 30, 2016. Cash used in operations was $61.2 million in the third quarter of 2016, as compared to $76.3 million in the first quarter of 2016. Cash used in operations was approximately 20% less in the third quarter compared to the first quarter of 2016, as previously guided.

Total revenue for the third quarter of 2016 was $162.8 million, as compared to $7.2 million in the third quarter of 2015. Total revenue for the nine months ended September 30, 2016 was $189.3 million, as compared to $19.8 million over the same period in 2015. The increase over the same period in 2015 was due to increased recognition of collaboration revenue, as a result of regaining the full development and commercial rights for CHS-0214 from Shire in Europe, Canada, Brazil, the Middle East and certain other territories.

Research and development expenses from the third-quarter of 2016 were $64.6 million compared to $68.2 million for the same period in 2015. The expenses for nine months ending September 30, 2016 were $195.4 million, as compared to $161.6 million over the same period in 2015. The decrease in R&D expenses in the third quarter over the same period in 2015 was mainly due to a completion of the BLA-enabling studies for CHS-1701 and the completion of two phase 3 studies for CHS-0214.

The increase in R&D expenses in the first nine months of 2016 over the same period of 2015 was mainly attributable to proceeding with the clinical activities associated with phase 3 clinical study in psoriasis for CHS-1420, advances in other product candidates, and hiring additional personnel to support both late development and early-stage activities, partially offset by a decrease in costs related to BLA-enabling studies for CHS-1701 and a decrease in costs associated with the CHS-0214 phase 3 trials that were completed at the end of 2015.

General and administrative expenses for the third quarter 2016 were $13.6 million compared to $10.2 million for the same period in 2015. G&A expenses for the nine months ended September 30, 2016 were $36.3 million as compared to $25.1 million for the same period in 2015. Changes in G&A expenses were mainly attributable to hiring employees to support legal, pre-commercial and accounting activities, costs associated with stock options granted since the third quarter of 2015 and legal fees to support the intellectual property strategy. Net income attributable to Coherus for the third quarter of 2016 was $83.9 million, or $1.67 per share, compared to a net loss of $71.3 million, or $1.86 per share for the same period in 2015.

We will now turn the call to Q&A. Operator, you may now open the call to questions. Thank you.

(Operator Instructions)

Mohit Bansal, Citigroup

Thank you for taking my question. I have two questions, if I may? First one relates to Neulasta biosimilar. Specifically, now we have seen almost a year of launch of Zarxio biosimilar from Sandoz -- how did you connect that particular launch, given that Sandoz has supported more like $100 million (inaudible)? [Also they have also revenues.]

How do you [rate] that launch and what we have learned from that launch which could help you when you launch your own product? The other one is more broad question -- with the new president, a Republican victory, and then chat around the Affordable Care Act. What kind of risk do you see to 351(k) pathway? And then, given that you (inaudible) and you got pretty close to [five] for others, do you see you are protected, or how do you see that happening? Thank you.

Thank you Mohit. This is Denny. Let me let the Company's Senior VP of Commercial Strategy, Michael Fleming is with us today, first comment on your question regarding the Sandoz Zarxio launch and then I will follow up with some color on the Affordable Care Act and the Biosimilar Act. Michael?

Thank you for the question. So the question is really about the Zarxio launch and how do we view it. Amgen communicated on their call that biosimilar penetration into Neupogen's businesses is now about 40% and growing. In fact, if you look at the uptake of Zarxio, it is looking to exceed the uptake trajectory of Granix, that had launched previously in the space.

So we see this performance overall as very encouraging for the acceptance of biosimilars in the oncology space. And in terms of the market research that we've done and the customers that we've talked to, the basics apply in terms of really doing effective messaging on quality of the project, the reliability of the supply, as well as the value proposition.

Some of the softer and harder aspects of value, contracting, pricing, is important but also patient support services. Again, we see this as very encouraging for the category. I would also say that Neulasta, we think there's going to be a much greater pent-up demand for a Neulasta biosimilar sooner than there would be for a Neupogen biosimilar.

Let me secondarily address your questions regarding ACA and the Biosimilar Act. It's true that the Biosimilar Act is part of the Affordable Care Act. However, the Biosimilar Act is working quite well. As you know, a number of products have been approved with full label extrapolation.

These will be beneficial to the marketplace overall for pharmaceutics. There has been no criticism of the Biosimilar Act that we have heard in this context. This is a legitimate pre-market approach to helping control pricing in the pharmaceutical market.

We know its a very pro-competitive approach. We would expect this administration to be somewhat sympathetic to it. We do not foresee any issues or any changes. In our view it is working well and its something that would be welcome.

Great. Thank you.

Alethia Young, Credit Suisse

This is Ellie on for Alethia, thanks so much for taking my question. Can you give us little bit more color on the other Humira biosimilar formulations you have? Specifically what pre-clinical and clinical work you have done on already? Also, can you comment on how long you expect the PK study to take? Thanks.

Thank you. We would decline to discuss the particulars of the preclinical status of any of the formulations. However, we have guided to a first half of 2017 start for a pharmacokinetic study which is really the milestone I suggest you be focused on. Its fair to say that such a study would probably take around six months to execute and so forth, as we've discussed previously on other calls and forums.

Lastly, I would say a number of formulations, of course, that we developed over time as contingencies for various legal developments in the Humira space. As you may recall, we keep very strong track of the intellectual property development here and you can expect that we would have corresponding formulation strategies, dovetail scientific strategies, matching certain legal developments as we proceed with the product. So, we have in the past moved forward with a number of options in parallel, and this is a case of us exercising one of those options.

Great. Thanks.

(Operator Instructions)

Jason McCarthy, Maxim Group

Hello, guys. Thanks for taking the question. I have a question about potential partnering opportunities for your TNFs? To my knowledge you're the only group that has two TNF biosimilars. Are you considering potentially partnering them as a pair, almost like a TNF little franchise? Nobody else has it, I think it could be a tremendous opportunity.

I wanted to get your thoughts on that? Thanks for taking the question.

Thanks, Jason. Thank you for the question. We pointed that out in our prepared remarks. We think there is, of course, a high complementarity in terms of the anti-TNFs. As you know, patients regularly rotate from one of these products to the other and they are therapeutically interchangeable to some degree.

Some patients do better on one than the other, some patients stay longer on one than the other. So we think that its a powerful value proposition to have both products in hand. Particularly in the case, for example, in the European market where you're able to access both those products at the same time as well as other markets also.

We thought it was actually fortuitous that the return of the asset from Shire occurred concurrently, at the time, where we had just initiated the 1420 biosimilar licensing process. So we are encouraged and actually made that note. I appreciate your insights and I would agree with that. So we will give you a little update as we go on. As you call, we've got into the first half of 2017 for a deal on these assets.

Thanks, guys.

Douglas Tsao, Barclays

Hello, thanks for taking my question. Denny, I know it's obviously been early with the decisions from the PTAB on the [126]. Curious if in the interim you've had any conversations with any of the parties that you've had partnership talks with on the -- for the anti-TNFs? How has that affected the interest in the product?

Hello, Doug. Thanks for the question. I would decline to provide additional comments on our partnering on such a frequent basis. We will be happy to update the partnering on the call. But as you know, the Company's long-standing position is not to offer blow-by-blow, stage by stage commentary on its partnering efforts to the market.

We do not believe that is appropriate and we will not do so now. That being said, with this product we believe that the attractiveness of the 1420 as an asset is broad because of its global reach. There's a number of markets besides the US where this particular patent plays a significant role.

Particularly, for example, in Europe where it was pointed out that we have both the 0214 Enbrel asset and this asset available and in play as well as in other territories. The second point that I would make also, is that we have a parallel track opportunities in terms of the formulation and approaches that we approach this in a multi-pronged fashion, as you recall from our earlier conversations.

So we will continue to go forward with those. But I think it is clear and I talked about it on Monday, and then again on Tuesday when I was at Credit Suisse. We don't believe this is the last shot fired at all in terms of the formulation patents on 166 [multiple speakers], or the IP overall.

Okay. Great. Have you ever given consideration to development of your own On-body type of system? Just given the fact that I hear (technical difficulties).

Sorry, Doug, I missed the second part of your question.

I'm just curious if have ever considered development of your own On-body type of device?

Let me say that was - that comprises a strategic question, which I would decline to comment further on in this forum. But let me tell you that we have a number folks on our team that are very, very familiar with the On-body system with Neulasta, and very familiar with the value proposition. So, if we certainly thought that was something that we should do or wanted to do, you could predispose that we would look further into that and I think we are very familiar, as we pointed out, with the value proposition on that. I will leave it there. But I will be happy to provide updates on you as time goes on that particular topic.

Okay. Thank you.

We have time for one more question.

(Operator Instructions)

With no additional questions I will now turn the call back over to Mr. Lanfear.

Thank you very much. Thank you all for joining the call today to receive the update on our products. We look forward to talking to you again on our next earnings call. Thank you. Goodbye.