Coherus Oncology Inc (CHRS) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Coherus BioSciences Second Quarter Earnings Conference Call. My name is Sonya, and I will be your conference operator for the call today. (Operator Instructions) And as a reminder, this conference call is being recorded. I would now like to hand the call over to Jean Viret, Chief Financial Officer. Please go ahead.

Thank you, Sonya, and good afternoon, everyone. After close of market today, we issued our second quarter financial results press release. This release can be found on the Coherus Biosciences' website. Joining me for today's call will be Denny Lanfear, President, CEO and Chairman; Vince Anicetti, Chief Operating Officer; Jim Hassard, Senior Vice President, Marketing and Market Access; Matt Hooper, Executive Vice President and General Counsel; and Dr. Barbara Finck, Chief Medical Officer.

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 and commercial plans, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ from these statements. A description of these risks can be found on our most recent Form 10-Q, which we filed this afternoon after market close. In addition, we do not undertake any obligation to update any forward-looking statements made during this call.

I will now turn the call over to Denny.

Thank you, Jean. We've had a very productive quarter here in Q2 of 2018, and we are very happy to update you all on developments today. First, with respect to UDENYCA, formally known as CHS-1701, our pegfilgrastim biosimilar. Today, we'll summarize developments for you in 3 key areas. First, we're going to sharply focus on our commercial launch preparation, and Mr. Hassard, our Senior Vice President of Marketing and Market Access, will summarize these activities for you in just a moment.

Following my own remarks with respect to regulatory progress in Europe, the positive CHMP opinion as well as progress with the FDA, our Chief Operating Officer, Mr. Vince Anicetti, will summarize the results of certain FDA inspections of facilities related to UDENYCA development as well as our manufacturing progress in anticipation of launch. Lastly, we'll have a review of the financials by the company's CFO, Dr. Jean Viret, before we go to the Q&A.

With respect to UDENYCA approval progress in Europe, at the end of July, we announced that the CHMP adopted a positive opinion with respect to the marketing authorization of UDENYCA. This decision provides the basis for the company's first regulatory approval in a major developed market and validates both our UDENYCA biosimilarity package as well as our biologics development platform capabilities overall.

We now look forward to the formal European Commission approval decision around October 1 per the standard EMA regulatory process. With this, UDENYCA has the opportunity to be one of the first pegfilgrastim biosimilars approved in Europe. I would like to thank the Coherus team for their extraordinary dedication and efforts to achieving this transformational milestone for our company.

Now with respect to the commercialization in Europe, we are currently engaged in discussions with various parties, and we continue to progress in selecting the best option to maximize the long-term commercial value of UDENYCA in this region.

Now with respect to the progress on the U.S. BLA, we have received certain information requests from FDA, and we have responded to such requests in a timely fashion in accordance with established processes and expectations. At this point, we believe the application is tracking as expected, and to the best of our understanding, an advisory committee meeting will not be required prior to or to support approval.

In terms of our manufacturing quality systems, as I indicated, our COO, Vince Anicetti, will summarize certain FDA inspection-related activities in just a moment. We continue to look forward to UDENYCA BLA action date of November 1 -- I should say November 3, 2018.

A few remarks are in order with respect to the biosimilar public policy, the FDA biosimilar action plan and pending executive directives aimed at pricing and rebate policies. We'd like to commend Commissioner Gottlieb for his leadership with respect to the FDA biosimilar action plan, in particular his emphasis in seeking to create an environment that fosters competition in the U.S. biologics marketplace. We look forward to the forthcoming executive directive from HHS, aimed at pricing and rebate policies and to participate during the policy comment period post issuance.

As the only U.S. pure-play biosimilar company, we believe that we have a unique perspective and share the FDA and HHS goals of delivering health care system savings and improving access -- patient access to biologics. With that, now Mr. Anicetti would like to make a few remarks with respect to manufacturing, quality and operations. Vince?

Thanks very much, Denny. So I'd like to provide a brief update on the operation side of our BLA effort, some recent inspections performed by the FDA at our facilities as well as our overall manufacturing launch readiness.

First, we recently completed an FDA preapproval inspection at our analytical lab in Camarillo, California. We're very happy to report that this inspection was completed successfully without the issuance of any 483s by the FDA. I should note, this follows our previous FDA inspection at our Redwood Shores headquarters, in which there are also no 483s issued.

In addition, we also recently completed an FDA inspection of our contract laboratory that performs the immunogenicity assay, which supported our clinical package in the BLA. This is a laboratory that validated and executed the revised immunogenicity assay with enhanced sensitivity, as recommended by the FDA in the Complete Response Letter.

Once again, we're very pleased to report that this inspection was completed without the issuance of any 483s by FDA. I should note that we have prioritized the development of our quality systems here at Coherus, and we've made substantial investments in staff and infrastructure. And it's very rewarding to see this effort reflected in such positive inspection outcomes.

Now I'd like to add a few remarks on the manufacturing launch readiness side of our efforts. As we previously discussed, the UDENYCA bulk drug substance or active ingredient is made here in the U.S. at KBI Biopharma in Boulder, Colorado. KBI is our strategic partner and we've developed a close and successful collaboration together that continues. I should also note that all other manufacturing operations for UDENYCA are performed in the U.S., and we're quite proud that this is a made-in-the-USA product.

As you can imagine, our focus in 2018 is then to be fully prepared for the launch of UDENYCA, both in the United States and in Europe to ensure certainty of supply, and I can report that this is going well. We are continuing to successfully build inventory to supply a vigorous launch after regulatory approval, and our ramp-up plans to support long-term demand are advancing consistent with our long-term objectives. I'll be happy to take any further questions during the Q&A period.

Thanks, Vince, and congratulations to you and your team for a great job and excellent results on the quality manufacturing side. Now I'd like to ask Jim Hassard, the company's Senior Vice President of Marketing and Market Access, to give you a review of our launch preparation activities and make a few more remarks in that direction. Jim?

Thank you, Denny. I am happy to provide an update on recent and projected activities on the commercial front. In terms of our commercial ramp up, we are pleased to announce that field leadership in sales, key account management and market access teams are now fully in place.

Our field leadership is comprised of regional sales directors, or RSDs, to whom the territory level sales teams will report. We are pleased with the caliber of people that we have been able to attract and their enthusiasm for bringing biosimilars to market.

In terms of scope, the team is sized consistent with a traditional branded biologic launch, and we are confident that we will be able to deliver sales and support to ensure our expected market penetration.

With respect to key account management, the team are building strong relationships with the group purchasing organizations as well as large account systems, such as integrated delivery networks, or IDNs. This is important, as the top 7 group purchasing organizations represent over 80% of the market. We're fortunate to have attracted individuals with deep relationships and experience in oncology buy-and-bill.

Market access is responsible for relationships with the payers, and making certain there are no impediments to UDENYCA reimbursement at the payer level, ensuring both providers and patients have access to UDENYCA. As a reminder, the market structure is such that 50% of patients are covered by Medicare and the other 50% of patients are covered by commercial payers.

On the public side, we have already made application for reimbursement coding with the Center for Medicare Services. And on the private side, we have made significant headway with top commercial payers. In terms of the team, again, we have attracted highly experienced industry professionals tenured in Medicare, Medicaid and commercial payers.

We are continuing our outreach in educational efforts to build awareness about Coherus BioSciences amongst the oncology community. We are pleased about the anticipation and excitement for biosimilar pegfilgrastim, UDENYCA.

Finally, let me make a few comments about the market characteristics, how we plan to compete and gain our expected share. First, as we have said before, this is a very large market. Neulasta is one of largest oncology biologics in the United States, representing approximately $4 billion in sales. Second, this is an episodic market, where most patients are new to treatment. We don't anticipate encountering switching barriers to adoption. Third, there is a large segment of the market that is disadvantaged on pricing, where we believe we have an opportunity to be attractive. And lastly, this will not be the first biosimilar launch in the United States, and we have been students of lessons learned from both biosimilar success in the short-acting G-CSF market as well as less successful launches.

Our overall strategy is to provide a holistic value proposition to all stakeholders that goes beyond pricing and provides patient and provider services, high-quality staff and reliable high-quality supply. While we have been pursuing the regulatory approval of UDENYCA, we've been conducting market research and advisory meetings with key stakeholders to understand their needs and expectations.

I am, of course, happy to take any questions you may have on the commercial side of the business during Q&A. Denny?

Thanks, Jim. As you can all tell from both Vince and Jim's remarks, we're very excited about the opportunity in the upcoming approvals and the subsequent launch, and we look forward to giving you more color on the next call in November. With respect to the payer and market access side, I'd like to comment on one additional development, which is the appointment of Dr. Samuel Nussbaum to the Coherus Board of Directors.

Sam brings a wealth of experience in the payer side to the Coherus board, including decades in public policy and extensive tenure as Chief Medical Officer at Anthem. We're gratified to have a physician and industry veteran of Dr. Nussbaum's caliber on our board and he has already provided highly valuable input on our plans and strategies. With respect to our pipeline, we have no change in guidance at this time, and we look forward to updating you with respect to it on our next call.

Before we get to Q&A, the company's Chief Financial Officer, Dr. Jean Viret, will review the financials. Jean?

Thank you, Denny. I will walk you through the main aspects of this quarter's financial performance. Research and development expense decreased this quarter over the same quarter last year by $8 million. The decrease in R&D expenses period-over-period was mainly due to a reduction in manufacturing, clinical, analytical costs associated with our anti-TNF programs, CHS-0214 and CHS-1420, and a focus of resources to manufacture UDENYCA.

This second quarter, just like other recent quarters, we're expensing all costs related to the production of UDENYCA until we receive approval from the FDA. General and administrative expense also decreased by $5.1 million this quarter over the same quarter last year. This decrease was mainly attributable to a decrease in personnel and in certain legal and consulting services as a result of cost control steps taken since June 2017.

Net loss attributable to Coherus for the second quarter of 2018 was $43.6 million or $0.68 per share compared to a net loss of $55.3 million or $1.08 per share for the same period in 2017. Our cash, cash equivalents and marketable securities totaled $159.8 million as of June 30, 2018 compared to $95.2 million as of March 31, 2018.

Our use of cash in operations during the second quarter of 2018 was $35.5 million, in line with our guidance of $32 million to $37 million for that quarter. We anticipate use of cash in operations between $48 million and $53 million in the third quarter of 2018, up by approximately $15 million from our second quarter use of cash as we prepare for UDENYCA's approvals in Europe and in the U.S. and commercial launch.

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

Thank you, Jean.

(Operator Instructions) Your first question comes from the line of Mohit Bansal from Citigroup.

Congrats on all the progress. So if I could dwell deeper in the commercial aspect of the business, because you do -- did mention that 640B -- previously that 340B hospitals, you are in an advantageous position. I just wanted to look at the 50% of the market, which is the -- which are the community clinics and some do get better pricing from Amgen. If you could help me understand what strategy you think would be the right strategy to go into those clinics and go to the last mile there?

Thanks for your question, Mohit. With respect to the clinics and 340B hospitals, we'll let Jim Hassard take that one. Jim?

Thanks, Denny. So Mohit, to your point, clinics do represent about 50% of oncology on Neulasta sales. I think that the real point that we have been and real strategy here is we've been building relationships with the group purchasing organizations. And with their help and guidance, we will, again, go at this segment of the market. Again, specifics in terms of targeting are still yet to be determined over the next few months.

Mohit, did you have a specific question with respect to the 340Bs and their economics that you wanted clarified?

If you could clarify because lot of [our] people have asked this question, and how does that 340B hospital and the differences between ASP plus 6% or ASP minus 22.5%, how does it work? And also how could it impact the ASP itself or would it not?

Jim, can you run down the reimbursement in the 340B hospitals for Mohit, please?

Sure. So Mohit, first of all, to answer your last question, discounts into the 340B segment do not impact the average selling price calculation. So that's an important first point. In terms of the reimbursement, really again, biosimilars, as any new market entrant into the biologic space, will be given the opportunity for a 2- to 3-year period of having a reimbursement calculation, which is either WAC, the wholesaler acquisition cost, or the average selling price plus 6%. And again, that's for the first 2 to 3 years. Currently, Neulasta has a reimbursement formula of ASP minus 22.5%. So really that's the reimbursement side. Really in order to be attractive in that setting, Mohit, what it really depends on is what our pricing will be within the 340B segment, and that is yet to be determined. We will give you guidance on that closer to November.

But to Jim's point, Mohit, you're clear that the 340B hospital pricing does not impact overall ASP reimbursement.

This is very helpful. And then if I can ask a little bit more about HUMIRA manufacturing efforts? And how soon can we see a filing there? And then obviously, how do you plan to navigate the IP landscape there?

So do I understand your question with respect to manufacturing to be, when we would see a filing?

Yes. So I mean, you said that the filed -- you're working on the manufacturing efforts to get to the filing point there because you have already run the studies there. So I mean just trying to understand the next steps there and when can we get to the filing point? And also...

Yes. Okay. So with respect to the manufacturing, we have previously disclosed that there have been inspections both by FDA and EMA. So there is no further activity with respect to filing, manufacturing. The manufacturing information and the facility information is contained in the BLA and in the corresponding documents for EMA. No further activity is anticipated there. Thank you for your question. Operator, let's move on. Thank you, Mohit.

Your next question comes from the line of Bill Maughan from Cowen.

Congrats on the progress, especially coming out of Europe. So my question is, based on the recent approval of the first biosimilar, Neulasta, it seems that we still haven't seen that on the market yet. Do you guys have any visibility as to when that launch might happen and sort of as their first-to-market advantage seems to be dwindling at this point?

Yes. So just to be clear, what we have had so far is a recommendation for approval, not an actual approval. Jim, do you want to take a follow on to the question about the market and so on and the rest of the time issues?

Yes. So your question with regards to the first biosimilar approve -- biosimilar pegfilgrastim approved here in the United States, correct?

Yes.

So our understanding was that approval took place in early June, and there actually is -- they did announce product available within the channel July 9. So it's really been a very short period of time between now, today, and that actual product in channel launch, July 9.

Okay. And do you have any comment on the -- sort of the strength of that marketing effort to this point?

No. Still, we're trying to be students and trying to understand what is going on in the marketplace from that launch, but it's still early days. It's too early to really assess what their performance is, et cetera.

Your next question comes from the line of Mike Ulz from Baird.

Congrats on the progress as well. I guess, just with respect to the BLA, Denny, you mentioned the FDA requested some additional information that you've already provided. I'm just curious if you can maybe provide a little bit of additional color on the type of information that was requested. And then secondly, was that information similar to some of the requests you got from the EMEA during that process? I'm just trying to get a sense of whether the FDA is sort of diverging in the process from sort of what the types of question you were getting from the EMEA.

Thanks for the question, Mike. No, the FDA is not diverging. These are routine questions. Typically, regulators will ask you to just look at data a slightly different way. They'll sort of -- can you slice it this way, so we can look at it. That's sort of the typical thing, it's not -- these are all routine questions. I wouldn't characterize them any other way. I would point out that the EMA has seen the same immunogenicity there that the FDA is looking at now and has found it worthy for recommendation for approval. So no, no divergence that we see whatsoever. If that (multiple speakers).

(Operator Instructions) Your next question comes from the line of Chris Schott from JPMorgan.

Just 2 here. First, with regards to UDENYCA in Part B, I guess, with some of the recently announced changes that allow more negotiations within Medicare Advantage for Part B drugs or some of the broader proposals to move more Part B into Part D. I guess, is there anything in there that impacts your thinking or strategy around how you would approach the market, et cetera, that we should be keeping in mind? And then my second question, I think you mentioned the top 7 GPOs representing like 80% of the market. How do you expect the GPOs to handle biosimilars? Will this be a situation where you're going to see GPOs work with multiple players in the market or do you expect each of the organizations to look to partner with just one player?

Thanks, Chris. Jim would be happy to give you a little clarity on our thinking around the Part B. Jim?

So on the 2 two questions, Chris. So first of all, Part B, this is a relatively new piece of -- or a new announcement from CMS, I believe it came out yesterday. So what CMS or what the Trump administration, I believe, plan to do is empower the Medicare Advantage plans to essentially begin negotiations and maybe provide or put in place prior authorizations, et cetera, and that would be effective January 1. So first of all, just to baseline us on what does that represent, so Medicare Advantage is not all Medicare. Medicare Advantage is essentially organized and run by the commercial payers on behalf of Medicare, and we estimate that, that represents about 5% or 10% of total Neulasta sales. In terms of how -- the strategy there, Medicare Advantage plans are actually incentivized to operate efficiently to try to reduce costs, et cetera, and we really feel that biosimilars will play an important role as a solution for Medicare Advantage plans in the years forward. In terms of -- does that answer your question, Chris?

Yes. So I guess my question, is it -- I guess, is that switch relevant to you guys? Or either way was there already incentives in place for these plans to already be focused on biosimilars?

I think that, again, they are incentivized to reduce costs. And some of these plans have been focused on the use of generics, et cetera. So I think biosimilars just play a natural role with the Medicare Advantage plans.

Chris, this is Denny. I would just remark that the overarching theme of the administration we view as very favorable to biosimilars. Whether you look at Commissioner Gottlieb's remarks, whether you look at Alex Azar's remark at HHS or CMS or other things. So there is a very consistent theme and set of actions coming through the administration, which we believe are very positive for biosimilars, this included.

And Chris -- thanks, Denny. And Chris, on your second question with regards to GPOs, I don't want to speak on behalf of the group purchasing organizations. They act on behalf of their membership. It's their role to choose the best strategy and the best brands for their membership. But I will say this, is that it's -- the feedback that we've received, it's not all about price. It's -- price is just one of the components. They really are looking for a value proposition that includes patient provider services, certainty of supply, things that go way beyond price. So we'll just have to wait to see what their choices are, but, again, I don't want to speak on their behalf.

And we've also -- I have also interacted with several of these teams, Chris. The other complementary remark I would make in addition to Jim's is there's a palpable enthusiasm among all these groups for biosimilars. They relish the opportunity to have a choice, to be able to have competition in the marketplace and so on. So I think it's very healthy for the marketplace, and I think it's good for the health care system.

Your next question comes from the line of Jason Kolbert from H.C. Wainwright.

Congratulations on all the progress. I just wanted to clarify one point. It kind of relates to pricing in the marketplace. I know it does get a little bit confusing, and the size of the marketplace. The CEO of Mylan talked about double-digit discounts. But when I do the math and in our conversations, it becomes clear that in reality, it's just a very moderate discount they're offering, a couple of percent off of the ASP. So can you spend a few minutes just talking about the real price of Neulasta as it's sold versus kind of the published numbers, so that we can understand some of the factors that explain why the Mylan launch is so anemic?

Thank you for the question, Jason. That's a -- of course, a very confusing topic is pricing, the discounts and so on. I'll let Jim take a shot at giving a little color to that. Jim?

Very good. Thanks, Denny. Thanks, Jason. So just to address your question, the 2 prices that are publicly available as published by the compendia and also as published by CMS, so the list price for Neulasta is about $6,200 per prefilled syringe. The average selling price for Neulasta, as published by CMS, is about $4,200. So to your point, there is about a 33% gap between the list price and the average selling price, the net price for Neulasta. Now, Mylan's price, their list price that they came to market with in July of this year is, to your point, only about 6%. It's about $4,175. So it's just 6% below the average selling price that most of the market sees with Neulasta.

Right. And just to change gears a little bit. In advance of your launch in anticipation of approval, can you talk a little bit about the structure of the sales force, who has been hired and who still is on your shortlist to be hired?

Yes. Very good, Jason. So as -- again, going back to my remarks from the call today, who we have hired is, we have hired the regional sales directors on the sales side. We have completely filled out the key account management team now, and we have completely filled the market access team. So right now, still to be hired are -- we anticipate having approximately 70 sales representatives or territory account managers. And again, we're building a shortlist at current and we'll pull the trigger on hiring those territory account managers closer to approval.

And just one last question, it has to do with a comment that Jean made about expensing some of the product that's already been produced. Can you give us some idea of the magnitude of that number? Because it sounds like upon launch, you'll be using already expensed products, so your initial cost of goods will essentially be 0, at least at time of launch.

JV, would you like to handle that one for Jason?

Yes. So indeed, cost of goods will be pretty small; they still have to do final packaging. So that's pretty much what you're going to see hitting the COGS line, plus a couple other small shipping costs, et cetera. In terms of the amount of inventory we're going to have on hand, we'll provide more guidance as we get close to launch. But you could look particularly at changes in R&D expenses and [OpEx] in our 10-Q and you can get an idea of how much in dollar amount we've been providing using UDENYCA.

Your next question comes from the line of Douglas Tsao from Barclays.

Just maybe as a starting point, sort of perspective, you referenced the part -- the opportunity to partner the 1701 in Europe. What other regions do you think potentially represent sort of meaningful commercial opportunities for you, outside of the sort of major markets?

Hi, Doug, thank you very much for the question. Well, as you know, we have retained, by and large, global rights to all of our products, including UDENYCA. So there is, of course, Asian rights, Japanese rights, all those areas, in addition to Europe and so on. Our current efforts are focused on the European market, that's the second largest market after the U.S., of course. I think it's approximately about a $700 million market. We believe that's probably the most important market after the U.S. The data exclusivity timing in Japan is a few years off, I think it's 5 or 6 years off. And so we think that Europe probably constitutes the second most attractive market for UDENYCA globally. And the other point that I would make for you is we -- if we do seek a deal, we were seeking more profit sharing backside loaded as opposed to upfronts at this point in the company's evolution, having garnered the recommendation for approval.

And then Denny, with 1420, as we sort of approach market formation in Europe, have you -- what are your sort of -- any update in terms of trying to monetize that opportunity?

We are occupying ourselves at the current time with certain pipeline developments, including 1420 in the ophthalmology franchise and so on. So we prefer just to update the Street at the next call on that. But that's something, of course, that we have in our crosshairs and have been focused on.

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

Hi. Thank you all for joining us today on the Q2 Coherus 2018 call. As we indicated, I think we've made some very good progress so far this quarter. We're very excited about the launch and the potential approvals. I think the team has done just an extraordinary job, moving the objectives forward over this quarter. We look forward to more progress. There is a few conferences that we will be at in the first week of September. We will be out on the East Coast in New York and Boston and so forth. So we look forward to seeing you there. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.