Coherus Oncology (NASDAQ:CHRS) Q4 2018 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by, and welcome to the Coherence Biosciences fourth quarter earnings conference call. My name is Michelle, and I'll be your conference operator for the call today. At this time, all participants are in a listen-only mode, and as a reminder, this conference call is being recorded. I would now like to turn the call over to David Arrington, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

0:25 Thank you, Michelle, and good afternoon, everyone. After close of market today, we issued our fourth quarter financial results press release. This release can be found on the Coherus Biosciences website. Joining me today for the call will be Coherus CEO, Danny Lanfear, and our Chief Financial Officer, Jean Verret. 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 actual results to differ from these statements. A description of these risks can be found on our most recent Form 10-K, which we filed this afternoon after market close. In addition, Coherus Biosciences does not undertake any obligation to update any forward-looking statements made during this call. I will now turn the call over to Denny.

1:16 Thank you, David, and welcome everyone to our Q4 2018 call. We are very pleased today to review with you the progress in Q4 2018, which saw the approvals of the company's first product on November 2nd and the subsequent launch preparations. We're happy to update you today on our progress with respect to the launch, as well as the product pipeline. Our company's CFO, Jean Verret, will then review our Q4 financial performance, and we'll be happy to take your questions. Now, with respect to the launch, I'm pleased to say that we are executing the Udenica launch per plan. We're shipping product and billing customers. Patients are being treated with Udenica. Overall, the sales, logistics, and fulfillment processes fully meet our expectations and are proceeding smoothly.

2:05 We are pleased that our initial performance is aligned with our internal projections, and we believe that we have successfully presented a robust value offering comprised of a high-quality product Significant Guaranteed Supply, Services, such as Coherence Complete, and Attractive Pricing to the Market. To remind you, the list price of Eugenica is some 33% below that of Neulasta. Our experience to date confirms that our value offering meets the needs of providers, payers, and patients. On a personal note, I just want to say that it's immensely gratifying to see our long-held biosimilar vision now implemented in the field. I recently had the opportunity to visit several oncology clinics and hospitals throughout the country and observe firsthand the value that Udenica is now bringing to the healthcare system.

2:55 Let me make a few comments with respect to our supply. As per our previous 2018 guidance, our logistics center has ample stock on hand sufficient to fulfill even our highest expected demand for an extended period under any competitive scenarios. As you may recall, Udenica has 36 months shelf life. the longest dating of any approved biosimilar tight-fill grass in the U.S. market. Udenica has been utilized by patients in all three provider segments, oncology clinics, 340B hospital outpatient, and non-340B hospital outpatient facilities. This is consistent with our broad-based launch strategy that we outlined earlier in 2018. Now, with respect to the payers in our previous guidance, As you know, we particularly focused on securing coverage among both Medicare and commercial insurers on both a national and a regional level. To date, Udenica has coverage at parity or better to the reference biologic Neulasta in over 90% of insurers, including all major national payers such as Anthem, United, and Aetna.

4:06 To our knowledge, there have been no rejected or unpaid claims from any payer. which was an issue with previous biosimilar launches, as you may recall. Finally, it is interesting to note that given Udenica's attractive pricing and comparative value, some payers have adopted policies to prefer biosimilars, including Udenica, over Neulasta. Now on the services side, we launched our full provider-patient offering, Coherus Complete, in early January to support patient access to Udenica. We have resourced all Coherus customer services to accommodate the anticipated demand. I am pleased to report that customer response to Coherus Complete has been very positive and is being very well utilized in the market.

4:52 With all of our Coherus service offering system, we are supporting medical information requests, reimbursement coding inquiries, as well as requests from patients for copay assistance. And I am very pleased to note that consistent with our mission to deliver healthcare savings and improve patient access, We have already provided underinsured and uninsured patients with Udenica at no charge. Now let me make a few remarks with respect to the adoption and sales. As you know, prior to launch, we expected that a branded, holistic approach to the market, which considers the individual needs of each stakeholder, was the best way to support and nourish biosimilar intake, uptake, I should say, and market conversion. While we are only about two months post-launch, our experience to date has been consistent with those expectations and validated this approach.

5:44 While we will not provide early metrics with respect to sales today, we are pleased to report that our initial performance is well aligned with our internal projections and our broad launch strategy across all segments. We look forward to updating you in May on our Q1 call when, of course, we plan to report our first quarter sales. Now, let me make a few remarks with respect to the pipeline. And while I understand the Udentica launch is the primary interest, I just want to point out a few things in terms of the developments there. First, I'll discuss our adalimab biosimilar CHS1420. As reported earlier, we have settled with AVI for a launch date in late 2023, and accordingly, we will now sequence and prioritize our BLA efforts for this product consistent with our negotiated launch date.

6:31 As we have previously guided, it's our intent and strategy to launch our Humira Biosimilar CHS1420 ourselves. We expect that our infrastructure investment learnings from oncology will be highly relevant to the anti-TNF space. For example, the relationships that we're building in the payer space and the patient services delivered by Coherus Complete are particularly important in the anti-TNF space and will find direct applicability. Now with respect to the ophthalmology franchise, CHS 3351, our Lucentis biosimilar, and 33, I'm sorry, CHS 2020, our ILEA biosimilar, we continue to advance our efforts per plan. We believe that the brand and service-oriented approach that we are pursuing in oncology will have direct applicability in ophthalmology as the buy and build market dynamics as well as the potential cost savings to the system are very similar.

7:23 We're happy to take any questions with respect to the launch. Thank you, Denny. I will now work you through the main financial results for this quarter. Research and development expense decreased by $4.8 million this quarter over the same quarter last year, and by $52.2 million in 2018 compared to 2017.

7:57 The decrease in R&D expenses period over period was mainly due to a reduction in manufacturing, clinical, and analytical costs associated with our anti-TNF program, CHS 0214, and to some degree from CHS 1420. These cost decreases were partially offset by the costs associated with the manufacturing of Udenica. Again, this fourth quarter, we expense all costs related to the production of Udenica through November 2, 2018. Thank you very much. and increased by $22.9 million in 2018 compared to 2017.

9:01 This increase was mainly attributable to the costs associated with hiring a sales force and completing the commercial functions and infrastructure to launch and sell Udenica in the U.S. These increases occurred mostly in the fourth and third quarter of 2018. Cash and cash equivalents and investments in marketable securities total $72.4 million as of December 31, 2018, before receiving $73.1 million in net proceeds from our senior secured credit facility with healthcare royalty partners in January 2019. Thus, our cash on hand, together with the cash we just raised, represents a pro forma total of $145.5 million compared to $117.2 million as of December 30, 2018.

9:55 Cash use in operations was $47.4 million during the fourth quarter of 2018 compared to $42.8 million during the third quarter of 2018. Net loss attributable to coherence for the fourth quarter of 2018 was $62.6 million, or $0.92 per share, compared to a net loss of $49.1 million, or $0.84 per share, for the same period in 2017. Net loss attributable to Coeris for 2018 was $209.3 million, or $3.22 per share, compared to a net loss of $238.2 million, or $4.48 per share, for 2017.

10:42 I will now turn the call back to David Arrington.

10:45 Thank you, Jean. Okay, so we will now open the line to questions. Michelle, as the operator, could you please queue up the first question for us? Ladies and gentlemen, if you'd like to ask a question, please press star then 1. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star then 1. Our first question comes from Ken Cacciatore of Calvin & Company. Your line is open.

11:13 Hey, thanks, guys. You sound very excited by how things are going, so I'm going to try to poke a little bit and see if I can get some responses in terms of perspective around it. So the street is at 70 to 80 million. for 2019 revenue. Just any sense you want to give us if we're being smart or not smart as we try to do the expectations. And then from an SG&A and R&D run rate, should we take Q4? Is that a good numbers to be using as we go into 2019? And then just lastly, any thoughts on any other competitors coming to market? Anything you've heard so that we understand the durability of the opportunity? and maybe lastly, is Mylan at all altering their behavior with you in the market?

11:59 Thank you.

12:02 So thank you for your questions, Ken. I counted four and so I'll do my best to start from the top. With respect to expectations, I would make two key points. The first is we were very clear with the street in Q4 about how we are going to approach the market strategically and the holistic value proposition. As you may recall from our previous meetings, we made a point to make sure that all the payers were on board and that we had appropriate incentives and alignment among providers and so on of all the key segments. We're happy to report today that all that alignment is working quite well. We're very satisfied with the way we are being received by the market and the second key point that I would make is that our progress in the market is very, very consistent with our expectations.

13:00 The second point with respect to the SG&A, I will defer to Jean Barre for subsequent remarks, but with respect to Mylan and some of the other Other key points, I think that our approach to the market was somewhat unique and very much a branded approach to the market. And I think that that is bearing significant fruit for us. JB, would you like to make any remarks with Ken's point with respect to SG&A?

13:35 So your question was about the fourth quarter, but let me step back. Obviously, last year we were not launching in 2018. This year we're launching in 2019. and so 2019 SG&A will be obviously bigger than that of 18. Q4, we were not quite selling yet. We were getting ready to sell, so now we're in the crux of it. And as you can expect, as you've probably been a keen observer of financial statements, in the first quarter of launch, you've got usually a one-time many launch expenditures around marketing. Now, that said, once you pass that, you know, things tend to go down a little bit. So, qualitatively, it will go up. Q1 may be slightly bigger than Q4, but then it will come back down.

14:25 With respect to your further question, Ken, and competition, as you know, we've planned for eventual market entry of additional competitors for quite a long time. The last is a very large and attractive market, and we feel that's able to support additional competition. The competition which comes in, we believe, exerts the most pressure on the innovator, not the other participants, as they still hold over 90% of the market. And lastly, I would say that we believe that additional biosimilar entrants would most likely accelerate the conversion of the market to biosimilars as we've seen before. I hope that's helpful. It does. Thanks so much.

15:06 Congratulations on the early launch.

15:08 Thank you. Thank you. And we are pleased. Our next question comes from Mohit Bensal of Citi. Your line is open.

15:19 Great. Thanks for taking my question, and congrats on the progress. Just wanted to understand that your competitor talks more in terms of market share in pre-filled syringe market. So far that you have two months of experience, so you have already seen the market as the complete market, and you could take market share in the complete market. Has anything changed? or how you are seeing your uptake in previously patients, like in the non-pro kind of segment. I mean, there's no segment there, but how are you seeing that? And I have a follow-up as well.

15:56 Yeah. Thanks, Mohit. As you know, we are broadly approaching the entire market, not just the syringe market or the non-pro market, but the entire market. But I'll let Mr. Jim Hazard, who's our Senior Vice President of Market Access and Marketing, Make some further remarks with respect to your question, Jim.

16:16 Thanks, Mohit. Again, it is very early for us to comment on the launch, but again, I will parrot and reiterate Denny's comments. We have, Udenica has seen adoption and uptake in all three segments, or all three, what we consider the segments of the U.S. oncology market. So oncology clinics, non-340B hospitals, and 340B hospitals. The broad launch has resulted in a broad entry into the marketplace overall.

16:47 Got it. And then this is very helpful. And in terms of the Sandos and then Anbel case going on, in an event of Sandos winning the case, how soon do you think you can actually move forward and get Anbel to the regulators? I told you.

17:08 Yeah, hi. Thanks for that question too, Mohit. So as you may recall, we have already completed two phase threes with the O214 or Tannercept product, right? Both those phase threes were very successful. We have already substantially completed some additional manufacturing efforts. There's a little more to do there. It really depends in terms of how we react, what exactly happens in that case. What is decided and what is not decided? What sort of intellectual property lays about that has to be addressed? But overarchingly, though, I think once we get some clarity from that case, we'll revise our product development and filing plans for O4 accordingly.

17:56 But that product is, by and large, ready for filing with some additional work to go on.

18:05 Got it. Thank you. Our next question comes from Chris Schott of JCP Morgan. Your line is open.

18:16 Great. Thanks very much, and congrats on the early progress here. So there's a couple here. I guess, first of all, I think you touched on this earlier, but the discussions you're having with your customers at this point, how much of it is focused on Udenica or biosimilars versus the brand? as compared to customers trying to decide between Udenica and Mylan's biosimilar. So that's my first question. I have a couple of follow-ups after that.

18:40 Jim Hazard, do you want to take a shot at that?

18:42 Sure. Thanks, Chris. Right now, the main focus is it is a decision, I would say, between the brand and the biosimilars. As Denny mentioned, Neulasta still holds over 90% of the market. That's really the choice that customers are having to make.

18:59 And is there any color you can provide at this point in terms of where we should think about net pricing shaping up for the product? I guess how much of a discount we should think from the list that you came out with?

19:10 Yeah, Chris, again, I'll take that question. It is, again, far too early for us to provide guidance on what the net price is. I think, again, look at what the list price is. Again, the value proposition is in the difference in the list price. 33% below Neulasta for Udenica. That's really where the payers and the providers are seeing the value proposition.

19:32 Okay, perfect. And the final one for me was just on plans for an OnPro-like device. Just remind us again, what type of additional clinical work we should be thinking about here and just any timelines around that type of offering? Thanks.

19:47 Thanks, Chris. We haven't provided guidance to the market on the specific plans and requirements with respect to an OnPro device. However, we recall that we have disclosed to the market that we are working on such. But I think that overall we have found the market that is the market with OnPro and the syringe market both to be very receptive to our offering as it is. So we don't really view it as a major impediment to market entry at all at this particular point. On the provider side, we've seen some accounts which demonstrate, for example, 100% adoption of PEG-4 progressive biosimilars in the syringe presentation, and we've also seen some payers who establish policies limiting the use of Onpro.

20:37 So I think we have to take it all with a grain of salt, but we'll be happy to provide an update perhaps at a later time in the next quarter or two on our own presentation. Thank you very much. Our next question comes from . Your line is open. Great. Hey, guys. Thanks for taking the question. You mentioned you're seeing utilization of Udenica across all three market segments. Just wondering if you can maybe comment a little bit on sort of the distribution across those segments. Is it fair to assume at this point it's are evenly distributed, or are you seeing more utilization potentially in 340B hospitals?

21:19 Hi, Mike. Thanks for the question. We think it's a little early to sort of read the tea leaves with respect to segment penetration, and so we're going to decline the metrics. There's a number of dynamics which affect each of these segments. On the one hand, one could expect clinics to move more quickly. On the other hand, hospitals typically have P&T committees with processes that have to work through. And then, of course, you're aware of the 340Bs and the path through status that's going to be effective April 1st. So I think that when we get out to Q3 or Q4, we can have a more cogent conversation about the segments. But I think things are very, very lumpy as we go forward here just two months in. So we just would decline from... The T-League reading at this particular point in time. It's certainly a legitimate question, though.

22:13 Got it. That's helpful. Thanks. And then maybe just one more question for me. Just what percentage of insurers are requiring step edits through biosimilars prior to getting to branded new LASTA? And would you characterize that? Is it the majority at this point, or is it still sort of a minority? Thanks.

22:31 Jim has to go take that one. Jim?

22:32 Sure. I'll give you two examples. Mike, we've seen two payers – Etna, and also Blue Cross Blue Shield of North Carolina. Both have added policies that prefer the biosimilar before going to Neulasta. Etna, we estimate, might represent about 4% of national lives. So it's still small, but we were seeing some precedence within the marketplace already.

22:59 We were actually somewhat surprised to see the preference put on these formularies. It's not something that We anticipated. Our objective really was parity on all these formularies. So this is something I think that the payers have done just in reaction to the long-term pricing trends with the innovator. Got it. Great. Thanks, guys. This concludes the questions portion. I'll now hand it over to Denny for closing comments.

23:31 Thank you very much. Thanks for being on our call this afternoon, guys. Thank you for tuning in to hear about the launch. As I indicated, things are aligning well with our previous plans. We look forward to updating you in early May, and our first quarterly call will give you some real results. Thank you. This concludes our call. A replay of the webcast will be available on coherus.com.

23:53 Thank you.