Earnings Call Transcript - CHRS Q1 2022

Operator, Operator

Good day, and thank you for being here. Welcome to the Coherus Biosciences Inc. First Quarter 2022 Earnings Conference Call. All participants are currently in listen-only mode. Following the speaker presentation, there will be a question-and-answer session. I will now turn the conference over to your speaker today, McDavid Stilwell, Chief Financial Officer. Please proceed.

McDavid Stilwell, CFO

Thank you, operator. Good afternoon, everyone, and thank you for joining us. We issued our press release earlier announcing our financial results for the first quarter of 2022. The results can be found on the Coherus BioSciences' website. Today's call includes forward-looking statements regarding Coherus' current expectations about future events. These statements include, but are not limited to, our ability to advance our product candidates through development and registration, the status of product candidate clinical profiles, our timing and ability to commercialize our products and product candidates in the future, our R&D and SG&A expense guidance for 2022, our revenue targets for 2026, and our ability to meet the same; our projections about margin as well as our ability to drive down amounts under our new credit facility, and the timing of the resubmission and review of the toripalimab BLA. All these future events involve substantial risks and uncertainties that are beyond our control and could cause actual results, performance or achievement to differ from the results, performance or achievement implied by the forward-looking statements. These statements are not guarantees of future performance and are subject to substantial risks and uncertainties that are discussed in our press release that we issued today, as well as in the documents that we file with the Securities and Exchange Commission, including those in our quarterly Form 10-Q with today's date. The forward-looking statements provided on the call today are made as of this date and we undertake no duty to update or revise any forward-looking statements. With me on today's call are Denny Lanfear, CEO of Coherus; Paul Reider, Chief Commercial Officer; Theresa LaVallee, Chief Development Officer; and Dr. Rosh Dias, Chief Medical Officer. And I will now turn the call over to Denny.

Denny Lanfear, CEO

Thank you, McDavid. Good afternoon, everyone, and thank you all for joining today on our conference to review recent business highlights and financial results for the first quarter of 2022. Today, we will provide updates on our current business as we progress in transforming Coherus into an innovative immuno-oncology company, supported by revenues from a diversified portfolio of FDA-approved products. First, with respect to the complete response letter we received from the FDA regarding the toripalimab BLA for advanced nasopharyngeal cancer, we are currently assembling the FDA meeting package, which will support our agency interactions prior to the BLA submission. We expect mid-summer filings in a six-month review timeline. As previously communicated, we believe the requested process change is straightforward and readily addressable. Regarding the development side of the business, Dr. Theresa LaVallee, our Chief Development Officer will provide additional detail regarding the toripalimab BLA, as well as our work with our partner Junshi Biosciences on the development of toripalimab for other indications and in combination with CHS-006, our TIGIT-targeted antibody. On the commercial side, Paul Reider, our Chief Commercial Officer will review recent UDENYCA performance and our preparations for the anticipated near-term commercial launches. We are announcing the termination of our licensing relationship for the development of CHS-305. COVID-19 caused significant delays in the development timeline. After assessing the market dynamics, we determined that this program no longer warrants continued investment. Lastly, McDavid Stilwell will review our first-quarter financial results and provide an update on our operating expense guidance for the remainder of 2022. We are excited about our new Chief Medical Officer, Dr. Rosh Dias, who will be happy to take your questions during the Q&A. Now, at our Analyst Day event on March 29, we introduced our 2026 revenue guidance targets of $1.2 billion to $2.2 billion and described how we will leverage our existing operational infrastructure to achieve our commercial and development objectives. With continued strong execution of regulatory approvals and commercial launches, and the advancement of our novel immuno-oncology pipeline, we expect to transform Coherus into a rapidly growing, profitable, and innovative oncology company. Now, I'll turn the call over to Dr. LaVallee for an update on the toripalimab BLA review and early development programs. Theresa?

Theresa LaVallee, Chief Development Officer

Thank you, Denny. As Denny referenced, the FDA issued a complete response letter for the biologics license application for toripalimab for nasopharyngeal carcinoma. A CRL requests a quality process change that we believe is straightforward and readily addressable. We plan to meet with the FDA to ensure our resubmission is complete and will submit the request package in the next few days. We plan to resubmit the BLA by mid-summer 2022. The agency also communicated in the CRL that the review timeline for the BLA resubmission would be six months, as on-site inspections have been hindered by travel restrictions related to the COVID-19 pandemic in China. The FDA has indicated that the existing toripalimab clinical data are supportive of the BLA submission. Toripalimab has demonstrated clinical efficacy in multiple tumor types, including tumors with low PDL-1 expression. This differentiated clinical activity may result from toripalimab's high binding affinity to a unique epitope that potentiates PD-1 internalization. The next clinical milestone for toripalimab could be the readout of the PFS and OS co-primary endpoints from the small-cell lung cancer study JUPITER-07, which is expected this year. We recently obtained orphan drug designation for this indication in the United States. JUPITER-08 is a randomized, double-blind, placebo-controlled multicenter Phase 3 clinical trial evaluating platinum chemotherapy in combination with toripalimab as the first-line treatment of extensive-stage small-cell lung cancer. This is an aggressive tumor characterized by rapid disease progression, low expression of PDL-1, and low levels of tumor-infiltrating immune cells, as well as a high degree of immunosuppression. Efficacy of cancer immunotherapy has been limited in small-cell lung cancer, and no PD-1 inhibitors are currently approved in the United States for this indication. Regarding additional potential indications, we recently announced at our Analyst Day that we are working with Junshi to review possibilities to amend protocols to enroll patients in the United States to satisfy the FDA needs for multiregional clinical trials. We look forward to providing additional information on this topic in the future. At this time, we are not planning additional studies for toripalimab in combination with chemotherapy for first-line non-small cell lung cancer. However, we are planning to develop the dual immunotherapy treatment of toripalimab in combination with our TIGIT-CHS-006 for non-small cell lung cancer, leveraging the robust efficacy results reported in the CHOICE-1 study. An ongoing Phase 1 clinical trial evaluating CHS-006 and toripalimab is being conducted in China and is expected to readout next year. An IND is open in the U.S., and we expect to begin enrolling cohorts of U.S. patients later this year or early next year. Blockage of the TIGIT pathway may be a crucial underlying mechanism for overcoming PD-1 resistance. We believe the dual immunotherapy approach could enhance PD-1 efficacy with the potential to extend survival and create a new standard of care for multiple tumor types. We expect to see important clinical data from several competing TIGIT programs, and these data may inform the future direction of our CHS-006 development program. At our recent Analyst Day, we introduced several fully owned programs targeting ILT4 and CCRA that are being developed by Coherus scientists. We expect to submit an IND for CHS-1000, targeting ILT4 next year and to file at least one new IND per year going forward. On the biosimilar development front, we recently held the late cycle review meeting with the FDA for the CIMERLI BLA, and that review is advancing towards the August action date. Upcoming in June, results of the PK/PD study evaluating our UDENYCA on-body injector device will be published in connection with the ASCO Annual Meeting. Recall that we previously announced that the study met all PK bioequivalence primary endpoints and the key secondary pharmacodynamic endpoint at the meeting.

Paul Reider, Chief Commercial Officer

Thank you, Theresa. UDENYCA net sales were $16 million in the first quarter, a decline from $73.4 million in the prior quarter. This was driven by a 12% decline in demand units, as well as continued price erosion due to intense competitive pressures in the pegfilgrastim prefilled syringe market. On a unit basis, the overall pegfilgrastim market increased 1% in the first quarter, and we expect low single-digit market growth for the remainder of 2022, consistent with historical trends. Neulasta retains 59% total market share within the class with Onpro holding 47% market share based on an entrenched preference by customers, reinforced by the COVID pandemic. UDENYCA market share erosion from 17.5% to 16% in the first quarter occurred largely in the hospital segment, where competitive biosimilars have resorted to a strategy of offering significant price reductions to capture short-term market share. With our on-body device in the pipeline, our strategy is to maintain a disciplined approach to managing price in 2022. This will enable us to maximize long-term revenues for the UDENYCA franchise through significant share gains that we expect in 2023 and beyond. We expect UDENYCA market share to grow next year once we introduce our UDENYCA on-body injector if approved. I’d like to talk about commercializing our pipeline. We're preparing for the launch of three new brands in the next 15 months; toripalimab for PD-1 in nasal pharyngeal carcinoma; CIMERLI, our Lucentis biosimilar, and YUSIMRY, our HUMIRA biosimilar. Nasal pharyngeal carcinoma is a rare cancer where there are currently no PD-1 inhibitors approved by the FDA. Toripalimab not only has the potential to be the first and only PD-1 inhibitor indicated for this tumor type, but also to establish a new first-line standard of care. Our oncology commercial capabilities have been built to scale, with significant overlap between our current UDENYCA customers and toripalimab targeted prescribers. Therefore, with the launch of toripalimab, we will efficiently integrate it into our existing oncology commercial infrastructure. In addition, the NCCN Guidelines Committee for NPC has added a reference to the guidelines for the JUPITER-02 trial, validating the importance and quality of the clinical trial. Commercial launch preparations are on track, and our field-facing teams have been fully trained. We will be ready to launch toripalimab if approved by the FDA. With respect to CIMERLI, our FDA action date is August 2, 2022, which, if approved, will allow us to launch an early biosimilar market formation period for the $7 billion anti-VEGF market. This is a clinic-based buy and build model, which is similar to oncology and our core competency. We look forward to competing in this attractive market. Recently conducted market research confirms the opportunity exists to penetrate the entire VEGF market. In our last call, we engaged with retina thought leaders, built marketing expertise, and hired the head of our ophthalmology sales team, an experienced sales executive with over 15 years building and leading sales teams in the ophthalmology therapeutic area. Retinal specialist opinion leaders expressed positive receptivity to Coherus entering this market and our track record of success in oncology gives them confidence that Coherus understands the dynamics of the buy and build market and that we will deliver a safe and effective alternative to Lucentis with a compelling value proposition. Regarding YUSIMRY, our HUMIRA biosimilar, approved by the FDA in December, we are preparing for a launch in July 2023. Humira’s U.S. net sales were $17 billion in 2021, and we look forward to competing in this large market. We believe payers and PBMs will drive biosimilar adalimumab adoption. Extensive market research with national and regional payers as well as PBMs confirms that Coherus can deliver on the attributes most important to payers, including highly competitive pricing, robust supply, and an auto injector presentation that has a non-stinging, citrate-free formulation. YUSIMRY will have both a prefilled syringe and an auto injector presentation, with our device including a proprietary non-stinging, citrate-free formulation and a 29-gauge needle all comparable to the original products. We also plan to introduce a high concentration presentation post-launch. We expect to win at least 10% unit market share. We have invested more than $45 billion in large-scale manufacturing and expect to be a high-volume, low-cost manufacturer, well-positioned to compete on supply guarantees and price. Our first-year manufacturing capacity exceeds 1 million units for about 10% of the overall adalimumab market, with the potential to triple that capacity. Unlike other players, we have no portfolio of branded alternatives to Humira that we need to protect from cannibalization. Our positioning for YUSIMRY aligns perfectly with that of the payers and PBMs. We aim to make the adalimumab market as large as possible, as quickly as possible, seeing this as a source of competitive advantage. In short, we are confident that we will deliver a compelling value proposition and can achieve our objective to win at least 10% unit market share at PBM. I’d now turn the call back to McDavid for a review of the quarter's financial results.

McDavid Stilwell, CFO

Thanks, Paul. I'll focus on just a few financial highlights since the details are in the press release and in the 10-Q filed earlier this afternoon. For the first quarter of 2022, we reported a $96.1 million net loss on a GAAP basis. On a non-GAAP basis, we reported a net loss of $77 million. GAAP to non-GAAP reconciliation included two items: $12.9 million in non-cash stock-based compensation expense and a $6.2 million loss on extinguishment of debt. Cash used in operating activities was $54 million for the first quarter of 2022. As detailed earlier, net product revenues were $16.1 million, a decline from the prior quarter and the year-ago quarter. The decline was primarily attributable to decreased demand units and lower net realized price. Research and Development expenses for the first quarter of 2022 were $82.9 million, compared to $203.5 million for the same period in 2021. This year's first quarter included a $35 million payment to Junshi Biosciences for the license of CHS-006. Last year's first quarter R&D expense included a $145 million upfront payment to Junshi for the toripalimab collaboration. Selling, general, and administrative expenses were $48.8 million in the first quarter of 2022, compared to $39.4 million in the year-ago quarter. The increase was primarily driven by activities in preparation for the launch of multiple new commercial products anticipated in 2022 and 2023. We ended the quarter with cash and cash equivalents of $326 million compared to a balance of $417 million at year-end 2021. Recall that in January, we entered into a credit facility agreement with Pharmakon Advisors for a $300 million term loan payable across four tranches. We drew the first $100 million tranche at closing and simultaneously paid off a $75 million term loan. At the end of March, we drew a second $100 million tranche and simultaneously paid off the 2022 convertible notes. Two additional tranches of $50 million each will become available upon the FDA's approval of toripalimab and CIMERLI. As for expectations for full-year operating expenses, with the discontinuation of the CHS-305 Avastin biosimilar program and the delay in the toripalimab launch, we are lowering our projected range for full-year R&D and SG&A expenses by $20 million to $395 million to $430 million. This guidance excludes both the $35 million upfront fee to Junshi Biosciences for CHS-006 and the $25 million milestone payment due on approval of toripalimab for nasopharyngeal carcinoma. This range also includes approximately $55 million to $60 million in non-cash stock-based compensation expense. Let me provide additional color on these anticipated operating expenses, a significant portion of which is an investment that will convert back to cash quickly with a high IRR. This year, we will spend approximately $50 million manufacturing inventory for new product launches. Recall that one lesson from our UDENYCA launch is that going to market with ample supply is a critical success factor. Also recall that low-cost inventory manufacturing and expense prior to approval subsequently is expected to deliver a P&L benefit in the form of lower cost of goods sold. Another $40 to $50 million of operating expense this year will fund the completion of development of additional presentations of products we expect to introduce over the next two years, as well as manufacturing scale-up projects that will deliver ongoing benefits in the form of significantly lower COGS. I'll close by saying that on the Investor Relations front, we will be participating in the Bank of America Healthcare Conference in Las Vegas next week on May 12, and the UBS Conference in New York on May 24, and the HCW Conference in Miami on May 25. Now, I'll turn the call back to Denny for closing remarks.

Denny Lanfear, CEO

Thank you, McDavid. And thank you all for joining us today. It's an exciting time for our company as we prepare for up to four product launches in 2022 and 2023 and continue to make strong progress in transforming Coherus into an innovative oncology company, supported by our diversified commercial portfolio revenues. With our sharp focus on executing this strategic transformation, leveraging our commercial capabilities with new products and advancing our novel oncology pipeline while keeping a critical eye on our cost structure, I believe we are in an excellent position to create significant shareholder value in the coming years. Operator, we're ready to take any questions. Thank you.

Operator, Operator

Your first question will come from Salim Syed with Mizuho. Please go ahead with your question.

Unidentified Analyst, Analyst

Thanks. Hi, everyone. This is Salim Syed. Thank you for taking our questions. Regarding the submission of requirements beyond an MPC, are you still planning to submit for SEC and non-small cell lung cancer this year, or should we expect this to happen after potential approval in nasal pharyngeal? Also, could you provide...

Denny Lanfear, CEO

Hi, I'm sorry. Let's just take one question at a time.

Unidentified Analyst, Analyst

Sure.

Denny Lanfear, CEO

I'll let Dr. Theresa LaVallee address the question about the submissions. Did you hear the question clearly?

Theresa LaVallee, Chief Development Officer

Salim, hi. Thanks for the question. Just to make sure I heard you're asking about submission for non-small cell lung cancer. Is that correct?

Unidentified Analyst, Analyst

And for ENCC as well, are you planning to proceed this year, or do you want to wait for the approval in MPC?

Theresa LaVallee, Chief Development Officer

As mentioned during the discussion, we don't anticipate following up with toripalimab in non-small cell lung cancer and for a filing based on the choice one data. We will leverage that data to look at dual immunotherapy combinations with our TIGIT molecule CHS-006. In terms of other filings, at this time, we're focused on engaging with the FDA on MPC, and we'll continue to have discussions about where our clinical data warrants regulatory flexibility.

Denny Lanfear, CEO

Yes. We're happy to provide you with the opportunity for a follow-up question. Did you have a second one?

Unidentified Analyst, Analyst

Yes. Thank you. Well, if you could provide a little bit more color on the reasons behind today's discontinuation of CHS-305? You provide more color on the discontinuation of CHS-305?

Denny Lanfear, CEO

Yes, we're happy to, of course. First of all, let me say that we have a very positive relationship with our partners and I have a very good relationship with their events. We signed this agreement and directly afterward, we ramped up to Chinese union figures when COVID struck, and it impaired the progress of this product development significantly. It was very difficult, and it became impossible for us to travel to China; clinical trials were difficult. So we lost a substantial amount of time, primarily due to that. During the product review period, we felt the commercial case for the product and the market had moved on from our prior assumptions. Given the costs ahead of us, we felt it was in our best strategic interest to discontinue it, and there's nothing more to it. Again, we have only positive things to say about our partners. It's unfortunate that this particular product didn't move forward, but it was simply a business decision.

Unidentified Analyst, Analyst

Thank you very much.

Denny Lanfear, CEO

Thank you.

Operator, Operator

Your next question will come from the line of Balaji Prasad with Barclays. Please proceed with your question.

Balaji Prasad, Analyst

Good evening. And just a couple of questions from my side. Firstly, on FDA inspections, are there any pending for either CIMERLI or YUSIMRY? I’ll stick to one question. Thanks.

Denny Lanfear, CEO

Yes. Theresa, you want to answer that one with respect to CIMERLI inspections?

Theresa LaVallee, Chief Development Officer

Yes, we feel that we're more complete at this time.

Balaji Prasad, Analyst

And so complete from both?

Denny Lanfear, CEO

The CIMERLI inspections have been completed, and there are no issues compromising the approval.

Theresa LaVallee, Chief Development Officer

YUSIMRY is approved.

Balaji Prasad, Analyst

Of course, my bad. Yes. Thanks.

Operator, Operator

Your next question will come from the line of Jason Gerberry with Bank of America. Please proceed with your question.

Jason Gerberry, Analyst

Hey, guys, thanks for taking my questions. I guess my first would just be looking at the run rate that you have for UDENYCA right now. Do you see any reason why that would get better for the remainder of the year before you have the OBI launch, which will be a 2023 event? So just curious if you see that run rate improving? I know there was some commentary about market unit volume trends growing. But I'm just curious specifically about your own run rate and how that pans out for the rest of the year?

Denny Lanfear, CEO

Well, I think Jason, for that, Paul, do you want to take that one?

Paul Reider, Chief Commercial Officer

Sure. Thanks for your question, Jason. So yes, as we indicated during our Q4 call, our UDENYCA sales in 2022 will be less than the sales in 2021. We're not offering any updates to that guidance at this time. The market grew 1%, remaining stable. So we're expecting that to pick up, but that's where we're at right now. No further updates on guidance.

Jason Gerberry, Analyst

Okay, and then I guess if I can get a follow-up question based on the commentary about the potentially irrational competitive pricing behaviors in the UDENYCA market? Thinking ahead to HUMIRA, just given the sheer volume of players, do you see this as a profitable market beyond 2024? Like, I think most people could probably say 2023 and 2024 could be interesting, but there's an expectation amongst investors that pricing could get so compressed in that category that it might not be particularly profitable beyond 2024. So curious if you guys have a view there based on your learnings from the UDENYCA market launch?

Denny Lanfear, CEO

I would let Paul add some additional remarks. But I would point to two things. First, we've made previous investments that we outlined in order to be the high-volume low-cost producer. We've made significant progress in driving the cost down before launching the auto injector, which I think the price will be significantly larger than. The second issue, though, I think Paul might want to address.

Paul Reider, Chief Commercial Officer

Yes, I think Denny articulated very well, Jason. This is a two-pronged approach to success, with the adalimumab biosimilar entry being its price and its supply. We're coming to market offering supply guarantees and will react to whatever price is in the market at that time. We're prepared to compete on price to gain rapid adoption on the formularies, with real acceleration occurring in 2024 and beyond. We see the opportunity for significant revenue growth in this sector, while expecting our cost structure to remain profitable for several years on this product given our high-volume, low-cost capabilities, and the fact that we don't expect to build a Salesforce.

Jason Gerberry, Analyst

Yes. Okay, guys. Thanks.

Operator, Operator

Yes, the next question will come from the line of Georgi Yordanov with Cowen and Company. Please proceed with your question.

Georgi Yordanov, Analyst

Hey, guys, thank you so much for taking my questions. So I guess the first one, regarding the review process for biosimilars, are there any additional updates you could provide around interactions with the agency and specifically, have you or your partner received clearance around the manufacturing issues identified in the previous CRL? And then if I could have a follow-up?

Denny Lanfear, CEO

To be clear, I’ll let Dr. LaVallee address this in more detail. Yes, we are confident that the previous issues regarding the manufacturing CRL have been fully addressed. There has been an inspection, and we do not believe there are any elements compromising the approval whatsoever. Theresa, do you have any additional comments regarding CIMERLI approval?

Theresa LaVallee, Chief Development Officer

Yes, we just completed the late cycle meeting, and I am optimistic about continuing engagement with the FDA through the review process for the August action date.

Georgi Yordanov, Analyst

Great. And then just around the opportunity for biosimilars centers, do you feel that there are no other competitors, except Biogen and Samsung that might be launching in the near term? Given that limited competition, could you potentially see a similar ramp-up as we saw with UDENYCA over the next two to three years?

Denny Lanfear, CEO

I would say that our understanding is. Biogen will probably be in a position to come to market soon, but we are uncertain about the timing. As you point out, we were second to market with UDENYCA and are very optimistic about Paul and his team's performance during this launch based on our demonstrated expertise. I don’t think there’s more to add. We're in a market formation period, which is key for short and long-term success with biosimilars. We will prepare to come in at that market formation period with our track record, expertise, and delivery of retinal specialists a compelling value proposition. Just a note, the first similar filing did not receive a complete response letter; there was additional manufacturing data requested by the agency. That data was subsequently developed in conjunction with the agency and accepted, and we look forward to approval.

Georgi Yordanov, Analyst

Thank you so much.

Operator, Operator

And at this time, there are no further questions in queue. I would now like to turn it back over to the panel for closing remarks.

Denny Lanfear, CEO

Thank you, operator, and thank you everybody for joining us today.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.