Coherus BioSciences, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Coherence Biosciences 2020 Second Quarter Earnings Conference Call. My name is Nora, and I'll be your conference operator for the call today. As a reminder, this conference call is being recorded. I would now like to turn the call over to David Errington, Coherence Investor Relations and Corporate Affairs. Please go ahead.

Thank you, Nora, and good afternoon, everyone. After close of market today, we issued a press release on our second quarter financial results. This release can be found on the Coheris Biosciences website. Joining me for today's call will be Denny Lanphier, Coheris' CEO, Dr. Jean Verret, Chief Financial Officer, Thomas Fitzpatrick, Chief Legal Officer, and Chris Thompson, Executive Vice President, Sales. Before we begin our formal remarks, I would like to remind you that we will be making forward-looking statements, including risks and uncertainties related to the impact of COVID-19 pandemic on Coherence's business and results of operations. In addition, other forward-looking statements, such as our plans and expectations regarding our ongoing commercialization of Udenica, product candidate pipeline, product development plans, financial projections, and the use of capital, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could use actual results to differ from these statements. A description of these risks can be found in the earnings press release and our latest SEC filings. Please also note that the non-GAAP financial measures included in our press release should be used to help you understand Coherence's business performance and should not be a substitute for your review of our GAAP financial measures. The GAAP to non-GAAP reconciliations are also provided in the earnings press release. I will now turn the call over to Denny.

Thank you, David. Good afternoon, everyone. On today's call, we'll first review for you our results for the second quarter of 2020, and in doing so, provide you with some context with respect to COVID considerations and how our strategies, competencies, and capabilities allowed us to successfully navigate the market uncertainty. We'll then update for you our pipeline development as we advance our efforts to become a multi-product growth company, addressing $30 billion in market opportunity over our five-year planning horizon. We'll recap for you our strategy to leverage our demonstrated commercial strengths into the ophthalmology, endocrinology, therapeutic markets. Lastly, we will provide some color in how we see the remainder of 2020 developing with respect to our oncology and Pikeville-Graston markets. and provide financial insights on our cash use over the short-term planning period. With us today, we have Chris Thompson, our Executive VP of Sales, who will provide our commercial update in color, and Jean Verret, our CFO, who will provide our financial updates. Let me start with our top line Q2 2020 financial results. We are pleased to report that net product revenue for the quarter was $136 million. exceeding our expectations. Earnings were 70 cents per share, and non-GAAP earnings were 81 cents per share, both on a diluted basis. We increased our cash, cash equivalents, and investments to 456 million. For the quarter, our commercial strategy and strong execution successfully mitigated COVID's potential impact on unit sales. And after a brief pause at the beginning of the crisis in March and April, market share growth has now resumed. We believe the strong performance this quarter further validates the commercial capability which enabled us to deliver such strong launch results last year and gives us high confidence that we will do so very well commercially with our ophthalmology and immunology product candidates. I want to thank the entire Cohere's team for their very fruitful efforts in a tough market environment. Now, with respect to our second quarter results, I would remind you that on our last call, we made three predictive statements as we actively managed risk with respect to COVID. First, we observed that there was a COVID-driven delay for patient referrals for oncology treatment, which could persist through the second quarter and beyond. We also reported and observed an uptick in the use of Neulasta OnPro in certain COVID hotspot regions. and we projected that it would be transient based on feedback from customers in those regions. Lastly, we shared that we believed Udenica demand would continue to grow through 2020 as cancer patients and providers continued to benefit from the value provided by Udenica. So let me review the data and how these dynamics played out in the Pegville-Grasson market for Q2. The oncology market in general and the Pegville-Grasson market in particular proved to be very resilient. as providers and hospitals found ways to identify new patients and treat patients already diagnosed. Recent IQVIA data has shown a strong rebound with new patients. New patient diagnoses increased to 96% of baseline by the end of June, back up from a mid-COVID nadir of about 70%. Peckville-Graston demand is growing, and we believe the new NCCN ASCO guidelines have had a positive, supportive impact from existing patients, as we anticipated on our last call. The Pegville-Graston market has remained strong, with quarter-over-quarter unit growth in the low single digits, consistent with previous quarters. Additionally, market data suggests New Lasta's overall share is declining again as hospitals have adapted to the COVID environment. We have seen a modest ASP decline in the market, reflecting our price disciplines. Let me address the reasons we believe the Petco Graston market has proven to be resilient in the second quarter, and specifically the two dynamics at play here. First, cancers typically grow very fast, and treatment delay is dangerous to patients. Therefore, cancer patients requiring chemotherapy are now seeking treatment. Referrals are stabilizing to normal levels across most regions. Second, providers are adjusting to the needs of oncology patients through new measures and service delivery paradigms that ensure continuity of their operations and patient safety. The dynamic is relatively straightforward. Patients depend on cancer care for their lives, and healthcare providers are committed to providing this essential care. The result for the second quarter in the face of COVID was less moderation in demand and pegfograstin usage than some had anticipated, and a clear demonstration of the robustness of the market, COVID notwithstanding. Now let me turn the call over to Chris Thompson, who will make a few comments about our commercial performance. Chris?

Thank you. Thank you, Denny, and welcome, everyone. In the second quarter, we saw sales growth across all market segments. Recall that a core strategy for Udenica is to pursue growth in all segments equally, balancing our efforts across them. For Q2, there was a favorable shift in unit demand to the clinic business, whereas last quarter in Q1, we reported that we sold more units on a relative basis to the 340B hospital segment. Additionally, we have sufficient supply to meet any current and future demand levels across all segments. Because Udenica is a made-in-America product, we are able to ensure continuity of supply as we're not reliant on a global supply chain. We continue to be thoughtful in our approaches to pricing and contracting, our dual objectives being relative ASP stability and and profitability optimization. The reason our commercial organization has demonstrated such aptitude and resilience in the face of COVID is our deep proficiency in strategic planning and execution. As Denny has said before, the key to being successful in the biosimilar business is to be a biosimilar company. As the only U.S. pure play biosimilar company, we believe that we have a unique perspective on how to optimize a biosimilar business. First, it's by leveraging a deep understanding of the market by offering a customer-centric value proposition that addresses their expectations and needs. Second is through severe organizational execution, delivering this value to the market on a segment-by-segment basis. And third is by providing branded benefits with biosimilar value with quality supply and rational contracting. Knowing the needs Knowing the needs of our customers, then responding with a meaningful approach is a core tenet of our branding choice without compromise. Our services are embodied in a unique program called Coherence Complete. Let me offer a small example of one of them, our co-pay assistance program. Our approach to co-pay assistance provides immediate help to patients with out-of-pocket costs. This financial assistance has become a much appreciated component of our services for patients and providers who need it most during these challenging times. It is because of services like this, as part of a comprehensive, branded approach to the biosimilars, that we have had the best pharmaceutical launch in 2019 based on IQVIA sales data. The success of the Udenica launch was recently recognized by the Healthcare Distribution Alliance, who awarded Coheris the Diana Award, for the category of best new product introduction in the biotechnology pharmaceutical product sector in 2019. In other recognition, Premier, a longtime GPO leader in the hospital segment, honored Coheris as a winner of the Annual Horizon Award. This award recognizes suppliers that consistently provide support at the highest levels of partnership, customer service, value creation, clinical excellence, and commitment to lower costs. We are all very proud of these achievements and thank the HDA and Premier for these awards. We are confident that we will be well prepared to replicate this success with future launches of our pipeline products in ophthalmology and immunology. Back to you, Denny.

Thank you, Chris. Now let me turn to our long-term growth and discuss the company's internally developed pipeline and partner products. I'm pleased to report that we have made significant progress across our product pipeline and in support of our strategy to have six FDA-approved biosimilars on the market by the end of 2025. With respect to our ophthalmology franchise, I'll remind you that we have two biosimilars in the pipeline, one for Lucentis, in license from BioEC in the fourth quarter of 2019, and one for ILEA, our fully-owned and internally-developed CHS 2020 product candidate. Regarding the Lucentis biosimilar, our partner, BioEQ, is proceeding with the FDA-required activities to resubmit the BLA in the fourth quarter of this year. We are pleased with the inflammation safety of this new biosimilar Lucentis. In our trial, both the control arm and biosimilar arm were comparable to each other and, with very low inflammation rates, performed meaningfully better than the original Phase III Lucentis trial. With respect to CHS 2020, our clinical manufacturing and other development efforts are on schedule to enable Phase III clinical start in 2021. We expect this study to support both U.S. and European approval and further expect to initiate activities to identify a potential European partner in the second half of this year. With respect to the commercial opportunity for these products, I would note that the ophthalmology market represents an additional $6 billion in market opportunity for the company, which can be efficiently accessed with an incremental commercial investment. Furthermore, ophthalmology shares similar market dynamics to oncology, where we have demonstrated success. Just like the U.S. biologics oncology market, the U.S. biologics ophthalmology market is a buy-and-build Medicare Part B segment. but with a higher Medicare patient population. This market also comprises a highly concentrated prescriber base, consisting of about 450 accounts, representing about 80% of business volume. Thus, we believe that our successful launch of Udenica and our strong expertise in areas of market access and contracting positions us favorably for commercial success with our ophthalmology biosimilars. We expect coherence to have a significant role then in biosimilar market formation. Now, let me make a few comments about CHS 1420, our internally developed biosimilar candidate to Humira that addresses an $18 billion market. We expect this to be a competitive environment, which is a positive for us, as we have a demonstrated proficiency in executing in highly competitive environments. There is substantial market share to be taken from the innovator. and we expect payers to play a key role in product selection decisions, and they will be highly receptive to competitive overtures from biosimilars. We are currently honing our commercial strategies to address value drivers for the various segments and value chain constituents. We expect to file the BLA in the fourth quarter of this year, and we are confident in our ability to outperform after our projected July 2023 product launch. Lastly, With respect to oncology, our Avastin Biosimilar in-license from InnoVent Biologics, we continue productive engagement with InnoVent and to advance towards a BLA filing. Activities include FDA-required interactions supporting the initiation of a three-way PK study using the innovator Avastin from the United States and China compared to InnoVent's Avastin Biosimilar. Now I'll let the company's Chief Financial Officer, Jean Bray, summarize our second quarter financials. Jean?

Jean- Thank you, Danny, and welcome, everybody. I will now review the main financial results for the second quarter of 2020. Net product revenue was $136 million with non-GAAP net income of $68 million and diluted non-GAAP earnings per share of $0.81. Net product revenue included a $13 million favorable revision of our payer rebate estimate recorded in the second quarter of 2020. Net revenue for second quarter of 2019 was 83 million, with a non-GAAP net income of 32 million and diluted non-GAAP earnings per share of 43 cents. Research and development expenses for the second quarter of 2020 were 26 million, compared to 19 million for the same period in 2019. Selling, general, and administrative expenses for the second quarter of 2020 were 34 million, compared to 36 million for the same period in 2019 when we were in the second quarter of our UDNICAT launch. We anticipate that R&D and SG&A expenses combined together will range between $285 million and $310 million for the full fiscal year 2020, excluding upfront or milestone payments from any potential new collaborations. For the second half of the year, we are projecting relative SG&A expense stability while R&D expense will increase as we file and prosecute the CHS 1420 Humira biosimilar BLA, scale up the manufacturing to meet launch demand, and initiate the phase three programs for CHS 2020 or ILEA biosimilar. We started our second quarter with $193 million in cash, cash equivalents, and investments, and ended the quarter with $456 million. The $263 million increase is primarily due to generating $60 million in net cash from operating activities and receiving $223 million in net proceeds from issuing convertible debt notes offset by purchasing $18 million in cap calls options related to these convertible notes. Now back to you, Danny.

Thank you, John. Let me make a few points. The Pegfell Graston market has proven to be robust. And looking ahead to Q3 and year end, while we expect that there will be local effects from COVID resurgences, we believe the overall market will remain resilient due to hospitals and clinics adapting to the treatment environment. Local and time limited disruptions aside, the overall market is growing in terms of units bolstered by the new NCCN ASCO guidance. The innovator still has 70% share and despite competitive activity increasing, we believe there is room to grow market share in a price responsible way. With both our 2019 launch and our Q2 2020 performance, our commercial team has demonstrated themselves to be highly capable of delivering strong results in challenging environments. Thus, we expect continued success in the second half of the year, although the market conditions with COVID remain fluid. Thanks to Udenica's success, We are in a strong financial position to support our pipeline growth trajectory with additional biosimilar launches expected in oncology, ophthalmology, and immunology over the next few years. We believe these therapeutic areas will leverage Coheris' strengths, including our award-winning commercial infrastructure, increasing access for patients, savings to the healthcare system, while continuing to generate growth and shareholder value over the long term. We'll now open the line for questions.

Thank you. At this time, I'd like to open the line for questions. We kindly ask you to limit to one question each to enable time for everyone. To ask a question, you may press the one on your touchtone telephone. And if your question has been answered or you wish to remove yourself from the queue, please press . First question is from the line of Michaels of Baird. Your line is open.

Hey, guys. Thanks for taking the question, and congrats on the strong quarter. Just a question related to Udenica dynamics. I think, Denny, you mentioned there was a sort of relative shift to the clinics this quarter compared to last quarter where you saw sort of a relative shift to 340B segment. Just curious if you can talk about what specifically is driving that dynamic, or is it just some seasonality and maybe how we think about those dynamics going forward?

Thanks for the question, Mike. I think that each segment has a tendency to ebb and flow quarter to quarter, as we described earlier. We also described that we tend to push on segments that are lagging behind a bit. For Q1, we had a little more in the 340B segment. The clinics came back slightly in Q2. But overall, this is just natural, of course, at business, so I wouldn't worry about it too much. Going forward, we expect things to remain stable throughout the rest of the year.

Got it. That's helpful. And then maybe just some other dynamics you were seeing during the second quarter with respect to competition. Maybe have you seen any changes from Sandoz more recently? And then you've also got Pfizer in the mix now, so... Any thoughts on what you're seeing from Pfizer or how to think about competition in the back half of the year? Thanks.

So thanks, Mike, for that question. As it relates specifically to Pfizer, they really haven't officially launched, so to speak, so we haven't seen a lot of activity by them in the marketplace. But we fully expect that they'll be out there. And as it relates to Sandoz, We've seen very little uptake with them, but they do have a code, so we're ready for the competition. Pfizer, their codes are yet to come, so it'll probably be a little bit of time before we start to see activity from them.

Great. Thank you, and congrats again on the quarter.

Thanks.

Thank you, Mike.

Thank you, Mike.

Your next question comes from the line of Ken Casiatore of Colvin and Company. Your line is open.

Hey, guys. Congrats on all the progress and success. Question, Denny, on the prepared remarks, I might have misheard it, but I think you said that for your biosimilar lucentis, you're seeing inflammation rates that are in line with the phase 3, original phase 3 lucentis program. It's my understanding that Over the years, they've refined the formulation, and they have the inflammation rates now under 1% in all the clinical studies. So can you give us specifically your inflammation rates that you're experiencing?

Yeah, I think that you may have misheard that, Ken. What we pointed out in our prepared remarks is that the inflammation rates with the Phase III of our Lucentis were less than the inflammation rates originally seen with Lucentis during its clinical trials.

So can you give us a sense of kind of what you're seeing now that we know that Lucentis inflammation rates, I think, are often sub-1%. Can you give us a sense of that?

Yeah, they are in that range. I don't have those exact rates, but, yes, they are in the range of 1% or less. Okay. And I would also point out that, yeah, let me just point out that the rates between the Lucentis biosomal and Lucentis We're very much the same.

Okay, that's great. That's wonderful. And then in terms of I know with the pandemic, I think it's probably hard for you to get over to Europe, but can you just talk about what you all are doing to help them BioEcoLong? I know the experience that you all have in kind of working through sometimes difficult situations. So just try to understand what level of engagement you have that they try to kind of solve and move forward.

We have significant engagement with respect to BioWAC and its contract manufacturing organization. As you point out, our team has substantial experience in manufacturing biosimilars. In particular, we have experience in manufacturing Lucentis biosimilars. So there's been robust engagement on a weekly basis. There's strategic meetings with higher levels of management slightly less frequently. I'm on several of those meetings from time to time myself. We monitor that very closely. We are pleased with the progress that they're making. That work is not yet done. We'll be able to update you on the next call. But there has been, I think, full engagement from Coheris with respect to leveraging our manufacturing expertise to move that product to the BLA filing in Q4 this year. Great. Congrats, guys. Keep it up. Thanks, Ken. Thanks.

Your next question comes from the line of Mohit Bansal of Citi Group. Your line is open.

Great. Thanks for taking my question, and congrats on all the progress as well. Maybe, so, Danny, you mentioned in the prepared remarks that the quarter-over-quarter for PEG-2-Grastin, there was a growth of low single digits. Could you please comment on the growth of, uh, uh, if there was a volume growth, uh, uh, in line with the market there? Uh, and also like we saw that, uh, for the last, uh, on pro there was a market share grain. So what's it coming on at the cost of biosimilars or, or just briefly last time. Thank you. Hello.

Let me take the last part first, and then I'll let Chris Thompson, our Executive VP of Sales, take your first part of your question. I think what's important in terms of the takeaway here is that we indicated on the Q1 call that on-parallel uptick would be transitory and was subject to the COVID first wave and would wash through the market. That's what we saw. As COVID went through and people became more adept at dealing with COVID, we saw on pro share receipt, I think it's down from off 60% down to around 56%, if I'm correct. There is a growth of the market year over year of about 3% in terms of Pikeville grassland units. And I think that we saw a growth quarter over quarter of about 2.4% between Q1 and Q2. Did you have a further? Does that help, Mohin?

Mohin Bhattacharyya Was that the number for Udanica or Pegfell Graston?

Mohin Bhattacharyya That's the Pegfell Graston market overall.

Mohin Bhattacharyya Okay, so can you comment on the Udanica per se? I mean, year over year or quarter over quarter, if you are still gaining share or... For now, it is just pandemic, which is probably impacting it.

Well, keep in mind that, sure, happy to do so. Keep in mind that we ended the year about 20% market share as we guided. We went up to about 22% to 23% in the February-March timeframe pre-COVID. We had a very, very strong first part of the year. And then as we went into COVID, we dipped down, went down, I think, even south of 20%. Maybe I saw 19% during that period of time. We've now successfully reversed that. Our exit share of Q2 was 22%, which I think is quite good. We're very happy with that performance. And our observation here, of course, the market has just become more adept in dealing with COVID. I would say that we remain confident in our ability to continue to grow share. However, there's some short-term uncertainty in the face of competition and some other things, including COVID for the second half. So it makes it difficult for us to project actual end-of-year share for the product. Lastly, though, I think that the other key takeaway for you, Mohit, is, you know, there's still 70% innovator share in Ulasta in two-dose forms to go after. So I think that's an attractive market for us.

Very helpful. Thank you, Danny.

Thanks, Mohit.

Next question comes from the line of Jason Gerberia, Bank of America. Your line is open.

Hey, good evening, guys. Thanks for taking my question. I really wanted to just touch base, if you can, on how you're thinking about deploying capital here for the next wave of biosimilars, which seems like it's pretty heavily skewed to the oncology side of the arena. And I know in the past you guys have said you feel like you're pretty well-stocked to go after the ocular or the ophthalmology opportunity. But thinking kind of longer term, your thoughts regarding internal R&D investment versus external efforts to go after the next wave of biosimilars, which, you know, would probably be the 2025 to 2030 market entry type of opportunities. Thanks.

Great question. Let me take that therapeutic area by therapeutic area. First of all, with respect to immunology and inflammation and Humira, we don't believe that it's required to have an additional product added there. So we intend to launch Humira and have that to be our sole inflammation product at this time, not to say that we wouldn't focus on an additional product if it came by, but we don't have plans to deploy capital, as you questioned, in that particular direction. With respect to ophthalmology, you know, having the two primary VEGFs I think is what you want to do. If I didn't have them both and only had one, I would probably be telling you that I would be obtaining the other. But I don't see further additions to the ophthalmology portfolio in terms of, for example, innovative products or other biosimilars. With respect to oncology, we feel that this area is very well-positioned for us to deliver on our mission and our value proposition. We focus on delivering healthcare savings to the system and increasing access to patients. And if you look across oncology and immuno-oncology, I think that there are ample opportunities to do that. So you'll probably see us continue to focus in oncology with respect to our new product efforts and the capital deployment That being said, keep in mind that we are spending second half of this year and next year on certain exercises for 14-20 of the Humira Biosimilar with respect to manufacturing. And we're also focusing on the phase three for ILEA CHS 2020, which will certainly consume capital between now and 2025. Does that help?

Yeah, that's great. And if I could just clarify, so you mentioned immuno-oncology. There seems like there's a ton of development activity around follow-on PD-1 types of molecules developed in China, but yet there's this tension going on with made-in-the-USA product. Who knows what will come of that or if it's just a more near-term politicized type of dynamic, but as you think about shopping for external assets in the I.O. space, is that crossing your radar in terms of having something that's developed locally to be able to supply the U.S. market, which is your focus?

Well, I think that you make exactly the correct point. You know, I'll spare you a dissertation on available assets across various global geographies and therapeutic areas, but I will say that we are focused with U.S. products. We strongly believe in U.S. manufacturing and made in America. That's our positioning area. and we believe that very strongly. So any products that we were to in-license or develop, we would absolutely insist on U.S. manufacturing, such as you saw us do with our innovate of Aston. We are able to manufacture that post-tech transfer in the United States.

Great. Thanks so much.

Next question is from the line of Chris's shot of J.B. Morgan. Your line is open.

Great. Thanks so much. Just two quick ones here. First on Udenica and expectations on price as we move into the second half of the year. Do you expect price to remain relatively stable as we think about market dynamics? I'm just kind of thinking about Sandoz now with their code, Mylan kind of relaunching. Should we think about a little bit of a step down in price, or do you think we can kind of maintain where we are? My second one was just a little bit more elaboration as we think about Avastin and the commercial kind of approach for a product like that. I guess when you're not at market formation, are you going to take a different approach to going to market, or do you think a lot of the same principles that work so well with Udenica can be kind of reapplied with Avastin, even if you're not kind of one of the first ones to market there? Thanks so much.

Great. Good questions, Chris. Let me take the first question first. With respect to price, it's difficult for us to predict the pricing behavior of competitors who have not yet acted. So we haven't seen Pfizer come in and take action or take share. They don't have a code or really set any price. We've seen Sandoz in the market. They do have a code, but we haven't seen any sort of market share taken by Sandoz, so we're a bit uncertain of their pricing strategies and so on. Overall, though, I think it's fair to say that as more competitors come into the market, there will be more of an emphasis on price, certainly. However, I would also point out, though, that it is not simply a matter of price in these markets. We have the highest biosimilar price, yet we have the largest biosimilar market share. It's important to deliver value to these markets. They are not primarily and only price-driven, right? And this leads then to your second question with respect to Avastin. We expect to deliver substantial value to the Avastin market when we launch. We expect to do well there. I think as a biosimilar company, we are uniquely focused on delivering value that market participants expect. And we've successfully done that. We've done that with our launch. We've done that in Q2 in the face of COVID. And we're going to do that with our future products also. So I would just disabuse in the notion that somehow price is the only thing that matters. It's certainly important. It's necessary. It's required. But our track record speaks to our ability to understand the needs of the market, the needs of our customer base, and deliver holistic value. And that is why we have been successful.

Thank you.

Your next question comes from the line of Balaji Prasad of Barclays. Your line is open.

Yeah, hi, this is Steven on for Balaji. Thanks for taking our questions. I was wondering if you could, just to follow up on your prepared remarks, you commented on modest ASP declines in the market. Just wondering if you could quantify that, and then I have a follow-up question.

Well, we have seen about, I think, let me see, we came out, at a WAC price when we launched last year of $41.75 in January of 19. And by Q3 of 2020, we were down to $34.06, I think. So that's a published ASP decline of about 18%. You know, ASP is going to decline quarter to quarter. As we've discussed before, our objective and expectation in the long run is to preserve ASP. and preserve value. And while we won't get into the nitty-gritty of pricing and contacting strategies, overall, we're satisfied with how we're doing at ASP, and we think we're doing quite well.

Okay, great. Thank you. And then I'm wondering if you could also provide any update on your development of your own on-body device that would compete with new Elasta OnPro. Thank you.

Sure. Well... That's the question that's always asked and never answered, unfortunately. Our longstanding policy is not to provide details on our on-body device program, primarily due to competitive reasons, which, of course, you can understand. But I can confirm that we continue to make good progress there. However, I would also point out that Udenica pre-filled syringe offers superior value, both in terms of both originator dosing formats. And we think that there's additional market share to be captured from both those formats in the future.

All right. Your next question comes from the line of Greg Gilbert of Trust Securities. Your line is open.

Thank you. Denny, let me ask the PDE1 question a different way. Most folks assume 2028 is the year where we see potential competition tied to VIP for the market leaders. Do you think there's a way to consider a strategy that is different from that timeline, perhaps not as straightforward by a similar strategy made in the U.S.? And then secondly, how are you feeling about your chances of having another meaningful oncology launch in the next couple of years? I guess that's more of a BD pipeline question.

Great questions. Let me take the PD-1 question first. So it's certainly the case that the PD-1 segment is large. It's growing. I think it's going to be something in the order of $25 billion in the U.S. in 2025 going forward. So if you look at just that segment and you look at, you know, delivering potential value and access to patients, you know, I think that it fits inside that box. As you point out, the biosimilar PD-1s arrived somewhat later this decade, late, you know, 28-ish, 29-ish. So I think that you have to be fairly sophisticated and nuanced if you were to develop a PD-1 strategy. With respect to other products, again, I think that there's a number of products that could be either, you know, developed or approved or otherwise commercialized over the planning period between now and, say, 2025-ish. But it's probably best for me not to speculate for you which products those are and which ones would be more attractive than others. But I think, yes, there are products that we could bring forward for a significant launch sometime in that timeframe.

Great. And let me sneak one in for John, if I could, or for you, Denny. Do your comments about growing share for the remainder of the year for Udenica in a price-responsible way mean that you expect Udenica sales to go higher in the coming quarters?

Well, our focus... is on the things that we can control. We can target market share, pursue share, and grow share. We've done that. To a fair degree, pricing is something that your competitors have a bit to say about, so that has to be considered. Overall, price and share will give you sales. We're reticent to project sales not knowing the behavior of the competitors with respect to pricing. But as we indicated, we feel that we can continue to come out of Q2 and perform as we have. I think we're doing very well in the face of COVID and existing competition and continue some share growth. But how that translates to revenues for 2020 is another issue. I would like to be able to give you more color and a bigger commitment with respect to share growth across 2020. But, you know, given COVID, that's a little tough to do. Happy to revisit that, though, on the next call.

Yep. Thank you for your time.

Sure.

Your next question comes from the line of Douglas Sell of HC Wingwright. Your line is open.

Hi. Good afternoon. Thanks for taking the questions. I mean, Danny, I guess sort of, Staying to the topic of the pipeline, if we look at what you have, you should be pretty busy from a commercial standpoint between now and 2025 when you plan to launch ILEA. So do you see a need to add products between now and then? Or, you know, do you think given your sort of growth aspirations that you're in pretty good shape and so you have the ability to wait a little bit longer?

Thanks for your question, Doug. That's a great question. So let me first talk about ophthalmology. That's a space that we have, I think, fairly high expectations for. It's a $6 billion market opportunity all in. And we have proficiency in Medicare Part B buying bill, as you know. I think there's a marginal increase in internal resources to address that. Our footprint is projected to be 20 to 25 in terms of sales team members out on the ground for that particular product. So I think it's one in which we have substantial leverage of our commercial capabilities. With respect to 1420 on that end of the business, that's a Medicare Part D problem, we probably would have to focus a little more on the payer side of the business and what we have That is to say, more emphasis internally on sort of building out our payer proficiencies. But that means that our oncology franchise really can take, has additional bandwidth to take some additional products, right? These are highly capable people, highly motivated, and every time I get in front of them to speak, they always ask me, where's the next product in oncology? They're raring to go, and I think there's considerable bandwidth there on the oncology side with our oncology account managers and our regional directors and our various team members who could very easily take another product and move it forward.

And, Danny, I mean, obviously you've sort of referenced and expressed some openness to pursuing an innovative product potentially in addition to biosimilars. You know, given some of the potential IP challenges, I mean, would a 505B2 strategy, similar to what Teva pursued with Granix, I mean, would that be something you'd be interested in considering in the oncology space?

Well, I think that it's a fair point, Doug. I would not rule out a 505B2. You know, from time to time, folks have come by and knocked on the door and showed us one of those two things. Nothing there so far has passed muster for us. in terms of things that we would take in-house and commercialize. But sure, we would be open-minded.

Okay, great. Thank you so much.

Thanks, Doug.

The next question comes from the line of Salim Sayed of Mizuho. Your line is open.

Great. Thanks so much for taking the questions, guys, and congrats on the progress, Denny and team.

Thank you. Thank you, Salim. Sure.

Sure, guys. Just a couple from me, one high-level one and then one quick one. So, Denny, you kind of gave your high-level view of what you're envisioning for the company, being a multi-biosimilar company with $30 billion of revenue that's the branded revenue market. Could you maybe just speak to how you're thinking about long-term margins, I think, you know, consensus has you sub 50%. And, you know, these are pretty well-defined products from an R&D standpoint. You know, I presume, I think you guys have said 150 to 200 million to develop a product. And then SG&A, you know, I presume you'd be able to get some synergies there. So it's not long-term guidance I'm asking for, but how do you generally think about long-term margins for a pure play biosimilars business?

Well, thank you for the question, Slim. I think margins are very attractive for the business. With respect to Udenica, I think currently our margins are 92% or 93%. With respect to ophthalmology, you have products there that are given in very, very small doses relatively and frequently, either once a month or twice a month. That means the COGS is very low. As I indicated a few minutes ago, the boots on the ground for ophthalmology is marginal and incremental, maybe 25 folks with significant leveraging internally. So I think that the Udenica business has proven to be very attractive. The ophthalmology business is extremely attractive. With respect to inflammation and 1420, we expect to be able to deliver substantial volumes to that market to be extraordinarily competitive in terms of cost. I think that's very attractive also in terms of margins and cogs. I think that all of these markets in the U.S. with biosimilars are proving to be very attractive with respect to margins. I think it's a good business.

So would you go to the extent and say that consensus is too low or kind of around what you're thinking?

Do you mean consensus with respect to future sales?

To EBIT margins, EBIT operating margins. I think they have you at sub-50. I'm just trying to think about long-term here if that's an accurate way to represent how you guys are thinking about the business.

Oh, I think generally speaking that we're a bit more optimistic about the EBIT margins in the future. If you'd like to revisit modeling and have us interact a little bit more on that, that's fine. JV, do you have any comments on margins?

Yeah, we can comment on consensus, but certainly we can, after this call, discuss the general cost involving developing a biosimilar. I think it's still developing, so we'll have to see how biosimilars settle, which is really the early years of biosimilar being profitable.

Overall, I think the market may be underestimating how successful we feel we will be with respect to both Lucentis and ILEA. We're fairly optimistic there. And certainly underestimates how effective we'll be with 1420 or Humira biosimilar. You know, I think that we have outperformed market expectations during our launch. We achieved 20% the first year, and we outperformed market expectations with respect to Q2 in the face of COVID. So I think that gives us credibility to say that we believe that these future markets will be very successful, Celine.

Okay, Guy, and just one quick one from me. JV, I don't think it was mentioned on the call. Can you maybe just give us the inventory movements in the quarter? Sure. In the channel inventory for eDenica?

Yeah, sure, Selim. So inventory is in the normal range, and it's relatively unchanged since last quarter, and it's not a factor.

Yeah, it's pretty much a non-issue.

Okay, great. Thanks so much, guys. Thanks, Selim.

Thank you.

This concludes the Q&A portion of the call. I will now turn the call back to Denny for final remarks.

Thank you, and thank you all for joining us today. So for Q2 2020, we've reported to you not just excellent results with Udentica, but consistent progress against plant and weather ophthalmology and immunology pipeline. Over the next five years, we anticipate our addressable market will grow to $4 billion to about $10 billion in 2022, and then again, a further $30 billion by 2023. We expect to capture a significant portion of this opportunity, just as we are doing now with Udentica. Our strong, identical results reflect our commercial competency in the face of market challenges. We are confident in our ability to replicate the success with our subsequent commercial launches. We look forward to seeing you all again on our next call in November. Thank you.

This concludes today's call. You may now disconnect.