Coherus BioSciences, Inc.

Good day, and thank you for standing by. Welcome to the Quarter 2 2021 Cujarros Conference Call. At this time, all participants are in a listen-only mode. If you require any further assistance, please press star zero. To ask a question, you will need to press star one on your telephone. I would now like to hand the conference over to your speaker today, Matt David Stilwell, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us. We issued a press release earlier announcing our 2021 second quarter results. This release can be found on the CoHarris Biosciences website. Today's call includes forward-looking statements regarding CoHarris' current expectations. These statements include, but are not limited to, our ability to advance our biosimilar and immuno-oncology product candidates through development and registration. Our commercialization of Udenica and other potential products in the future, our ability to meet our R&D and SG&A expense guidance for 2021, as well as our uses of capital, all of which involves certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ from these statements. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that are discussed in documents that we file with the Securities and Exchange Commission, specifically in our quarterly report on Form 10Q for the quarter ended June 30, 2021, that we filed earlier this afternoon. The forward-looking statements stated today are made as of this date, and we undertake no duty to update such information except as required under applicable law. With me on today's call are Denny Lamphere, CEO of Coheris, Paul Reeder, EVP of Commercial Operations and Market Access, and Chris Thompson, Executive Vice President of Sales. And I will now turn the call over to Denny.

Thanks, McDavid, and thank you all for joining us this afternoon. Today, I'll provide updates on eugenic performance, our biosimilar pipeline, and progress with Torapalmab, our PD-1 antibody. We're pleased with our progress as we transform Coheris from a single-product biosimilar company to a diversified multi-product biopharma company with multiple oncology assets. Over the next two years, we anticipate bringing four new products to market in the United States, complementing Udenica. Our diversified product portfolio will generate growing and durable cash flows to invest in the large and rapidly developing immuno-oncology market, but Toro Pedal Math is our foundational asset. Now let me first turn to Udenica. In the second quarter of 2021, we recorded $88 million in net sales of Udenica as compared to $83 million in the first quarter. Udenica market share, as reported by Acuvia, declined a point quarter-to-quarter from 20% to a 19% share. Wholesaler inventory was stable in the second quarter compared to the prior quarter end and was not a factor in second quarter revenues. Recall the first quarter revenue was negatively impacted by the burn-off for about nine days of wholesaler inventory that accumulated the seasonal buy-ins at year-end 2020. Later in the call, Paul Reeder will provide additional details with respect to our expectations for the second half Udenica performance. Now let me update you on the excellent progress we're making with our biosimilar pipeline. Together with Udenica, our biosimilars of Lucentis, Humira, and Abastin ADDRESS AN AGGREGATE 28 BILLION IN MARKET OPPORTUNITY. WE'VE ALREADY DEMONSTRATED OUR ABILITY TO USE OUR BRANDED MARKETING AND COMMERCIAL CAPABILITIES TO PENETRATE COMPETITIVE AREAS WITH BIOSIMILAR. WE BELIEVE WE'LL EXPERIENCE SIMILAR SUCCESS TAKING SIGNIFICANT SHARE IN THESE NEW BIOSIMILAR MARKETS. OUR OBJECTIVE IS TO TAKE AT LEAST 10% OF EACH OF THESE NEW MARKETS AND IN SOME CASES, AS WITH EUDENICA, EVEN GREATER MARKET SHARE. Our next expected biosimilar launch is CHS-201, our Lucentis biosimilar candidate. I'm pleased to report that our partner, BioAct, recently submitted the BLA to the FDA. Assuming the filing is accepted for review, we anticipate a standard 12-month review and approval cycle. We are excited about the potential approval of this product in 2022 and believe it will be among the first biosimilar Lucentis candidates to market, actively participating in market formation Launch planning is underway. Now, with respect to our Humira biosimilar CHS1420, the FDA review is progressing well, and we believe that the application is on track for December 2021 target date. You may recall that we expect to launch CHS1420 in the United States on or after July 1, 2023. Regarding CHS305, our Avastin biosimilar, we are currently conducting a three-way PK study to support BLA. which we expect to file in the first part of 2022. Once approved, the Avastin commercial opportunity will further leverage our commercial oncology capabilities with nearly identical customer base as Udenica and Toropalimab, adding incremental margin to our bottom line. Now, let me make a few remarks with respect to Toropalimab and provide you with a positive update regarding our BLA filing in nasal pharyngeal carcinoma, or NPC. As you may recall, the registration strategy called for filing the second and third line MPC BLA, and then post approval, filing a supplemental BLA for first line treatment events. FDA has now agreed to accept the first line submission for concurrent evaluation with the second and third line data, thereby accelerating time to potential approval for the first line indication. Jupiter-2, the clinical trial evaluating toropalamin for first line MPC, generated strong progression-free survival and overall survival data that were presented this June in the plenary session at ASCA. The rolling BLA submission for all MPC indications is expected to be completed this quarter, and we continue to project approval in the first half of 2022. Now, I'm also pleased to report that to our PALMAP clinical data will be presented in September at two medical conferences. Data from the Phase III first-line non-small-cell lung cancer study which we earlier reported had met the primary endpoint of progression-free survival, will be presented at the World Conference on Lung Cancer. The Jupiter VI Phase III study in esophageal squamous cell carcinoma, which also met its co-primary endpoints of progression-free and overall survival, will be featured at the annual meeting of the European Society for Medical Oncology. Junshi continues to make good progress with additional chloropalamin clinical trials in lung cancer, which represents approximately 45% of the PD-1 market opportunity. Phase III studies evaluating toropelmab and neoadjuvant at small cell lung cancer and EGFR positive patients who have failed TKI treatment are enrolling rapidly with data expected next year. Phase III study in small cell lung cancer with co-primary endpoints of progression-free and overall survival is now fully enrolled and is also expected to read out 2022. You'll find details of these studies on slide 20 of the August industrial presentation, which we posted to our website earlier today. Beyond lung cancer, in 2022, we also project data from a phase 3 study and first-line treatment of triple negative breast cancer and two phase 3 trials in hepatocellular carcinoma, one for the first-line treatment and one in the neoadjuvant setting, as detailed on slide 21 of the investor presentation. Torpalmab is the foundation of our immuno-oncology franchise, and developing it in combination with other agents that can improve response rates is a key part of our strategy. JS006, the digit antibody for which we have option rights, is now being evaluated by Jun Shi at phase one clinical trial and is progressing well. I'll now turn the call over to Paul Reeder, our Executive Vice President of Commercial Operations and Market Access, for some additional color on the market dynamics we see going forward for Udenica. Paul?

Thank you, Denny. The Penfield Graston market grew approximately 2% quarter to quarter. Udenica ended the quarter with 19% share of the overall Penfield Graston market. This 1% decline in Udenica market share in the quarter came primarily from the least profitable segment of the market, for 340B hospitals. Since the end of 2020, overall new last to share has declined five percentage points, validating customers' willingness to move away from OnPro, and we expect this trend to continue. Going forward, despite the COVID pandemic, we believe that taking share from OnPro will be a source of growth for biosimilars and especially for Udenica. We are projecting market share within the second half of 2021 driven by the stability in our third quarter ASP compared to competitor ASPs and the redeployment of our field teams to in-person sales calls. With respect to revenues, we expect modest second-half growth compared to the first half of 2021. However, there are two major uncertainties that are largely beyond our control and therefore difficult to handicap. The first is COVID resurgence with a tended impact on market growth, share movement, and Salesforce access. And the second is the level of price erosion precipitated by our competitors. But we remain confident in our ability to respond quickly and manage either challenge to maximize our available opportunities. And I'll turn it back over to McDavid for a review of the quarter's financial results.

Thanks, Paul. The details of our financial results are in the press release and in the 10Q we filed this afternoon. So I'll focus now on just a few highlights. For the second quarter of 2021, we reported a $29.9 million net loss on a gap basis. Cash flow from operating activities was essentially breakeven at negative $200,000 for the second quarter of 2021. As detailed earlier in the call, net product revenue was $88 million. An increase from the $83 million in Eugenica net sales recorded the prior quarter Wholesaler inventory was stable compared to the prior quarter end. Cost of goods as a percentage of net revenues increased from the prior quarter. In the first quarter, we depleted the inventory manufactured and fully expensed prior to Eugenica approval. And so the second quarter was the first period with per unit acquisition costs fully reflected within COGS. We expect a similar gross margin in the third quarter and then an improvement in the fourth quarter. For the full year 2021, we expect gross margins of around 85%, including a mid-single-digit royalty we owe through mid-2024. In the long run, starting in 2024, we expect Eugenica gross margins to return to 90% or higher as we realize the benefits of a significant manufacturing process improvement and royalty expiration. Research and development expenses for the second quarter of 2021 were $54.8 million, compared to $26.2 million for the same period in 2020. The increase reflects cost to advance our late-stage pipeline. Recall that we expect to bring four additional products to market in the next two years. and we are investing in activities such as regulatory affairs and manufacturing scam up for CHS 1420, development and BLA filings for toropalimab, and a clinical trial for CHS 305. R&D expense for the quarter was partially offset by a $9 million credit due to the accounting treatment of the coherence equity purchased by Junshi Biosciences in the second quarter. Selling, general, and administrative expenses were $40.3 million in the second quarter of 2021, as compared to $34.1 million in the year-ago quarter. The increase was primarily driven by higher stock-based compensation expense as well as Eugenica commercialization activities, which increased compared to the year-ago quarter, which was heavily impacted by the COVID lockdowns of the spring of 2020. We ended the second quarter with cash, cash equivalents, and marketable securities of $454.4 million, compared to a balance of $399.5 million at March 31, 2021. And recall that during the second quarter, Coheris received $50 million from Junichi Bioscience's purchase of common stock associated with the Toro Palamout licensing transactions. We are maintaining our full year guidance for R&D and SG&A expenses of $370 million to $400 million, excluding the first quarter upfront payments to Junshi Biosciences. And this range includes approximately $50 to $55 million in stock-based compensation expense. And I'll now turn the call back to Denny for closing remarks.

Thank you, McDavid. In closing, I'd like to congratulate and thank my colleagues and teammates at Coheris on the strong progress we are making on the transformation to a diversified biopharma company with multiple products in oncology. Their hard work is very much appreciated. The result of our team's efforts are two products currently in the registration process, plus a third BLA is soon to be filed for Toro Palmet. We're advancing rapidly on our objective to transition from one approved product, Eugenica, to four approved products in the United States over the next year. In 2023, we expect to have five products launched and generating revenue. Over the next several months, we anticipate clinical data announcements, medical presentations, and regulatory milestones for both our file simulators and to our PALMAP. We look forward to providing updates through the fourth quarter when we'll have our analyst day event in New York City. Operator, we can now turn the line over to questions. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question. from the line of Douglas Tao of HC Wainwright. Sir, your line is open.

Hi, good afternoon. Thanks for taking the questions. Just, Penny, as a starting point, just curious to hear your perspectives in terms of what we're seeing in the Udenica market. It seems like from the biosimilar makers, you know, pricing has sort of stabilized, but the innovator continues to sort of take some pricing discount. How do you see that playing out through the balance of the year?

Hi, Doug. Thanks for the question. Yeah, I'll hand that question over to Paul Reeder, our executive VP of marketing. Paul, would you like to address Doug's question?

Yeah, sure, Doug. Yeah, I mean, we definitely are watching the race to the bottom for Amgen and pushing the price down. They have the lowest ASP in the market. And, you know, really for biosimilar competitors, you know, really need to recognize that The meaningful growth will only come from taking share from the originator, and swapping growth among biosimilars is not a sustainable strategy. You know, from a pricing standpoint, you know, our Q3 published ASP has increased 1% over Q2. So, you know, by comparison to the originator, you can see the declines there. But we remain, you know, focused on value over the long term. and to maintain the highest ASP price while maximizing share.

And then another question. I know we're maybe a little early, but just looking ahead to 1420, just curious at what point, just given the likelihood of approval at the end of this year and then launching 18 months later, would we expect to see some commercial build-out for that product?

That's a great question, Doug. We are currently performing some market research around the potential structure for the sales force, but we are on record earlier as indicating that we believe that will be primarily a payer-driven market access-driven operation. So we do not see substantial increases on the commercialization side to support that product, although there probably will be some marginal increases, but not substantial.

Okay. And so just given the fact that you're not going to be spending that much, should we anticipate those would be sort of streamed on just a few months before the actual launch?

I'll decline to actually at this point describe the breadth of our efforts in various places of the organization to support that. But we do not expect, for example, to put a substantial number of boots on the ground to move that product.

Okay. Great. Thank you.

Thank you. Next question from the line of Celine Zied of Mizuho. Sir, your line is open.

Great. Thanks so much for the question, guys. And good afternoon. So a couple for me, if I can. One on, actually both on Udenica. So when we look at the data, it looks like Distensio is starting to pick up a little bit more share, Pegaflow-Gaston share, more quickly now than previously. even though they have a slightly higher ASP from use. I'm just wondering if you could just give us a little bit more color with the dynamic there. And then the second on your on-body device, given the trial mentions on Clinical Heroes, et cetera, and some of the data points, it seemed to me to suggest that we could get data potentially this summer or early fall from those trials. Is that a correct assumption, or when do you expect we should be able to get some data from there, and what does it mean for you? to potentially be the only biosimilar with an approved on-body device if that were to occur. Thank you.

Well, thanks for the question, Slim. I'll take the first one, the second question rather, first, and I'll let Paul address Zitenzo and so on. With respect to the on-body device, I think that we would reiterate our previous comment that we are pleased with the progress that we are making with respect to that product. As you know, we have had some expenditures disclosed over the past year for other delivery modalities for Udenica. And I probably would decline to give you timelines for data, but I think that product is moving along. Paul, do you want to say a little bit about Centenzo and what's going on in the market?

Yeah, sure. Selim, I'm going to reiterate our focus here until here, which is the gain share from OnPro. You know, it's got over 50% of the market. And, you know, it's likely that any of the new biosimilar entrants are going to pick up a couple of share points or not. What we're seeing is, you know, their shares coming from primarily that 340B segment. You know, it's the least profitable segment for us. So, you know, that's where we're seeing some market share gains. But our focus is really to take share from OnPro both in the short and long term.

Understood. Thanks so much. Thanks, Liam.

Great. Next question from the line of Chris Shaw of JP Morgan. Your line is open.

Great. Thanks so much for the questions. I just want on Udenica and then a bigger picture one. On Udenica, I think, sorry if I misheard this, during the prepared remarks, I think you expected ASP stability going forward. I just didn't know, is that relative to peers or on an absolute basis? And I just, as I think about just price going forward, is the more stable dynamic, is that just mixed driving that, or are you actually seeing some of the competitive dynamics in this space maybe starting to normalize a bit? And then my bigger picture question, I think you've talked about building out the IO portfolio over time, but there also seems to be a lot of opportunities, I guess, in the broader oncology market. So would there be any interest in the company to add, I guess, non-IO oncology assets to the mix, in that there's obviously some very large spaces there, there seems to be a number of ex-U.S. kind of me-too assets being developed there as well. And I just didn't know, is anything about the strategy, could that be something you look at as well, or is the focus very much on I.O.-specific assets? Thank you.

Thank you for the question, Chris. Let me take the ASP question first. As you know, we consider ourselves to be good guardians of ASP. We try to keep our prices, our price decrease as modest as possible. And I think our track record and our ASP record reflects that. That being said, we can't control the pricing behavior of other competitors in the market, regardless of their motivations and so on. We are currently somewhat stable with our ASP for this quarter. But looking forward several quarters in the future, there might be additional changes and decreases as required. With respect to oncology products, I think you bring up a very interesting point. We, of course, currently have a few immuno-oncology products that came over with the Junichi collaboration, the TIGIT, the Engineered IL-2, you know, et cetera. Our focus is on the cancer immunity cycle, but I think it's fair to say that in conjunction with toropalimab, our PD-1, We are now getting a fair amount of incoming part-time orators for various assets to use with Torah Palamab. So I think it's fair to say that we remain open-minded about the assets that we look at. But I would also say that the June sheet digit is sort of front and center for us as that data reads out into the year and into 2022. But we are seeing significant Our entry into the market with a PD-1, though, is causing significant interest.

Makes sense. Thanks.

Great. And again, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Next question from the line of Jason Garberry of Bank of America. Sir, your line is open.

Hi, this is Ash. I'm on for Jason. So I have two. One is on Humira. So it looks like Abby is now saying that they expect two interchangeable bisimilars. And we've seen the first two interchangeable bisimilar getting approval recently. So to what extent is your 10% projected share predicated on any assumption around interchangeable bisimilar, either for you or for competitors? That's the first one. And the second one, just on gross margin, so you say that I think 85% in 2021 should be expected around the same level for 22 and 23 before it jumps to 90% in 24. Thanks.

Thanks for your question. I'll let David take the gross margin question. I'll speak to the issue of interchangeability with Humira. We've We don't believe that the lack of interchangeability is a significant impediment to market penetration. We think it's more perhaps of a segmentation issue. And as we've said previously, we believe that the payers will probably have the loudest voice in terms of selection of the biosimilar of choice for them. So we look forward to that. And we consider ourselves to be very adept biosimilar competitors. And we think that we will do very, very well in the market, which is the reason why we are projecting 10% of recent market share before the Umair biosimilar post-entry. Now, with respect to your questions on gross margins and so on, I think David still will address that. David?

Yeah. Thanks, Ash. So as we said in the prepared remarks, The second quarter was the first period in which the full per unit acquisition cost of Udenica was realized. And so that was mostly responsible for the increase in the cost of goods as a percent of net price or net sales. I would add, though, that there was a separate element to the second quarter, and it will also be available and obvious in the third quarter, that the actual lots of eudemica that we were utilizing in the second and in the third quarters were lots that were manufactured prior to a process improvement. And so those lots actually were relatively low-yielding lots and therefore more expensive lots. And we expect to move through those by the end of the third quarter and then for gross margin to come back down from that point in the fourth quarter and to be relatively stable through 2022 and 2023. So that's the trajectory that we expect for cost of goods.

Got it. Okay. Thanks for taking our questions.

Thank you.

Again, to ask a question, you will need to press star 1 on your telephone. There are no further questions. Presenters, please continue.

Thank you very much for joining us today. And thank you very much. We look forward to providing you another update on our next quarterly call. And we look forward to seeing you at our Investor Day in New York in Q4. Thank you.

Goodbye. That concludes today's conference call. Thank you, everyone, for participating. You may now all disconnect.