Ladies and gentlemen, thank you for standing by and welcome to the Coherus BioSciences 2019 Third Quarter Earnings Conference Call. My name is Julian and I will be your conference operator for the call today. At this time, all participants are in a listen-only mode. And as a reminder, this conference call is being recorded.

I would now like to turn the call over to David Arrington, Vice President of Investor Relations and Corporate Affairs. Please go ahead sir..

Thank you, Julian, and good afternoon everyone. After close of market today, we issued a press release on the third quarter financial results. This release can be found on the Coherus BioSciences website. Joining me for today's call will be Denny Lanfear, Coherus' CEO; Dr.

Jean Viret, Chief Financial Officer; Jim Hassard, SVP of Commercial; Thomas Fitzpatrick, Chief Legal Officer.

Before we begin our formal remarks, I would like to remind you that we will be making forward-looking statements with respect to product development plans, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ from these statements.

A description of these risks can be found on our most recent filings with the SEC. In addition, Coherus BioSciences does not undertake any obligation to update any forward-looking statements made during this call. I will now turn the call over to Denny..

Thank you, David, and welcome everyone to our Q3 earnings call. Today, we'll cover four broad areas for you. First, we'll review for you the Q3 2019 UDENYCA results, which saw the company achieve a 20% unit market share one quarter ahead of guidance and we expect to see additional growth in Q4.

Secondly, we will discuss our ophthalmology licensing agreement that we announced today, which signals the initiation of the commercial phase of our ophthalmology franchise in preparation for our 2021 launch.

With respect to that, we will provide the rationale and benefits of the agreement and further we would describe the similarities between ophthalmology and oncology markets. And why we believe these two therapeutic areas are synergistic with respect to our existing commercial infrastructure. I have with me today are SVPs of Commercial Mr.

Jim Hassard who will walk you through the commercial case in ophthalmology and provide some additional color. Third, we'll make some remarks regarding the company's inflammation portfolio and CHS-1420, adalimumab biosimilar. After that, we'll turn the call over to our Chief Financial Officer Dr.

Jean Viret, who will review our quarterly and year-to-date financial performance. And then lastly, we will provide you with a key takeaway summary before of course going to the Q&A. Now I'll let Mr. Hassard, review for you the UDENYCA progress in Q3.

Jim?.

Thank you, Denny. As Denny mentioned, we reached our 20% unit share in the last weeks of the third quarter. We continue to be disciplined in competitive contracting as demonstrated by the evolution of the UDENYCA average selling price.

Quarter-over-quarter, the UDENYCA average selling price declined by only about 3% consistent with the average selling price decline of approximately 2% for Neulasta. UDENYCA share growth in the third quarter resulted from penetration into both Neulasta on pro and Neulasta prefilled syringe segments.

We believe the formula for UDENYCA success lies in our approach to branded biosimilars. The marketplace continues to value certainty in supply and patient and provider services. Opportunity continues to lie within all three key segments, 340B hospitals, non-340B hospitals and oncology community clinics.

And there is opportunity in both accounts that have already adopted UDENYCA and those that have not yet initiated utilization. I would also note that we have seen growth in the overall pegfilgrastim marketplace, suggesting that biosimilar entrants have increased patient access. Denny, back to you..

Thanks, Jim. Now let me make a few remarks about an ophthalmology franchise. As you see in today's press release, we have concluded license agreement for the leading U.S. Lucentis biosimilar product candidate, enabling the company to have Q4 2019, the BLA filing and a planned 2021 product launch.

We believe there are a number of compelling reasons for executing the deal this time, which I'd like to review for you now. First, this transaction effectively pulls forward our previous sentence about some our timeline by approximately two years, allowing us to play a key role in the market formation for the first anti-VEGF ophthalmology biosimilar.

Secondly, Lucentis biosimilar enjoys a relatively low manufacturing cost of goods as a result of monthly dosing intervals, and the relatively small amount of protein injected per dose. This translates to attractive gross margins.

Additionally, the competitive set and ultimate number of market entrance is expected to be relatively limited, given the technical complexity of these molecules, and the development challenges.

Finally, given our own Lucentis biosimilar efforts with CHS-3351, we are able to fully leverage our existing analytical platform, an in-house clinical regulatory expertise to support the filing and approval of this product.

On the financial side, this transaction saves well over 150 million in projected development spending over the next few years, and allows us to sharply focus our in-house development efforts on our own wholly owned Eylea biosimilar.

Most importantly, we view this transaction as highly transformative, by adding not only a second product to our near-term commercial portfolio, but accelerating the launch of a second therapeutic area for the company, the $6 billion anti-VEGF ophthalmology market, which is an even larger product category than the current $4 billion UDENYCA market.

With all that being said, I'll now allow Mr. Hassard to discuss Lucentis biosimilar commercial case in more detail..

Thanks, Denny. There's three primary reasons why we believe the ophthalmology market is commercially compelling. First, the Lucentis market is approximately $2 billion; a subset of the broader anti-VEGF market for severe retinal disease, which itself is greater than $6 billion in the United States.

We believe the primary differentiator between Lucentis and Eylea is the dosing regimen, monthly versus bimonthly. It is a differentiation of convenience that lower cost might overcome. Secondly, in the United States treatment of retinal disease follows the buy-and-bill model, analogous with the business model for oncology.

We believe it is an ideal opportunity to leverage our commercialization competencies. We plan on applying the same winning strategy for our Lucentis biosimilar in ophthalmology as we did for UDENYCA in oncology.

This includes the internal platform that we've developed including Coherus COMPLETE, our contracting capabilities and our proven commercial analytics infrastructure. It also includes our payer infrastructure, both at the national and regional level, which has been a key component of our UDENYCA success story.

This is critical, as we expect payers to be pro biosimilar in this ophthalmology space, especially Medicare which pays for 65% of ophthalmology lives with favorable demographics. Third and finally, the ophthalmology market is four times more concentrated than the pegfilgrastim market.

Approximately 90% of Lucentis sales are driven by only 450 accounts. By comparison, approximately 2,000 accounts drive 90% of pegfilgrastim sales. This means, we anticipate leveraging our current sales infrastructure requiring modest additional resources.

Denny?.

Thank you, Jim. We'll be happy to take additional questions during the Q&A. Now let me make a few remarks about our inflammation franchise. The company's third therapeutic area is, as you know, inflammation, where we expect to launch our CHS-1420 Humira biosimilar in mid 2023, alongside others into a $15 billion market.

We believe we can gain significant market share with a targeted strategy against certain segments, leading to $500 million to $1 billion in top-line sales in subsequent years.

This space -- this therapeutic area has been the subject of egregious price increases over the past decades with annual patient costs increasing 4 times to 5 times since launch. This makes this particular therapeutic area attractive for biosimilar adoption and the realization of savings for patients in the overall health care system.

Similarly to oncology and ophthalmology inflammation decision-makers are relatively concentrated therefore conforming to our existing commercial footprint requirements and infrastructure. The company plans to file the BLA for CHS-1420 in 2020 in support of the mid-2023 launch and we'll have further comments about this on future calls.

I'd like to point out one further development in our inflammation portfolio. Today, we announced that Coherus and Pfizer have entered into a license and settlement agreement relating to patents and applications for patents directed to adalimumab formulations. With that, I'll let the company's Chief Financial Officer, Dr.

Jean Viret review the quarterly and year-to-date financials.

Jean?.

Thank you, Denny. I will now review the main financial results for our third quarter since we launched UDENYCA. Net product revenue for the third quarter of 2019 was $111.7 million. This represents an annual run rate of nearly $450 million.

Cost of goods sold for the third quarter of 2019 was $6.4 million resulting in a gross profit margin of 94% over the third quarter. Research and development expense for the third quarter of 2019 was $21.6 million compared to $31.6 million for the same period in 2018.

R&D expenses for the nine months ended September 30, 2019 were $59.2 million as compared to $83.6 million for the same period in 2018.

The decrease in R&D expense in both periods was primarily due to the capitalization of your UDENYCA manufacturing costs since the approval of UDENYCA on November 2, 2018 and a decrease in costs related to impairment loss, facilities, supplies and materials.

Selling, general and administrative expense for the third quarter of 2019 was $31.8 million as compared to $25.4 million for the same period in 2018. SG&A expense for the nine months ended September 30, 2019 was $101 million as compared to $60.3 million for the same period in 2018.

The increase in SG&A expense in 2019 was primarily attributable to the costs related to commercializing UDENYCA in the United States, which include personnel and third-party services cost for commercial and marketing initiatives. Overall, operating expenses excluding cost of sales were $53.4 million for the third quarter.

Cash, cash equivalents and investments and marketable securities for the third quarter totaled $170.5 million at September 30, 2019 as compared to only $111.9 million at June 30, 2019, a more than 50% increase in balances. Cash flow from operations year-to-date is $10.6 million.

Cash flow from operations for the three quarters -- for the third quarter of 2019 stood at nearly $55 million.

Net income attributable to the company for the third quarter of 2019 was $47 million or $0.63 per share on a fully diluted basis compared to a net loss of $58.8 million or a loss of $0.87 per share on a basic and fully diluted basis for the same period in 2018. Now, I would like to turn the call back to Denny for his concluding remarks..

Thanks JV. Let me make a few points in summary before we go to the Q&A. We believe the company is firing on all cylinders as we continue to deliver on our strategic objectives. First, we have achieved solid financial results including gaining 20% unit market share for UDENYCA earlier than expected.

We are generating significant cash, which are now able to strategically allocate towards ophthalmology and other areas, which will leverage the value of our platform and expand our franchises in the future. We expect to see modest investment in our infrastructure that will not greatly impact our cash flow profile.

Lastly, we have completed our first significant in-licensing deal, providing the company near-term revenue catalysts in a second therapeutic area. The company's track record in biosimilar commercialization has made us an attractive potential partner. And our deal flow is moving faster than previously expected.

In fact, it appears to us that there are more high quality opportunities available than there are companies capable of successful biosimilar commercialization in the United States.

We believe it is prudent and opportune to invest the cash generated from our commercial operations into additional external product growth opportunities that complement our internal programs.

We will update you on subsequent calls as we advance our strategic objectives of delivering long-term sustainable growth while providing savings to the health care system and increasing patient access. And with that we're happy to go to the Q&A.

David?.

Thank you, Operator. Julian, would you like to..

[Operator Instructions] Your first question comes from Chris Schott from JPMorgan. Your line is now open..

Great, thanks very much for the questions and congrats on the transaction today. My first question was just on the Lucentis opportunity.

First of all, just is, there any IP issues we have to think about on this opportunity? Or is this a pretty certain kind of time line as we think about the 2021 launch?.

Thanks for your question there, Chris. I'll let Thomas Fitzpatrick, the company's Chief Legal Officer answer that.

Tom?.

Chris, thank you. There are no unique IP issues or anything that's special to this portfolio. So I'm not sure what you mean..

Chris, internally I think -- internally I think our view is that the intellectual property profile of Lucentis is probably more constrained than other biosimilars have sometimes been. So, we feel there for that there's a good strategy legal strategy going forward, with the legal of course we won't comment on.

But I would think I would characterize it, as well constrained, as opposed to other products which you know which have more of the gross activity..

Okay. Perfect. And then my second question just on Lucentis. I guess maybe a broader question is just on R&D spending. It seems like this obviously pulls forward your launch and saves quite a bit of development cost. Just help me think a little bit about, how I should be thinking about R&D spending going forward.

And when we should be thinking about that, I guess the Eylea ramp-up. But just in general about R&D spend of the company..

Yeah. Look I can comment specifically about the Eylea spend for R&D. So we have circled about the same $150 million for Eylea spread over approximately three years, across the manufacturing, clinical, process validation lots preparation for commercialization and filing.

So, that $150 million allocation would have been similarly distributed across Lucentis. But that's one way to look at it. That is the one program that we expect and we can see we'll go into Phase III over the next year or two..

Perfect. And then, just my final question, just pivoting to the UDENYCA opportunity maybe just update expectations of where you expect share to be as you exit 2019.

And should we be able to think about further share gains for that product in 2020, with another competitor coming in the space?.

Yes. We haven't revised our guidance for 2019. We would expect to provide additional guidance on 2020 on our Q4 call which will probably happen sometime around February 2020. We can say that we expect to see continued growth over Q4 with UDENYCA. I think it's going very well.

And I think that we have previously signaled what our thoughts are about 2020 which was a 20% or greater growth. So overall, we're pleased with the way the UDENYCA story is shaping up..

Thanks so much..

Your next question comes from Douglas Tsao from H.C. Wainwright. Your line is open..

Good afternoon and thanks for taking the question.

Just maybe a little perspective on how you think the new competitor might affect the marketplace? Are there sort of strategies that you've put in place and think about defending the share that you've already captured? And in terms of Jim's comment that you've seen the pegfilgrastim market grow do you think that's come at the expense of the short acting the Filgrastim market which seems to have kind of flattened recently..

I'll let Mr. Hassard address those two questions. And Jim maybe you want to take the first -- the last one first..

You bet. Thanks. So in terms of growth of pegfilgrastim we think that maybe it's a function of not necessarily the short acting, but in fact additional patients within the pegfilgrastim space. That's either due to perhaps clinical practice or it could be perhaps also just in terms of cost and payers loosening up things a little bit.

In terms of additional competition, again I'll remind you that we always expected additional competitors in this space. And our models have always assumed that Sandoz would launch. I will remind you that again Amgen still maintain 75% of the market share. So that's where we expect Sandoz to go.

We have put in place some mechanisms to defend the current share that we have. And we do believe that our value proposition that we've established will continue to be a competitive advantage for us in terms of again our supply, the service offering that we provide as well as our contracting and pricing..

Okay great. And then just one final question. Denny, maybe if you could provide a little bit of context around the settlement with Pfizer and a little background of where that sort of the origination of that.

And are there meaningful financial implications for the company?.

Yeah. Let me let Tom handle that..

Yes, thank you. Obviously, the details of the agreement are confidential. I think what I can say is that we've always believed in the value of our portfolio and we will continue to look for opportunities to monetize that portfolio..

So I mean I wasn't aware of litigation should we presume that you are in conversations with potentially other companies developing biosimilars to adalimumab?.

We don't want to comment on any conversations that we're having with respect to the portfolio. But suffice to say, as I mentioned, we will continue to look for opportunities to monetize it..

Okay.

And is there anything meaningful from this agreement?.

Meaningful?.

Financial..

Again with the details of the agreement are confidential so we couldn't comment on that..

Okay. Great. Thank you..

Thanks Doug. I just want to make one additional remark. It's been pointed out to me, I may have misspoken with respect to 2020. The company generates its earlier guidance of exiting 2019 at 20% greater share and having additional growth beyond that for 2020 that 20%. Secondarily, I would add that we expect further growth in Q4 of 2019.

Okay?.

Very well, great..

Your next question comes from Mohit Bansal from Citigroup. Your line is open..

Great. Thanks for taking my question. And congrats on the deal. Maybe if you – Denny, you could comment on the manufacturing readiness of Lucentis product that you are getting. Who would be manufacturing, you or the partner here? And could it be a paid linking step in terms of filing. And I have a follow-up after that..

Yeah. At this point Mohit, we haven't disclosed the manufacturing strategy for this product. But I would indicate to you that we expect to approach the market with a very similar supply philosophy that was shown to be successful with UDENYCA.

That is to have robust high-quality supply to have very, very good track records with all the regulatory inspections, et cetera. We'll have subsequent disclosures around manufacturing I'm sure but not at this time..

But given that you are filing in Q4 this year, do you have it ready at this point? I mean, like shouldn't you -- don't you have to have manufacturing value at this point before you hire?.

Yes. Yes, manufacturing that's correct, manufacturing has to be ready when one files and one can expect subsequent inspections upon filing..

Got it. Very helpful. And then one more follow-up on UDENYCA. So if I look at the market share exit rates it seems like your volume unit share kind of unit volume grew probably at 50% to 60% rate but that is not reflecting in the dollar increase.

Is there a pricing further pricing discount this quarter? Or is there some kind of inventory that we are missing if you can help us understand that part?.

Yes I'll let – let me see, Jim you're probably the best to handle that question.

Jim Hassard?.

Yeah. We will see more heat that – in the latest quarters, we have established performance-based rebate contracts within the marketplace. And you can expect – those are – the results of those are now rolling into the gross to net. But I will remind you, it's performance-based. So we only pay a rebate when we have sales.

That's the strategy and that's what we're now executing. Again moving forward some of the gross to net or the revenues will be a little bit lumpy. But again as Denny said, we continue to expect continued growth..

The additional point that I would make there Mohit as we've said before with respect to a quarter, you can expect lumpiness month-to-month and that is sort of a linear trajectory across months for growth. And similarly quarter-to-quarter, you can expect a bit of lumpiness either for seasonality or buy-ins or other sorts of things.

So I think you have to take the more of view on all these sort of trajectories..

Got it. Very helpful. Thank you and congrats on the progress..

Thanks, Mohit..

Your next question Ken Cacciatore from Cowen & Company. Your line is open..

Just wondering if you could give us some sense of what's going on from a Mylan perspective and their supply situation.

I know you don't like to talk about competitors but it would help us understand as we go into 2020 maybe how the evolution of the kind of competitive landscape? And then on Lucentis I'm sure Denny you all know exactly who you think is going to be there and how many – can you give us a little bit more nuance on the evolution of that marketplace.

You said it's going to be obviously a healthy one, but can you give us a sense of how many potential competitors you will have there? And then lastly, you made an interesting comment about more deals and being a little bit constrained more than you can handle I think is what you said.

Can you just talk about is it more just getting outside of different therapeutic areas meaning having to build kind of a sales force or give us maybe a little bit of an understanding of what some of the rate-limiting issues would be? Thanks..

Thanks, Ken. Let me start the game with the suppliers. We don't have visibility on to Mylan supply capability one way or another. We have no inside confidential information on exactly what is going on.

I believe, this what we have done is, as you know invest heavily in our own supply chain, our own quality systems to make sure that we have a very robust supply and you are familiar with the fact that we actually launched this product with about 350,000 syringes in stock. And I think that's going be very important strategy in the market.

And that is a value that the market embraces. With respect to your second question and Lucentis potential market participants, probably at least one other maybe not a third biosimilar. I think these are tough molecules to do. There has been additional announcements in the space so far to-date with that.

But this isn't an area where we'd see three or four market entrants. I do not believe. I think it's going to be somewhat constrained.

And I think and what we -- wants to communicate here is, we think that we can do fairly well in this market, given its similarity to the oncology market, the way that it's structured, its buy-and-bill nature, the way that our infrastructure is structured and really put together to match those needs.

And so we think that we'll have -- we'll be able to put our best foot forward as we go forward. And I think it's very important to be near the front you can participate in market formation. With the last -- with your last question with respect to deal flow, I think we've seen a lot of potential deal flow come our way.

Certainly UDENYCA has been the benchmark highest performing biosimilar launch and have they come from a small company and be able to do as well as we have in the first year, I think it demonstrates that as we've said before that the best way to be successful in the biosimilar business is to be a biosimilar company.

So folks have come forward unsolicited or not with their biosimilars for us in various areas in oncology or ophthalmology or even other areas and we've taken a look at those. So, I think number one, our commercialization competency and expertise is broadly recognized.

But number two, as we said, there's more potential deals that there are companies who could potentially successfully commercialize them because, I think the biosimilars are difficult and take specialized expertise. The other direct I made and give you a little more color on, we said that deal flow is moving faster than expected.

I probably six months ago when we first started talking about our desire to do additional deals for the pipeline, I probably would not have guided of completing the deal within three or six months as we managed to do here. But I think we're very pleased with the deal flow, very high-quality deal flow.

And so we'll keep you informed on the calls, we won't save too much if anything at all before those deals are done. But I think that we're busy over here with the deals..

Your next question comes from Mike Wolff from Baird. Your line is open..

Hey guys. Thanks for taking the question and congrats on the progress as well..

Thanks Mike..

Just with respect to the in-licensed Lucentis biosimilar, you mentioned launching in 2021. Should we be thinking early 2020 there just considering the BLA is going to be filed by the end of this year? I'm just trying to get a sense of are there other factors here other than approval that will sort of determine the timing of the launch. Thanks..

Well, it's of course a good question. If I had a little more granularity for you I may be tempted to offer it. I would say that we're going to launch this product as early as we can in 2021.

It was identified by the company on the last call and the call before that that 2021 represents the midpoint between the 2019 launch of UDENYCA and the 2023 launch of our Humira biosimilar both of which are substantial product opportunities.

So, as you know as we said, we were targeting 2021 and the message we're conveying here is we feel we've hit that bogey. And we think that's very important in providing very continued growth for our investors..

Got it. Thanks..

Thank you, Mike..

Your next question comes from Salim Syed from Mizuho Securities..

Hey guys. Thanks for taking my question and congrats on the progress. Just one for me Denny on just kind of higher level I think there were at least some investors who are thinking that if you were going to do some M&A it would be more down the oncology path and not the ophthalmology path.

I was just thinking was there a reason why you wanted to go down the ophthalmology path? Is there some is there -- or what exactly was it thinking there? Because right now you only have one drug in oncology you could get synergies if you bought something else there? Like what was exactly the thinking to go down the ophthalmology not the oncology for this first deal? Thank you..

Well, I think it's a fair question. I would first say that it's not either or proposition. Fact of the matter is we were developing several product licensing opportunities in oncology and product opportunities in ophthalmology.

For a variety of reasons this particular product opportunity came to fruition earlier we're very pleased to be working with Bioeq. We have great chemistry with the team great chemistry with the company. I met with them several times and I think it moved along quite quickly. As I indicated, we didn't have -- not done this at the exclusion of oncology.

We remain very focused on oncology and biosimilars and oncology as a matter of fact and I wouldn't say too much on, but I'd say that it's an area of a lot of activity for us in the future. And I would probably manage your expectations that the next years would be oncology biosimilar deal of some flavor. First across the line basically here..

Okay, got it. Thanks so much..

First across the line, basically..

Okay, got it. Thanks so much guys..

Thank you..

We have no further questions. And this will conclude our call. A replay of this webcast will be available on coherus.com. Thank you and have a great day..

Thank you..