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Coherus BioSciences Inc (NASDAQ: CHRS)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks

• Questions and Answers

• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Coherus BioSciences Fourth Quarter Earnings Conference Call. My name is Michelle, 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.

David S. Arrington -- Vice President of Investor Relations and Corporate Affairs

Thank you, Michelle, and good afternoon, everyone. After close of market today, we issued our fourth quarter financial results press release. This release can be found on the Coherus BioSciences website. Joining me today's for the call will be Coherus CEO, Denny Lanfear; and our Chief Financial Officer, Jean Viret.

Before we begin our formal remarks, I would like to remind you that we will be making forward-looking statements with respect to product development plans, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ from these statements. A description of these risks can be found on our most recent Form 10-K, which we filed this afternoon after market closed. 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.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Thank you, David, and welcome everyone to our Q4 2018 call. We are very pleased today to review with you the progress in Q4 2018, which saw the approvals of the Company's first product on November 2 and the subsequent launch preparations. We're happy to update you today on our progress with respect to the launch as well as the product pipeline. Our Company's CFO, Jean Viret will then review our Q4 financial performance and we'll be happy to take your questions.

Now with respect to the launch, I'm pleased to say that we are executing the UDENYCA launch per plan. We're shipping product to billing customers, patients are being treated with UDENYCA. Overall, the sales, logistics and fulfillment processes fully meet our expectations and are proceeding smoothly. We are pleased that our initial performance is aligned with our internal projections and we believe that we have successfully presented a robust value offering comprised of high-quality product, significant guaranteed supply, services such as Coherus COMPLETE an attractive pricing to the market.

To remind you, list price of UDENYCA is some 33% below that of Neulasta. Our experience to date confirms that our value offering meets the needs of providers, payers and patients. On a personal note, I just want to say that it is immensely gratifying to see our long held biosimilar vision now implemented in the field. I recently had the opportunity to visit several oncology clinics and hospitals throughout the country and observe firsthand the value that UDENYCA is now bringing to the healthcare system.

Let me make a few comments with respect to our supply. As per our previous 2018 guidance, our logistics center has amble stock on hand sufficient to fulfill highest expected demand for an extended period under any competitive scenarios. As you may recall, UDENYCA has 36-month shelf life, the longest dating of any approved biosimilar pictograph in the US market. UDENYCA has been utilized by patients in all three provider segments; oncology clinics, 340-B hospital outpatient and non-340-B hospital outpatient facilities. This is consistent with our broad based launch strategy that we outlined earlier in 2018.

Now with respect to the payers in our previous guidance, as you know we particularly focused on securing coverage among both Medicare and commercial insurers on both the national and regional level. Today, UDENYCA has coverage at parity or better to the reference biologic Neulasta in over 90% of insurers, including all major national payers such as Anthem, United, and Aetna. To our knowledge there have been no rejected or unpaid claims from any payer, which was an issue with previous biosimilar launches as you may recall. Finally, it is interesting to note that given UDENYCA's attractive pricing and competitor value, some payers have adopted policies to prefer biosimilars, including UDENYCA over Neulasta.

Now on the services side, we launched our full provider patient offering Coherus COMPLETE in early January to support patient access to UDENYCA. We have resourced all Coherus customer services to accommodate the anticipated demand. I'm pleased to report the customer response to Coherus COMPLETE has been very positive, and is being very well utilized in the market. With all of our Coherus service offering assistant, we are supporting medical information request, reimbursement, coding inquiries as well as request from patients for copay assistance. And I'm very pleased to note that consistent with our mission to deliver healthcare savings and improved patient access, we have already provided under-insured and uninsured patients with UDENYCA at no charge.

Now let make a few remarks with respect to the adoption and sales. As you know, prior to launch, we expected that a branded holistic approach to the market, which considers the individual needs of each stakeholder was the best way to support nurse biosimilar intake, uptick I should say, and market conversion. While we are only about two months post launch, our experience to date has been consistent with those expectations and validated this approach. While we will not provide early metrics with respect to sales today, we are pleased to report that our initial performance is well aligned with our internal projections in our broad launch strategy across all segments. We look forward to updating you in May on our Q1 call, when of course we plan to report our first quarter sales.

Now let me make a few remarks with respect to the pipeline. While I understand UDENYCA launch is the primary interest, I just want to point out a few things in terms of the developments there. First, I'll discuss adalimumab biosimilar, CHS-1420. As reported earlier, we have settled with AbbVie's for a launch date in late 2023 and accordingly we will now sequence and prioritize our BLA efforts for this product consistent with our negotiated launch date. As we've previously guided, it's our intent and strategy to launch our Humira biosimilar, CHS-1420 ourselves. We expect that our infrastructure investment learnings from oncology will be highly relevant to the anti-TNF space. For example the relationships, that we're building in the payer space and the patient services delivered by Coherus COMPLETE are particularly important in the anti-TNF space and will find direct applicability.

Now with respect to the ophthalmology franchise, CHS-3351 our Lucentis biosimilar and 33, I'm sorry, CHS-2020 our Eylea biosimilar, we continue to advance our efforts per plan. We believe that the brand and service oriented approach that we are pursuing in oncology will have direct applicability in ophthalmology as the buy and bill market dynamics as well as the potential cost savings to system are very similar. We're happy to take any questions with respect to the launch and our pipeline during the Q&A.

Now let me turn things over to the Company's Chief Financial Officer, Dr. Jean Viret, who covers the financials. JV?

Jean-Frederic Viret -- Chief Financial Officer

Thank you, Denny. I will now walk you through the main financial results for this quarter. Research and development expense decreased by $4.8 million this quarter over the same quarter last year and by $52.2 million in 2018 compared to 2017. The decrease in R&D expenses period over period was mainly due to a reduction in manufacturing, clinical, and analytical costs associated with our anti-TNF program CHS-0214 and to some degree from CHS-1420. These cost decreases were partially offset by the costs associated with the manufacturing of UDENYCA.

Again this fourth quarter, we expense all costs relating to the production of UDENYCA through November 2, 2018, the date that UDENYCA was approved by the FDA. Now that Udenyca is approved for commercialization in the US, we started capitalizing those costs into inventory from November 2 forward and we had approximately $5.7 million in inventory as of December 31, 2018.

Selling, general and administrative expense increased by $18.9 million this quarter over the same quarter last year and increased by $22.9 million in 2018 compared to 2017. This increase was mainly attributable to the costs associated with hiring of sales force and completing the commercial functions and infrastructure to launch and sell UDENYCA in the US. These increases occurred mostly in the fourth and third quarter of 2018.

Cash and cash equivalents and investments in marketable securities totaled $72.4 million as of December 31, 2018, before receiving $73.1 million in net proceeds from our senior secured credit facility with Healthcare Royalty Partners in January 2019. Thus, our cash on hand, together with the cash we just raised, represents a pro forma total of $145.5 million, compared to $117.2 million as of December 30, 2018. Cash used in operations was $47.4 million during fourth quarter of 2018, compared to $42.8 million during the third quarter of 2018. Net loss attributable to Coherus for fourth quarter of 2018 was $62.6 million, or $0.92 per share compared to a net loss of $49.1 million, or $0.84 per share for the same period in 2017. Net loss attributable to Coherus for 2018 was $209.3 million, or $3.22 per share compared to a net loss of $238.2 million, or $4.48 per share for 2017.

I will now turn the call back to David Arrington.

David S. Arrington -- Vice President of Investor Relations and Corporate Affairs

Thank you, John. Okay, so we will now open the line to questions, Michelle, as the operator, could you please queue up the first question for us.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Ken Cacciatore of Cowen and Company. Your line is open.

Ken Cacciatore -- Cowen & Company -- Analyst

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

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

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

The second point with respect to the SG&A, I will defer to Jean Viret for subsequent remarks, but with respect to the Mylan and some of the other -- other key points. I think that our approach to the market was somewhat unique and very much a branded approach to the market. And I think that is bearing significant fruit for us.

JV, would you like to make any remarks with Ken's point with respect to SG&A?

Jean-Frederic Viret -- Chief Financial Officer

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

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

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

Ken Cacciatore -- Cowen & Company -- Analyst

It does. Thanks so much. Congratulations on the early launch.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Thank you. Thank you and we -- we are pleased.

Operator

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

Mohit Bansal -- Citi -- Analyst

Great, thanks for taking my question and congrats on the progress. Just wanted to understand that your competitor talks more in terms of market share in prefilled syringe market. So far that you have two months of experience, you have already seen the market as the complete market, and you could take market share in the complete market, has anything changed or how you are seeing your uptake in previously -- patient like, in the Onpro (ph) kind of segment, I mean there is no segment here, but how are you seeing that? And I have a follow-up as well.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Yes, thanks Mohit. As you know, we are broadly approaching the entire market, not just the syringe market or the non-pro market, but the entire market. But I'll let Mr. Jim Hassard, who is our Senior Vice President of Market Access and Marketing, make some further remarks with respect your question. Jim?

Jim Hassard -- Senior Vice President, Marketing & Market Access

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

Mohit Bansal -- Citi -- Analyst

Got it. And then -- this is very helpful. In terms of the -- (inaudible) case going on, in an event of Sandoz winning the case, how soon do you think you can actually move forward and get well to the regulators?

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Thanks for that question too Mohit. So as you may recall, we have already completed two Phase III is with 0214 or etanercept product, right. Both those Phase IIIs were very successful. We have already substantially completed some additional manufacturing efforts. There's a little more to do there. It really depends in terms of how we react what exactly happens in that case, what is decided and what is not decided, what sort of intellectual property lays about that has to be addressed. But overarching though I think once we get some clarity from that case, we'll revise our product development of filing plans for 0214 accordingly. But, that product is -- that product is by and large ready for filing with some additional work to go on.

Mohit Bansal -- Citi -- Analyst

Got it, helpful. Thank you.

Operator

Our next question comes from Chris Schott of JP Morgan. Your line is open.

Chris Schott -- JP Morgan -- Analyst

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

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Jim Hassard, you want to take a shot at that?

Jim Hassard -- Senior Vice President, Marketing & Market Access

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

Chris Schott -- JP Morgan -- Analyst

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

Jim Hassard -- Senior Vice President, Marketing & Market Access

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

Chris Schott -- JP Morgan -- Analyst

Okay, perfect. And the final one from me was just on plans for Onpro like device. I just -- once again what type of additional clinical work we should be thinking about here any timelines around that type of offerings? Thanks.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Thanks, Chris. We -- we haven't provided guidance to the market on the specific plans and requirements with respect to an Onpro device. However we recall that we have disclosed to the market that we are working on such. But I think that overall, we have found the market that is the market of with Onpro and the syringe market both to be very receptive to our offering as it is. So we don't really view it as a major impediment to market entry at all at this particular point.

On the provider side, we've seen some accounts which demonstrate for example, 100% adoption of pegfilgrastim biosimilars in the syringe presentation. And we've also seen some payers who established policies limiting the use of Onpro. So I think we have to take it all with the pinch of salt, but we'll be happy to provide an update perhaps at a later time, the next quarter or two on our own delivery system.

Chris Schott -- JP Morgan -- Analyst

Very interesting. Thanks very much.

Operator

Our next question comes from Michael Ulz of Baird. Your line is open.

Michael Ulz -- Baird -- Analyst

Great. Hey guys, thanks for taking the question. You mentioned you're seeing utilization of Udenyca across all three market segments. Just wondering if you could maybe comment a little bit on sort of the distribution across those segments. Is it fair to assume that at this point, it's evenly distributed or you are seeing more utilization potentially in 340-B hospitals?

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

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

Michael Ulz -- Baird -- Analyst

Yes, got it. That's helpful, thanks. And then maybe just one more question from me, just what percentage of insurers are requiring step edits through biosimilars prior to getting to branded Neulasta? And would you characterize that, is it the majority at this point or is it still sort of a minority? Thanks.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Jim Hassard, will take that one. Jim?

Jim Hassard -- Senior Vice President, Marketing & Market Access

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

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

We were actually somewhat surprised to see the preference put on these formularies. It's not something that we anticipated. We are -- our objective really was parity on all these, on all these formularies. So this is something I think that the payers have done just in reactions to long-term pricing trends with the innovator.

Michael Ulz -- Baird -- Analyst

Got it. Great, thanks guys.

Operator

This concludes the questions portion. I'll now hand it over to Denny for closing comments.

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Thank you very much. Thanks for being on our call this afternoon guys. Thank you for tuning in to hear about the launch. As I indicated, things are aligning well with our previous plans, we look forward to updating you in early May and in our first quarterly call we'll give you some real results, thank you.

Operator

This concludes our call. A replay of the webcast will be available on coherus.com, thank you.

Duration: 24 minutes

Call participants:

David S. Arrington -- Vice President of Investor Relations and Corporate Affairs

Dennis M. Lanfear -- President, Chief Executive Officer & Chairman

Jean-Frederic Viret -- Chief Financial Officer

Ken Cacciatore -- Cowen & Company -- Analyst

Mohit Bansal -- Citi -- Analyst

Jim Hassard -- Senior Vice President, Marketing & Market Access

Chris Schott -- JP Morgan -- Analyst

Michael Ulz -- Baird -- Analyst

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