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Coherus BioSciences Inc (CHRS 3.50%)
Q3Â 2019 Earnings Call
Nov 6, 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 2019 Third Quarter Earnings Conference Call. My name is Julian and I will be your conference operator for the call today. [Operator Instructions]
I would now like to turn the call over to David Arrington Vice President of Investor Relations and Corporate Affairs. Please go ahead sir.
David Arrington -- Vice President of Investor Relations and Corporate Affairs
Thank you, Julian. And good afternoon, everyone. After closing the market today we issued a press release on the third quarter financial results. This release can be found on the coheres bio sciences website. Joining me for today's call will be Denny Lanphear coheres to factors over a chief financial officer Jim hazard has VP of commercial promises Patrick, 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 involves certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to different These statements and description of these risks can be found on our most recent filings with the SEC. In addition, coheres bio sciences does not undertake any obligation to update anything that's made during.
I will now turn the call over to Danny.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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?
Jim Hassard -- Senior Vice President of Commercial
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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 healthcare 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?
Jean Viret -- Chief Financial Officer
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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 toward 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 healthcare system and increasing patient access.
And with that we're happy to go to the Q&A. David?
David Arrington -- Vice President of Investor Relations and Corporate Affairs
Thank you Operator. Julian would you like to.
Questions and Answers:
Operator
[Operator Instructions[ Your first question comes from Chris Schott from JPMorgan. Your line is now open.
Chris Schott -- JP Morgan -- Analyst
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?
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thanks for your question there Chris. I'll let Thomas Fitzpatrick the company's Chief Legal Officer answer that. Tom?
Thomas F. Fitzpatrick -- Chief Legal Officer
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Chris Schott -- JP Morgan -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Chris Schott -- JP Morgan -- Analyst
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?
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Chris Schott -- JP Morgan -- Analyst
Thanks so much.
Operator
Your next question comes from Douglas Tsao from H.C. Wainwright. Your line is open.
Douglas Tsao -- HC Wainwright -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
I'll let Mr. Hassard address those two questions. And Jim maybe you want to take the first -- the last one first.
Jim Hassard -- Senior Vice President of Commercial
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.
Douglas Tsao -- HC Wainwright -- Analyst
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?
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Yeah. Let me let Tom handle that.
Mike Wolff -- Baird -- Analyst
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.
Douglas Tsao -- HC Wainwright -- Analyst
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?
Mike Wolff -- Baird -- Analyst
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.
Douglas Tsao -- HC Wainwright -- Analyst
Okay. And is there anything meaningful from this agreement?
Thomas F. Fitzpatrick -- Chief Legal Officer
Meaningful?
Douglas Tsao -- HC Wainwright -- Analyst
Financial.
Thomas F. Fitzpatrick -- Chief Legal Officer
Again with the details of the agreement are confidential so we couldn't comment on that.
Douglas Tsao -- HC Wainwright -- Analyst
Okay. Great. Thank you.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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?
Douglas Tsao -- HC Wainwright -- Analyst
Very well great.
Operator
Your next question comes from Mohit Bansal from Citigroup. Your line is open.
Mohit Bansal -- citigroup -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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 etc. We'll have subsequent disclosures around manufacturing I'm sure but not at this time.
Mohit Bansal -- citigroup -- Analyst
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?
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Yes. Yes manufacturing that's correct manufacturing has to be ready when one files and one can expect subsequent inspections upon filing.
Mohit Bansal -- citigroup -- Analyst
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?
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Yes I'll let let me see Jim you're probably the best to handle that question. Jim Hassard?
Jim Hassard -- Senior Vice President of Commercial
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Mohit Bansal -- citigroup -- Analyst
Got it. Very helpful. Thank you and congrats on the progress.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thanks Mohit.
Operator
Your next question Ken Cacciatore from Cowen & Company. Your line is open.
Ken Cacciatore -- Cowen & Company -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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 350000 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.
Operator
Your next question comes from Mike Wolff from Baird. Your line is open.
Mike Wolff -- Baird -- Analyst
Hey guys. Thanks for taking the question and congrats on the progress as well.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thanks Mike.
Mike Wolff -- Baird -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Mike Wolff -- Baird -- Analyst
Got it. Thanks.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thank you Mike.
Operator
Your next question comes from Salim Syed from Mizuho Securities.
Salim Syed -- Mizuho Securities -- Analyst
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
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.
Salim Syed -- Mizuho Securities -- Analyst
Okay got it. Thanks so much.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
First across the line basically.
Salim Syed -- Mizuho Securities -- Analyst
Okay got it. Thanks so much guys.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thank you.
Operator
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.
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Thank you.
Duration: 34 minutes
Call participants:
David Arrington -- Vice President of Investor Relations and Corporate Affairs
Dennis M. Lanfear -- Chairman, President & Chief Executive Officer
Jim Hassard -- Senior Vice President of Commercial
Jean Viret -- Chief Financial Officer
Thomas F. Fitzpatrick -- Chief Legal Officer
Chris Schott -- JP Morgan -- Analyst
Douglas Tsao -- HC Wainwright -- Analyst
Mike Wolff -- Baird -- Analyst
Mohit Bansal -- citigroup -- Analyst
Ken Cacciatore -- Cowen & Company -- Analyst
Salim Syed -- Mizuho Securities -- Analyst
