Ladies and gentlemen, thank you for standing by. Welcome to the Coherus BioSciences 2019 first quarter earnings conference call. My name is Demetrius, I'll be your conference operator for the call today. At this time, all participants are in listen-only mode. 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, Demetrius. Good afternoon, everyone. After close of market today, we issued our first quarter financial results press release. This release can be found on the Coherus BioSciences website. Joining me for today's call will be Coherus President and CEO, Denn Lanfear, Chief Financial Officer, Jean Viret, Chief Legal Officer, Thomas Fitzpatrick, and Senior Vice President of Marketing and Market Access, Jim Hassard. 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 close.
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. Thank you all for joining us today on Coherus' Q1 2019 earnings call. Today, we plan to cover three main topics with you. First, we will review the UDENYCA launch performance in Q1 and share some insights into the drivers behind those results, so you have both a quantitative and a qualitative understanding of how Jean will be happy to provide some additional color on this subject in just a moment. We'll discuss our transition from a pure development platform company to an integrated R&D and plus C growth company, with some 96 full-time equivalent team members in the field and 125 commercial full-time equivalents in total in our company. Our demonstrated capability provides us with the opportunity to leverage our market success to commercialize other oncology products in the medium to long term.
Our ambition is to achieve a progressive increase in commercialized products and a corresponding growth in top-line results in the medium to long term. We will review how our commercial performance impacts our future financing needs and our plans to achieve break-even. Let me make a few comments with respect to UDENYCA's Q1 sales performance, and in doing so, we'll try to provide as much color as possible so that you have a strong understanding of what this performance means quantitatively, as well as how we were able to achieve these results qualitatively. UDENYCA revenues in Q1 were $37.1 million, which is well aligned with our expectations. I'd like to make two key points here for you. First, there was no abnormal stocking or artificial inventory build at wholesalers or customer levels. That is to say, stocking was well within a normal range.
With respect to pricing and contracting, discounts were consistent with our long-term value preservation strategy, as Mr. Hassard will discuss further in just a moment. We believe these results validate our unique approach to deliver value to the biosimilar market and drive adoption. This is the first time a pure-play biosimilar company has launched a biosimilar. Prior to this, the market witnessed either biopharma innovator companies launching biosimilars or conversely, generic drug companies launching biosimilars with mixed results. We have always been confident that biosimilars provided a unique commercial opportunity, and we shared our branded biosimilar approach with the Street prior to our launch. Biosimilars are complex products and require a novel, holistic commercialization approach, which includes both innovator-type patient wraparound services such as Coherus COMPLETE and strong contracting capabilities.
For a little more color on the value proposition and the keys to our success, let me hand things over to Jim.
Thank you, Denny. We are very pleased that our quarter one results are validating our approach to the market, which gives us renewed confidence as we look forward to the rest of 2019. Let me walk you through the four core elements of our value proposition. With respect to pricing and contracting, our approach has been and remains to deliver high value to the market while preserving the long-term revenue potential for UDENYCA. We believe that we have been conservative, judicious, and disciplined with our contracting to date, consistent with that approach. There are an abundance of customers that find our value proposition compelling, and we are getting good traction across all three market segments, the community oncology clinics, non-340B hospitals, and 340B hospitals. With respect to supply, we plan to support a broad launch, allowing us to enter the market across all three segments.
Our high supply strategy provided our customers with confidence that we could meet any demand levels over time. The last piece of our value proposition is branded services. Coherus COMPLETE continues to be the focus of this service offering. So far, we have provided support to hundreds of cancer patients. Let me hand things back to Denny.
Thanks, Jim. Next, I'd like to discuss how with UDENYCA, Coherus is successfully transitioning from an R&D company to an R&D and C company, C being commercial and fully integrated. First, on the development side, we continue to advance the pipeline. This includes the filing exercises for our CHS-1420 HUMIRA biosimilar in alignment with our 2023 launch date. With respect to our ophthalmology pipeline, this also includes CHS-2020, our EYLEA biosimilar, and CHS-3351, our Lucentis biosimilar. I can report that both are advancing consistent with our plans through various manufacturing and pre-clinical stages. I'd be happy to take your questions during the Q&A. On the commercial side, it's important to keep in mind that oncology is a rapidly changing ecosystem, with significant price sensitivities and new therapeutics and technologies entering the treatment paradigms.
While we do not want to claim that we have cracked the code with respect to the commercialization of biosimilars, we do believe that our performance to date aptly demonstrates a deep understanding of the oncology buy-and-bill ecosystem and validates our ability to deliver value in various key dimensions as required to all key stakeholders. We feel the capabilities of our commercial team can be effectively applied to other oncology assets. Accordingly, we have high-priority efforts underway to in-license potential products which would lever the commercial infrastructure developed for UDENYCA. The last topic we'd like to discuss with you today is the long-term financial implications of the launch performance. Specifically, how it impacts at what point in time we achieve breakeven on either a GAAP or a cash basis and the company's medium to long-term financial plans and financing needs.
You may recall that since the beginning of the year, we have stated the aspirational goal to reach breakeven, leveraging the HCR $75 million financing, which was secured in early January. Our ambition to achieve financial profitability organically. That is to say, we expect the top line to be driven by UDENYCA sales growth on whatever trajectory we see throughout 2019 and consistent with Mr. Hassard's remarks to preserve long-term product value. To achieve this goal, we are not going to squeeze the expense line. Rather, we will continue to support pipeline investments where essential for the company's future product development success. Of course, we will also continue key investments in the commercial infrastructure. While we are not going to precise Q2 results for you today, we can say that the sales growth on a month-to-month basis is advancing consistent with our financial plans and stated aspirations.
With that, I'm going to hand things over to the company's Chief Financial Officer, Dr. Jean Viret. JV?
Thank you, Denny. I will now walk you through the main financial results for this quarter. Net Product Revenue for the first quarter of 2019 was $37.1 million, as Denny indicated earlier. Cost of Goods Sold for the first quarter of 2019 was $2.2 million, resulting in a gross profit margin of 94% for this quarter. Research and Development Expenses for the quarter of 2019 decreased by $6.7 million, down to $18.8 million as compared to $25.5 million for the same period in 2018. The decreases in R&D expenses were mainly due to the capitalization of UDENYCA manufacturing cost in the first quarter of 2019. Selling, General, and Administrative Expenses for the first quarter of 2019 increased by $16.1 million to $32.7 million as compared to $16.6 million for the same period in 2018.
The increase in SG&A expenses in 2019 was mainly attributable to the costs associated with commercializing UDENYCA in the U.S. as we added a full sales and marketing team to support the commercialization of UDENYCA. Overall, total operating expenses decreased by $6.8 million from $60.5 million in the fourth quarter of 2018 to $53.7 million in the first quarter of 2019, primarily as a result of a reduction in UDENYCA manufacturing pre-approval activities. Cash and Cash Equivalents and Investments in Marketable Securities for the first quarter totaled $96.4 million as of March 31, 2019 as compared to $95.2 million as of March 31, 2018 and $72.4 million as of year-end, that is December 31, 2018. Trade Receivables, Net were $46.5 million as of March 31, 2019. We anticipate that we'll collect most of these balance during the second quarter of this year.
Net Loss Attributable to Coherus for the first quarter of 2019 was $20 million or $0.29 per share compared to a net loss of $44.3 million or $0.74 per share for the same period in 2018. With that, I'm turning the call over back to David.
Yes, thank you. Operator, we are now ready to take questions.
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press the star and then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question or comment, please press star then one. One moment for questions. Our first question comes from Ken Cacciatore with Cowen and Company. You may proceed.
Hey, Denny. Congratulations to you and the team on the launch. You had an elegant way of trying to describe the path to profitability. I just want to try to confirm a couple of things. It sounds like you're saying sequential growth through the balance of the year. You said no stocking
Sounds like the launch is going well. I just want to make sure that does make sense in terms of for modeling purposes, that we should just see a steady grind higher here as you continue to penetrate. Then maybe a broader question, anything about the launch that's surprising you in any one of the segments or geographies, or anything that you're learning that is a little bit different? Then maybe lastly, you focused a lot on being disciplined. Just, is the brand responding in a way that's surprising you? Again, it was an area of focus. I just want to know what they're doing in reaction to you and Mylan in the market. Thank you.
Thanks, Ken. Thank you for your questions. A few things there. I'm going to let Jim Hassard tee up a couple of answers, specifically with respect to the progressivity of the sales and so on. I'll just pre-state that once that, I think it's not exactly going to be linear month to month to month, of course, or quarter to quarter to quarter as we go forward. Let me have Jim answer a few of your questions here with respect to what we see in the market and so on. Jim?
Thanks, Denny. Ken, you had asked the biggest surprise, and it's something that we had thought about. In general, we anticipated adoption process in hospitals to be longer than what has come to place. We are very pleased that the hospital segments have recognized the value of UDENYCA and have moved UDENYCA rapidly through the P&T process. I think in terms of the discipline nature, we have mentioned that a lot. One of the things that we anticipated coming into this market was, again perhaps being first. Now with 3 players in the market, it's requiring us to be very disciplined. We're also seeing the marketplace be disciplined as well.
With respect to the sales numbers and the $37 million, Ken, we did get some earlier questions with respect to why we sort of pre-announced that number and so on. That was simply because we wanted to give the street better guidance to understand how things were going. As you know, there is ongoing publishing of sales numbers in various quarters. We sought not to have any symmetric information. The other thing is, we wanted to disabuse the notion that somehow this was because of out of the ordinary channel loading and so forth early in the launch, which was not. It's very much just organic and sort of business as usual. Does that cover your question?
Yeah, it does. Thank you.
Thanks, Ken.
Our next question comes from Chris Schott with J.P. Morgan. You may proceed.
Great. Thanks very much. Congrats again on the launch. Just a couple ones here. The first one I had was, as we think about the competitive landscape evolving over time, as we think about incremental competition coming into the Neulasta market, do you feel that once you secure a share that that's going to be fairly sticky? Do you think that we'll see over time that some of these players are going to opt in and out of different products? I'm just trying to see how much of this first or second mover advantage can translate to sustained market share as we think about incremental competition. That was the first question. Second was on gross margins. Looks like it was about 94% in the first quarter. Is that a decent proxy to think about for the product going forward?
I know there's going to be an Amgen royalty, if we take that 94% plus the royalty, is that a decent level to think about for gross profits? Finally, just any other color in terms of where the net price is shaking out at this point for UDENYCA? Thanks very much.
Hi, Chris. Thanks for your congratulations, and thanks for your question. Let me handle, first of all, the competition question, then I'll let Jean-Frédéric Viret talk about the gross profit issue, then I'll let Mr. Hassard talk about the color as you requested. With respect to the competition, I think that you have to realize when you go forward with a biosimilar in this market, there is an awful lot of work required on the part of the providers to adopt it, particularly in the hospital segments, the 340B and the normal hospital segments, the non-340Bs. You have to go all through P&T committees. For a hospital, I think it's a very laborious process and a lot of work. I do believe that once they decide on a biosimilar, there is a fair amount of stickiness there.
We're not sure how much, of course, because we don't have data. I think there is a fair amount of stickiness in terms of switching to another product, because there's a lot of work to get to a biosimilar. With respect to the clinics, I think the clinics are probably able to move products quicker in and out for various things. They're probably overall, I would view them as less sticky than the larger hospital segment. Perhaps two-thirds of the market is a little stickier than the remaining third. Jean, would you like to comment on Chris' question with respect to gross profit?
Gross profit this quarter was somewhat unusual because we had a write-down of a prepayment that impacted our cost of sales. We canceled a few lots. That's indicated in our 10-Q. If we did not have that, our gross margin will be in the proximity of 98%-99%. With now the royalty that will be owed to Amgen, this will go up by a mid-single digit percentage. You should expect that gross margin will be well above 90%, if not hovering around 95-ish%. Does that answer your question?
Yes. Very impressive margins there.
Yeah, it's great. I'll just let Mr. Viret make a remarks here. I think your last question was a little about pricing and how that's shaking out, and any color on that. James, anything we can say about it a bit early?
Yeah, it's a bit early. I think I'll go back to Chris Schott. Our pricing and contracting strategy involves three principles. First, our corporate mission is obviously to provide cost savings to our customers, the patients, providers, and payers. Second, we seek to establish a value proposition for our customers that entails the product, the service, and the price, not just price. Lastly, we aim to achieve our market share objectives in a disciplined way, as we've seen. I think in terms of the overall impact to the market, we were not releasing our ASP at this time, but we can look at what's available publicly. For the first quarter, for example, you can see that the ASP for Neulasta declined about 1% from December to March.
Of course, the Mylan biosimilar after three quarters on the market, Mylan announced their ASP, and that was reported to be about 95% of the list price. What we see is a fairly disciplined reaction within the marketplace.
Great. Thanks so much for the color.
Thanks, Chris.
Our next question comes from Mohit Bansal with Citigroup. You may proceed.
Sure. Denny and Jim, a quick question on Onpro dynamics, if you can get your comments here. So far, are you seeing any dent, if you have been able to make in that Onpro segment of the market? Or do you think the market is taking a more of wait and watch approach, and it could be more of a next year thing? How would you characterize that?
Thanks for your question, Mohit. I'll let Jim handle that, but I will just say, firstly, that we are pursuing the entire market, the syringe business, and the Onpro business very broadly. We feel that the entire market is to be approached and has the potential for conversion. Jim, would you like to add some additional color with respect to Mohit's question on the Onpro?
Mohit, good to hear from you today. As we've mentioned earlier, there are providers and payers that recognize the UDENYCA value proposition. There's belief that Neulasta Onpro represents a premium priced option, an Amgen lifecycle management strategy, and a convenience at a higher cost. Early data, say through March, April, when we look at the market share data, it's roughly 40% of the biosimilar share gain is coming from Onpro. As Denny says, we're actively competing for the Onpro share in the market. We're making progress, and we'll leave it to others to keep score.
Got it. Very helpful. Thank you. Can you also comment on any plans for your own on-body device? Anything you are able to disclose at this point?
Well, of course, we have announced to the market previously, Mohit, that we are pursuing the development of device. We have not provided timing for such, and we probably won't until we get a little closer and further in the development program. We appreciate the question, and we certainly understand why it would be of interest to the market.
Got it. Helpful. Thank you.
Thanks, Mohit.
Our next question comes from Douglas Tsao with H.C. Wainwright. You may proceed.
Hi, good afternoon. Thanks for taking the questions. Just in terms of the R&D expense, Jean, it sounds like there was a capitalization issue related to UDENYCA that affected the quarter. Does this set a new baseline, or should we sort of expect the R&D spend to sort of go back to the levels that it was previously? Then just curious, a question for Jim on the Onpro, just sort of following up. You indicated that about 40% of the share to biosimilars is coming from Onpro volume. Is that evenly across the different channels or customer segments, or are there any in particular that might be sort of switching back to the prefilled syringe a little bit more, meaning like hospitals versus clinics or 340B?
Okay. Thanks for your question, Doug. JV, can you give a little comment on the R&D levels and so on?
Yes. Good to have you, Doug. In fact, let me clarify, there was not an issue really to capitalization. What happened is that post-approval, all the production related to UDENYCA becomes capitalized as inventory, therefore, prior to approval, all production was expensed. As a matter of fact, R&D expenses came down quarter-over-quarter because we now started to capitalize some of the production costs, or at least we did not expense UDENYCA production. As a matter of fact, we had more activities, I would say, in Q4 related to UDENYCA than we had in Q1. Net-net, our R&D line came down from Q4 to Q1 of this year.
Going forward, what we anticipate is that R&D expense will stay relatively flat and increase slightly towards the end of the year as we indicated, because we will start on certain clinical trial related to our pipeline.
Important note before we get to the second part of your question, Doug, that as previously stated, we're not initiating any expensive phase IIIs in this particular 2019 period of time, but those will probably materialize sometime in 2020. With respect to the Onpro penetration by segment, maybe Jim can handle that one.
Sure. Thanks, Denny. Doug, we've just looked at it at the market level. We said, roughly 40% of the biosimilar gain is coming from Onpro. We've not looked at it at the segment level at this time. It's way too early to try to look at that level of detail.
Just wanted to follow up, because I know, Denny, you sort of made the point, and you've been consistent with this, that you're going to go after the entire market. Either Jim or Denny, just maybe qualitatively, are you getting feedback as you talk to large customers in terms of their willingness to stick with the Onpro?
I think that customers recognize there's an appropriate place in the treatment paradigm for Onpro. There's a patient profile there. It is a premium price product, as Jim has pointed out, and we find folks are very open to talk about that when we discuss it with them. Hope that helped.
Yes, very much. Thank you.
Once again, ladies and gentlemen, if you have any questions or comments, please press the star and then the one key on your touchtone telephone. That now concludes our Q&A portion of today's conference. I would now like to turn the call back over to Denny for any closing comments.
Thank you very much. Thank you all for joining us today on our Q1 2019 call. In closing, I'd just like to mention three key takeaways for you. First, of course, we're very pleased with the very strong launch performance of UDENYCA, and I would like to thank my teammates for their outstanding execution and our investors for helping us build the required infrastructure and fund that infrastructure which enabled this success. Secondly, we will continue to support the transformation of Coherus into a growth company by leveraging our highly effective commercial infrastructure against future product opportunities. Finally, our financial plans and performance are proceeding consistent with our guidance and our aspirations. We will be presenting at various investor conferences over the next few weeks, including next week, we'll be at BAML in Las Vegas and RBC in New York.
We look forward to meeting all of you there and continuing our discussions. Thank you for your support of Coherus.
Thank you. This concludes our call. A replay of the webcast will be available on coherus.com. Thank you, and have a great day.