Coherus Oncology, Inc. (CHRS) Q2 2023 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Coherus Biosciences Second Quarter 2023 Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Marek Ciszewski. Please go ahead.

Thank you, Corey, and good afternoon everyone and thank you for joining us. We issued a press release earlier today announcing our financial results for the second quarter of 2023. This release can be found on the Coherus BioSciences website and is also attached to the Form 8-K that we filed with the SEC today. Today's call includes forward-looking statements regarding Coherus' current expectations about future events. These statements include, but are not limited to, our ability to gain approval for multiple new products and launch them, projections of expenses and revenues, projections of future market share for any product, our expectations for market opportunity for any indication, our expectations about completing the merger with Surface Oncology, timing of our return to being cash flow positive, and expectations about our future portfolio prioritization. All these forward-looking statements includes substantial risks and uncertainties that are beyond our control and could cause actual results, performance or achievements to differ from those implied by the forward-looking statements. These statements are not guarantees of future performance and are subject to substantial risks and uncertainties. Including the risks and uncertainties about the – our ability to complete the merger with Surface Oncology or realize the anticipated benefits of that transaction that are discussed in our press release that we issued today as well as the documents that we file with the SEC. Forward-looking statements provided on the call today are made as of this date and we undertake no duty to update or revise any forward-looking statements. Second quarter 2023 results are not necessarily indicative of results for future periods. With me on today's call are Denny Lanfear, CEO of Coherus; Dr. Theresa LaVallee, Chief Development Officer; Dr. Rosh Dias, Chief Medical Officer; Paul Reider, Chief Commercial Officer; and McDavid Stilwell, Chief Financial Officer. I will now turn the call over to Denny.

Thank you, Marek, and thank you all for joining us today on our Q2 2023 earnings call. This past quarter we continue to make good progress on our strategy to build an innovative immuno-oncology company funded by revenues from FDA-approved products. Pursuant to that objective, the company demonstrated strong execution in Q2 across research, development, and commercialization of value chain. Specifically, we signed a merger agreement with Surface Oncology, a high science leading-edge IO company that shares our vision that impacting the tumor microenvironment potentially represents the next step change in therapeutic benefit beyond checkpoints. In a moment, our Chief Development Officer, Dr. LaVallee, will recap for you the mechanism of action synergies for toripalimab and SURF assets 388, 114, the anti IL-27 mAb, anti-CCR8 mAb. We'll also update you on our own proprietary asset of ILT4, which continues toward IND filing. With respect to development, Theresa and Rosh Dias, our Chief Medical Officer, will recap for you projected timing of data merging from various ongoing studies across the pipeline. Theresa will update you of course on the potential of toripalimab approval. Now with respect to commercial performance, we saw a strong execution across the products in the presentation this quarter with net product revenues of $58.5 million, almost 2x Q1. Our UDENYCA strategy of managed average selling price to support follow on presentation launches of the autoinjector and on-body device has been successful. We launched UDENYCA autoinjector in April and are pleased with the market reception. We continue to project UDENYCA on-body approval and launch this year. Regarding similarly, as you recall, the reimbursement Q-Code was deployed on April 1st and we projected the subsequent increase in market update. This has now occurred and Paul Reider, our Chief Commercial Officer, will provide additional background and color. Additionally, we have successfully launched YUSIMRY, our Humira biosimilar with a highly innovative pricing addressing unmet access needs, providing low cost alternative to high price competitors. Finally, our Chief Financial Officer, McDavid Stilwell, will report on our financial position, provide additional color and how the SURF merger will allow us to reduce our projected spending over the 2023, 2025 planning period. We continue to focus sharply on holding the line with expenses while driving the top line with our objective to reach cash flow positive 2024. And now with that I'll hand it over to Paul. Paul?

Thanks, Denny, and good afternoon everyone. We are now at the midpoint our 18 month five product launch effort. Three products have launched over the last nine months and we are executing plans to launch two more by the end of the year. Our total number of marketed assets would have increased from one to six over an 18 month time period. We believe these product launches will drive top line revenue growth over the coming years. Combined similarly and UDENYCA net revenue for Q2 was $58.5 million, an increase of 81% over Q1. I'll now speak to each brands and we'll start with CIMERLI, our biosimilar to Lucentis. Our strategic approach to the market is first to maximize the conversion of existing Lucentis business, and second to grow share through new patient starts and conversion from other anti-VEGF products. The primary catalyst to CIMERLI sales acceleration was the product specific Q-code, which was successfully implemented on April 1st. This facilitates seamless timely billing and reimbursement for retinal practices. CIMERLI net sales in Q2 were $26.7 million compared to $6.2 million in Q1, driven by quadrupling of demand quarter-over-quarter. CIMERLI market share within the ranibizumab class also more than quadrupled to 17% in Q2 compared to 4.1% in Q1. During Q2, we increased the cumulative number of accounts that ordered CIMERLI by 75% to 321, and of those 72% have reordered. New accounts continue to grow in the first three weeks of July with another 91 accounts ordering CIMERLI, bringing our total to now 412. In Q2, market share among ordering accounts was 45%, which reflects the potential of CIMERLI once accounts begin adopting. Reordering reflects new patient starts and conversions from other products. And with the chronic nature of the disease and frequency of injections, this results in compounded growth. Therefore, we continue to expect the 2023 CIMERLI net revenues will exceed $100 million. I'll now turn to UDENYCA. UDENYCA net revenue grew 21%, quarter-over-quarter to $31.7 million compared to $26.2 million in Q1. This increase was driven primarily by a 10% increase in overall demand from our base prefilled syringe business. UDENYCA market share in Q2 was 12.2% up from 11.5% in the prior quarter. These share gains have continued in July. As you know, the pegfilgrastim prefilled syringe segment has been increasingly competitive. Our strategy has been to balance, price and share in order to maintain a strong ASP in advance of our launches of two new presentations with the longer term objective to regain share. We launched the UDENYCA autoinjector commercially in June and this presentation represents the first innovation the pegfilgrastim Neulasta eight years and addresses a large market segment unserved by Neulasta Onpro, Amgen's on-body device, which still retains 42% of the market. Later this year we anticipate launching our third presentation, UDENYCA on-body injector, if approved, which will compete directly with Neulasta Onpro. We believe UDENYCA franchise is well positioned to regain market share beginning in the second half of 2023. Turning now to YUSIMRY, a biosimilar of Humira, the high cost of adalimumab treatment is a problem for the healthcare system and for many patients. Our patient-centric strategy is to provide YUSIMRY at a single transparent low price. We launched YUSIMRY on July 3rd at a list price of $995 per carton with two autoinjectors representing a discount of more than 85% to Humira. We are working with multiple partners to make YUSIMRY available to patients. YUSIMRY is available for sale through retail channels, including the Mark Cuban Cost Plus Drugs Company and through its Team Cuban Card as independent retailers nationwide. We are also working with specialty pharmacy partners such as Superior Biologics, which services more than 1.5 million patients across the country. We expect to sign on more distribution and PBM partners in the coming months. The adalimumab market is highly competitive and Humira retains formulary position during this market formation period of nearly all PBM and health plan formularies. We expect steady growth for biosimilars in 2024 and then significant acceleration of biosimilar adalimumab adoption is the implementation of the Inflation reduction Act in 2025. We continue to target up to 10% unit share of the adalimumab market for YUSIMRY coming in the 2026 to 2027 timeframe. Low YUSIMRY operating expenses will allow us to generate good YUSIMRY operating margins and enable us to compete for the long-term in the adalimumab market. I'll now provide an update on toripalimab. Watching the company's first immuno-oncology product is a critical step forward in the advancement of our IO franchise. Our mission is to extend cancer patient survival, offering new hope to patients and nasal pharyngeal carcinoma is an excellent example. Today the approximately 2000 NPC patients diagnosed annually in the U.S. have no FDA approved treatments, including IO therapies. NPC clearly constitutes a high unmet need. Toripalimab is the next generation PD-1 inhibitor. And if approved will be the first and only PD-1 inhibitor in the U.S. indicated for relapsed metastatic nasopharyngeal carcinoma. In the impressive final overall survival data presented at ASCO and feedback from the top head and neck KOLs with whom we engaged in the conference. We believe toripalimab plus chemotherapy will establish a new standard of care at NPC in all lines of therapy, including first line and will be practice changing. You feel confident toripalimab plus chemo will gain a dominant market share and estimate the NPC market opportunity at peak could reach up to $200 million. During our Q1 call, I announced the launch of npcfaxs.com, which is designed to be a primary source of disease state information for patients and their caregivers to learn about NPC. We've also launched a sister site for healthcare professionals. Our aspiration is to identify and appropriately engage with all NPC patients or their caregivers in the U.S. by the end of the year and I'm pleased to report that since launch we've enrolled over 1500 NPC patients and caregivers into our community. We will be ready to launch and educate doctors on toripalimab’s differentiated mechanism of action and the impressive overall survival benefit demonstrated in NPC and irrespective of PDL1 expression status. We're ready to launch toripalimab directly upon potential approval. With significant overlap between UDENYCA customers and toripalimab targeted prescribers the launch of toripalimab is being efficiently integrated into our existing oncology commercial infrastructure. With that, I'll now hand it over to Theresa.

Thank you, Paul. And good afternoon everyone. Let me begin with our regulatory updates to date. Coherus continued to demonstrate excellent drug development execution from preclinical studies through regulatory approval of new products that we then pass on to our commercial colleagues to deliver to the market. A year ago we projected five new product launches through year end 2023. We are now more than halfway towards that target. CIMERLI was approved last August with interchangeability. The CIMERLI autoinjector presentation and manufacturing scale-up supplements were both approved in first quarter 2023 and we launched the drug in July. UDENYCA autoinjector, the first innovation in the pegfilgrastim market in eight years was approved in March, 2023 and launched in June. And the FDA review of the UDENYCA on-body injector supplement is progressing towards anticipated approval later this year. Additionally, the toripalimab BLA for NPC review now has all required elements completed or scheduled. The clinical site inspection is planned to be completed by early September and the manufacturing inspection was completed by the FDA in May with only a few observations that were all readily addressable. We want to thank the FDA for prioritizing this breakthrough therapy BLA with the scheduling of these onsite inspections. We still believe an FDA approval decision is possible in third quarter, but in the absence of a PDUFA date as a deadline, it's possible the FDA action may take into the fourth quarter of 2023. Given there are no approved treatments for NPC patients in the United States and the very positive, statistically significant and clinically meaningful overall survival data presented at ASCO as well as breakthrough therapy designation for toripalimab and NPC, we are hopeful the FDA will act in a timely manner following the completion of the clinical inspection. Toripalimab is a next generation PD-1 inhibitor with potent activation of T-cells, including demonstrating clinically meaningful activity in tumors that are less inflamed, such as triple-negative breast cancer. Toripalimab is the foundation of our I-O franchise and we are excited to explore clinical opportunities to extend patient survival with novel combinations, particularly with agents that target elements of the tumor microenvironment that have been shown to cause PD-1 resistance. With our recent announcement of the signing of the merger agreement with Surface Oncology and our in-house developed ILT4 antibody we're assembling a compelling novel IO pipeline. Two well-characterized immune suppressive cell types are macrophages and Treg cells. SRF388 targeting IL-27, an immune suppressive cytokine that dampens immune activation of lymphoid cells such as T cells, B cells, and NK cells is secreted in many tumors by M2 macrophages. CHS-1000 and antibody directed at ILT4 and M2 macrophages causes macrophages to polarized to a more immune response to phenotype. With the merger with Surface, we will have SRF114, an ADCC enhanced antibody that selectively binds and kills tumor resident Treg cells. That is to say it was designed to target Treg specifically in the tumor microenvironment and not systemically, and thus the potential to reactivate anti-tumor immunity without broad autoimmune side effects. Combining each of these agents with toripalimab has strong mechanistic rationale and preclinical data to show improved anti-tumor activity. Each of these programs has a rich scientific dataset to indicate which tumor types these mechanisms are most prevalent in including lungs, head and neck, liver, and breast cancers. We look forward to the Surface Oncology merger closing later this quarter and to hosting an investor event in the fourth quarter to discuss our portfolio prioritization and development plans. I will now turn the call to Rosh.

Thanks very much, Theresa. And good afternoon everyone. With respect to toripalimab, several strong data sets were presented at ASCO in June across different tumor types and settings. Together we showcase the consistency of activity of toripalimab as the next generation PD-1. We remain excited about its potential to form the backbone of combinations in other novel agents, particularly with our merger with Surface Oncology. Data highlighted at ASCO included first of all the final overall survival analysis of our pivotal study in nasopharyngeal carcinoma with the significant benefit in overall survival in the toripalimab arm with the hazard ratio of 0.63, the consistent effect on overall survival across all PDL1 states. This is of course particularly important as there are no currently approved immunotherapies in NPC. Updated data sets were also presented in non-small cell lung cancer. The final overall survival analysis, pivotal CHOICE-01 study comparing chemotherapy plus or minus tori, showing a hazard ratio of 0.73 favoring the tori arm as well as positive data in the NEOTORCH study, a large Phase 3 perioperative, non-small cell lung cancer study showing a hazard ratio of 0.4 for event-free survival favoring the tori arm. Finally, Phase 1 TORCHLIGHT was also presented at ASCO, showing a statistically significant benefit in triple-negative breast cancer. Earlier this year, our partner Junshi also announced that the Phase 3 study of tori in small cell lung cancer was positive with results anticipate to be presented later this year. Junshi will also be running a large, multinational Phase 3 study with an anticipated start late this year set to include U.S. sites exploring toripalimab in combination with their BTLA antibody as consolidation therapy to limit stage small cell lung cancer. This will be the first – multi-regional registration study for toripalimab that includes U.S. patients and this is a great example of how combination treatments across tumor types could enable broader registration opportunities for toripalimab in the U.S. Regarding TIGIT our Phase 1/2a study looking at the tori-TIGIT Combination tori TIGIT combination is currently active in the U.S. and will generate data in U.S. subjects with this novel bio combination. We noted the encouraging Morpheus data at ASCO evaluating the atezo, bev, TIGIT combination in HCC or hepatocellular carcinoma, a tumor type that we were planning for the expansion phase in our current Phase 1/2a study, given the high disease linkage with high PVR expression. HCC is also an indication that has shown promising activity with SRF388. Evolving TIGIT data from other competitive programs will continue to inform our further development of this combination as we have previously stated. Regarding our recent merger with Surface Oncology, we are very excited about the potential to combine the Surface assets with toripalimab. SRF388, the IL-27 assay has shown encouraging activity both as monotherapy in non-small cell lung cancer, as well as in combination with immune checkpoint inhibitors in hepatocellular carcinoma. Importantly, responses have been shown in prior PD-1 experience as well as PDL1 low subjects. We anticipate presentation of the full available dataset in quarter four this year for the monotherapy data in non-small cell and quarter one next year for the combination data in HCC. After we complete our Surface merger, we will have the opportunity to work with a wider portfolio targeting now not only the T-cell but also the tumor microenvironment with the potential synergies that that could bring to improve patient benefit. We'll look at this broad portfolio over the coming weeks with an eye on as to how to best invest in and prioritize these assets, taking into account timelines, competitive environment, unmet medical needs, and potential patient benefit, probability of technical and regulatory success costs and other factors. And we look forward to sharing more specific clinical plans across assets tumor types later in the year. I will now turn the call over to our Chief Financial Officer, McDavid Stilwell. McDavid?

Thank you, Rosh. Today we reiterate our earlier financial guidance for 2023. We project revenue growth from accelerating CIMERLI sales and the launches of YUSIMRY, the UDENYCA autoinjector, and once approved the UDENYCA on-body injector and toripalimab. For the full year, we expect to record at least $275 million in net sales with at least $100 million of CIMERLI net product revenue. We continue to tightly manage our expenses and even with the expected addition of Surface Oncology related operating expenses in the fourth quarter, we anticipate meeting our prior 2023 guidance range of $315 million to $335 million for our combined R&D and SG&A expenses. This range excludes any upfront or milestone collaboration payments for the cost of the Surface Oncology merger. For my review of second quarter financial results, I’ll touch on just a few highlights as the details are in the press release, 8-K and 10-Q that we filed this afternoon. Net revenue was $58.7 million during the three months ended June 30, 2023, representing an 81% increase over the prior quarter. This included $31.7 million of net sales of UDENYCA and $26.7 million of net sales of CIMERLI, as well as approximately $200,000 in royalties we received from a license to our adalimumab formulation. Cost of goods sold for the three months into June 30, 2023 was $24.8 million. Recall that UDENYCA COGs includes a mid-single digit royalty on net sales payable through the first half of 2024, and CIMERLI COGs includes a low to mid 50% royalty on gross profits. We continue to focus on keeping tight control on operating COGs. And research and development expense for the three months ended June 30, 2023 and 2022 was $23.3 million and $41.6 million respectively. The significant decline in R&D expense compared to the prior year quarter primarily resulted from the reduction in scope of the toripalimab collaboration agreement and also the capitalization of certain YUSIMRY COGs in the inventory in 2023 that were expensed as R&D during the second quarter of 2022. We’re beginning to realize the savings from the cost cutting program we announced earlier this year, primarily as a result of reduced headcount selling, general and administrative expense decline. SG&A was reduced to $45.1 million in Q2 2023 from $51.3 million in the second quarter of 2022. With higher revenue and lower expenses, we reported a lower net loss for the second quarter of 2023, $42.9 million or $0.49 per share compared to a net loss of $50.2 million or $0.65 per share for the same period in 2022. We expect operating losses will continue to moderate as product revenues increase and as we continue to constrain operating expenses. Cash, cash equivalents and investments in marketable securities were $144.7 million as of June 30, 2023, compared to $191.7 million at December 31, 2022. We expect the Surface Oncology merger to add $20 million to $25 million in cash to our balance sheet at closing. We have also stated that the merger will reduce our R&D expenses through 2025 by approximately $50 million compared to budget, and I’ll [ph] provide a bit more detail on our assumptions supporting that assertion. Prior to the surface deal, our major planned R&D activities through the 2025 planning period included a large Phase 3 clinical trial to expand toripalimab label beyond NPC. We also planned a Phase 1/2 clinical trial to evaluate CHS-006, a TIGIT-targeted antibody, in combination with toripalimab followed by initiation of a Phase 2/3 registration study, as well as completion of pre-IND activities for our ILT antibody and a Phase 1/2 clinical trial. Additionally, we had planned to advance two other preclinical programs to IND. Following the completion of the Surface Oncology merger, we plan a portfolio prioritization project to determine, which programs are most promising and competitively positioned. We currently expect that we will advance SRF388 in combination with toripalimab for second-line non-small cell lung cancer. SRF114 in combination with toripalimab for first-line head and neck cancer, as well as certain other projects that make the cut. Multiple programs will not make the cut, and those we plan to stop, do not initiate or to gate pending additional competitor data and we will provide additional details at our investor event in the fourth quarter. We’re focused on ensuring the success of our new product launches and generation of the anticipated revenue growth, and we will continue to maintain tight control over our operating expenses as we aim toward a potential return to being cash flow positive over the course of 2024. I’ll now hand the call to Denny for closing remarks prior to the question.

Thank you, McDavid. We’re pleased with our progress this quarter and we’re happy now to take your questions. Operator please proceed.

Hi Denny and team. Thanks. Regarding UDENYCA, could you talk about the relative contribution of the autoinjector, which was launched in the middle of the quarter and whether you’re seeing a mix shift away from the prefilled syringe or the injector is growing share as well. And then more generally, once you get the OBI on the market as well could you provide any broad comments around the relative split in the market between prefilled syringe, autoinjector and the OBI? Thanks.

Thank you for the question. I’ll have Paul Reider our Chief Commercial Officer address that for you. I’ll just preface his remarks by saying however that we view UDENYCA, of course, as our foundation product in the base of our sales. And so our efforts in bringing forward all these various presentations is really to solidify revenue stream for the mid and long-term with UDENYCA. And with that said, I’ll let Paul go ahead and answer your more specific questions regarding relative contribution of autoinjector PFS and the future of on-body [ph]. Paul?

Yes, thank you, Denny. Thanks for your question, Nigel. So just to recap the market here is about 42% in the at-home market, and then the other 58% in the in-office segment. The PFS operates in the in-office segment today. So the launch of the autoinjector and the OBI is going to enable the UDENYCA franchise to really target that 42% of the market that’s dominated now by Onpro. That equates to about 550,000 units per year. So in June, because we just – we just launched the autoinjector in June, we were still working through payer coverage, we were working through getting it on formularies the operational aspects. So it was relatively minor contribution to the overall UDENYCA business in Q2. But over the course of the second half year and then into 2024, we will now have three presentations to attack the entire market. And the autoinjector and OBI will enable us two shots on goal into that 42% of the Onpro. It’s hard to project right now Nigel, what the actual split’s going to be until we get all three into the market and we see what the payer coverage is going to look like, the competitive dynamics. And suffice it to say we feel very, very encouraged about our opportunity to be able to differentiate the three presentations and grow share over the course of the second half of the year and into 2024.

Thanks. And then just two other quick ones on, similarly, obviously a very, very strong performance in the second quarter following the Q-code. Can you just comment briefly on how much of that was contributed from inventory or stocking? And then on the broader question just of the sales trajectory for the whole company you reiterated the guidance of at least $275 million obviously you were 10% above the upper end of guidance this quarter. Are you thinking about raising the, the guidance for the full year? Thanks.

Paul, would you address this? We’ll take – we’ll give you one out of those two Nigel, and then we’ll move on to another caller. Go ahead Paul, can you just answer the question of CIMERLI sales and where that came from?

Yes. So Nigel, as we reported, sorry – as we reported and expected the activation of the Q-code was going to unlock, the reimbursement hurdle and that occurred. So all of the sales increase for CIMERLI was driven by the quadrupling of demand. And while you do see maybe some higher levels of inventory, which is normal when you’re in a high launch acceleration period like we are now. So when you have, dozens and dozens of new accounts ordering it and ordering regularly, you’re going to see the wholesalers keeping inventory. But that those sales were driven largely by demand growth and market share growth organic into the business. As it relates to the guidance, we’re – we, as McDavid mentioned, we’re maintaining guidance of $275 million for the year with at least a $100 million coming from CIMERLI.

Yes, I would say that we – yes, I would say that we feel very good about the traction that we’re getting in the market. For CIMERLI in Q2, we like forward trajectory that we’re seeing with respect to that the market uptake. I think that we’ve had critical mass with respect to CIMERLI we’ve administered more than 65,000 doses. And I think once you earn the trust of the ophthalmologist and have confidence in the company and confidence in the product; I think you’re in a better position. So, I think that we definitely have some strong momentum going into the second half of the year with CIMERLI.

Okay, thank you very much.

Thank you very much. Our next question comes from Robyn Karnauskas of Truist Securities. Robyn, your line’s open.

Great, thank you, and congrats on all the progress this quarter. I guess my main question is can Theresa, maybe you can give us a little bit more color about what is entailed for these onsite inspections that are scheduled and what logistically has to happen for the FDA? That’d be my first question, then I have a follow up.

Yes, thanks, Robyn. So for approvals there are always multiple inspections usually don’t hear about them, they just happen in the background. With the COVID-related travel restrictions to China, it’s been more burdensome. So the manufacturing inspection happened as you know, in May, we did have a remote regulatory assessment of the clinical sites done already, and we will have been, the clinical site inspections are pretty straightforward and much more streamlined than a manufacturing inspection. And then it’s a matter of compiling the different divisions, assessments and coming up with an action. So typically you work towards a PDUFA date, which is a deadline that brings everyone together and we’ll be collaborating closely with our RPM to try to get this done as quickly as possible and given how long it’s taken to get all of these things scheduled. But I will say is that the FDA did honor their word by guest saying that we would be at the front of the line. And for both the manufacturing and the clinical inspections, we are one of the first to get inspected in China. And for that I am very grateful.

And did they – go ahead.

Go ahead with – Robyn [ph]?

Yes, I was just, just to elaborate on that. So they have to go over to China again and they’ve already scheduled the exact date, so I assume that they won’t have the delay that they had before, like they, they’re set. The following was just, you mentioned market share on UDENYCA going from 11% to 12.2%. Now with the on-body – with the autoinjector, can you just talk a little bit about the cadence of how quickly that autoinjector might contribute to uptake and should there be like a steady stream of share increase? Or would you think it’s more like backend loaded? Thanks.

Yes, thanks for your question, Robyn. Yes, I think with UDENYCA autoinjector, it’s likely to expect more of a steady increase over the second half of years. We continue to get payer access on board and start working, on the operational implementation particularly in the hospital segments where you got to get through B&T [ph] committees and then get them into the order sets and the EMR. So, hospitals don’t move quick, so that takes a little bit of time. But again, the most important thing is there’s been really positive receptivity by the customers for having an alternative to Onpro for patients that want to go home, have an at-home injection experience, and the autoinjector fits that need. So, really it is just working through the operational and the payer access issues that that we will continue to work on over the course of the quarter in the second half of year.

Great. Congratulations guys. Thank you.

Thanks Robyn. Just also with respect to the autoinjector, Paul may comment further, but I think that we put between 1,000 and 5,000 training devices of the autoinjector out in the field, haven't we Paul?

We have and Robin, you've seen me demonstrate that as well. So yes, the market receptivity is very high and a great job by the tech ops team to provide a device that's so easy and flexible to use for patient convenience at home.

Thank you very much. [Operator Instructions] Our next question comes from Michael Nedelcovych of TD Cowen. Michael, your line is open.

Hi, thank you for the question. I know its early days, but I'm curious if you could give us a sense of how the YUSIMRY launch is doing so far? And did the actions of any of your biosimilar competitors surprise you? And then I'm also specifically curious how your collaboration with cost plus drugs is going so far. Do you see any early indicators that this channel could perhaps be more meaningful for YUSIMRY than you initially thought? Or that you might want to expand the collaboration to other products?

Thank you, Michael, for the question. I'll put that one over to Paul Reider. But I would say that we generally speaking, we felt that the market did not need another high cost alternative. In this market we felt the best place to be competitive was a low cost alternative. The product has only been launched, I think for less than a month or maybe a month as of now. So I think it's fairly early days with respect to a market formation or to make conclusions about how the market's going. Paul may have some additional color for you on your other topics. Paul?

Yes. Thanks Denny and thanks for your question, Michael. As a matter of role, I don't typically comment on the actions of our competitors. What we really focused on was where we felt the opportunity was in this market and that's to bring a transparent low price product to address this exorbitant problem of the cost of adalimumab treatment. And our decision to partner with Mark Cuban's cost plus drug company really centered around two reasons. Number one, both Mark Cuban and Coherus are innovators, and we considered biosimilar adalimumab entry as an ideal opportunity to partner together to innovate within the highest drug category in the United States. Second, we both share a mission to offer patients safe, affordable medicines at transparent prices and you summary its ideally into that model. How this unfolds over the course of the year as we expand the coverage and the distribution network and educate providers, employers, healthcare systems about YUSIMRY and its price point is something that we're executing upon in earnest. And I think we'll be able to report more on our performance in our Q3 call.

Michael just some additional comments dovetail with policy's remarks. We view – we view the build towards our targeted 10% market share and the long term trajectory up to 26 or 27. So we don't think this is a market where you come and have very, very high sales out of the gate. We think this market is going to be build over time, and our strategy is to build this market up over time as we go forward. Formulary access with the innovator in 2023 limits how much we can do this year. But I think starting next year and then more significantly into 2025. I think we'll see a lot more traction there. So I would – I would just manage your expectations that way.

Got it. Thank you.

Thank you very much. [Operator Instructions] Our next question comes from Douglas Tsao of H.C. Wainwright. Douglas, your line is open.

Hi, good afternoon. Thanks for taking the questions. So, so Denny, maybe following up on that last question or your last comment, you expect this to take place over time and sort of being realistic about the contracting situation with AbbVie for 2023. Does that suggest that your own strategy, you have an expectation that it will evolve and that while you have not necessarily been that active with some of the large payers or PBMs in 2023, that over time you will – will look to increase your penetration there? Thank you.

Yes. Thanks Doug. AbbVie is been in this market for a long time. They own this market. They're the innovator and I think there's significant incentives for AbbVie to continue to have significant market share as the market turns towards biosimilars this year. My point simply is that's just going to take some time to work through all that. The IRA's going to show up in 2025, I think that'll be an important event for traction. But I would say a [indiscernible] more linear trajectory for a market like this as opposed to the acceleration, for example, that we're seeing under CIMERLI, right, where you get something like a Q-code and there's significant opportunity to move the market more quickly. So I think each of these markets are just a little different, and I just think the trajectory is going to be a little flatter more over time, but I think it'll – it'll pick up [indiscernible] 24 and 25-ish.

Okay. And then just a quick follow-up, in terms of UDENYCA, it sounds like most of the growth just came from the prefilled syringe. Do you have any comment what drove, I mean, we finally – it seemed that we started to see, it's good – great to see that product start to move in the right direction again?

I'll let Paul take that one. But, like, I think that the – I think the back to market is very dynamic with people coming in and out and so forth. But I think we've effectively managed our average selling price for that market to be attractive. We maintain a very high average selling price there, and I think that has yielded benefits and will continue benefits, I think across the additional presentations. Paul, any further comment on the performance of the PFS in Q2?

Yes Doug. I think it's a combination of things that Denny mentioned, but also having additional presentation launches has created opportunities for UDENYCA franchise, where we didn't have before. And so whether that's with payers or whether that's with clinics or hospitals, they see the value in having device options. Plus, I think and I won't go into this for competitive reasons, but outstanding execution by the commercial team on strategies that, that are driving organic demand and that's bearing fruit. And we expect that to continue in the second half of the year. So I think it is a great testament that you'll find into the lifecycle. We're seeing the second win for UDENYCA and with the device options we – we continue to expect market share, you know, growth in the second half, near and beyond.

Okay. Great. Thank you.

Thank you very much. [Operator Instructions] Next question comes from the line of Balaji Prasad [Barclays]. You are up.

Good evening. This is [indiscernible] for Balaji. Thanks for taking our questions. Just a quick one on Tori, seems like your partner Junshi announced that it was approved in China for extensive stage small cell lung cancer in May, based on positive survival results. If the OS and PFS are both better than current first line options in the U.S. for extensive stage small cell lung cancer, such as Atezo, would you consider changing your product strategy with Tori as it'll – as it could potentially fulfill an [indiscernible] need in the U.S. market? And if I remember correct, the FDA has granted Tori Orphan Drug Designation back in April 2022, which was after the Lilly ODAC. Thank you.

Thanks for that question. That's a very interesting observation with respect to small cell. Rosh Dias, our Chief Medical Officer will answer that for you.

Thanks for the question. So I said in my comments that the small cell lung cancer data was positive. We're yet to actually present the data, so we anticipate that that will be presented later this year. As the current standard is Etoposide platinum in terms of the current standard of therapy plus or minus Durva or Atezo based on, actually a very marginal overall survival benefit for those two IO agents. I think as we look at the U.S. our strategy is, and I mentioned the fact that we will be initiating an earlier stage study in small cell lung cancer that's in limited stage and that's it with our combination. So really outside NPC, our major focus will be with combinations. We do view Toripalimab as a very good PD-1 next generation, which really will form the foundation of combination therapies. So that's really our strategy as we look into indications over and above our current and NPC indication.

I think it's really an excellent point. The toripalimab continues to demonstrate really strong efficacy with a great safety profile in a number of settings, monotherapy conjunction with chemotherapy. We think this sets it up very, very well for combinations. We have keen interest in pursuing combinations with a number of products post approval of the MPC indication. For example, ADCs or others combination agents, so we expect to be busy on the deal front once Tori gets approved to really more broadly proliferated use into oncology.

Got it. Very helpful. Thank you.

Thank You. [Operator Instructions] Our next question comes from the line of Chris Schott at JPMorgan. Chris, your line is open.

Great, thanks very much. Just two for me. Just going back to biosimilar Humira in the market I appreciate this will take some time just given AbbVie's positioning et cetera, but I guess I'm still trying to get my hands around, do you kind of think of this as payers and kind of the channel making annual decisions about either what product they're going to cover, or how they're going to approach this, or do you think this is a market that's in flux where you could see kind of multiple decisions being made in a given year just as we're trying to kind of evaluate the evolution of this? And the second question, I just want to make sure I’ve got my hands around this. I just following the Surface acquisition and with the portfolio reorg, can you just help a little bit, just as we think about kind of 2024 OpEx relative to 2023, just directionally, is that a similar level of spend? Is it up next year or is it down? I’m just trying to kind of balance the, some of the synergies you’re talking about relative to what the baseline expense might have been otherwise, and just any directional color would be kind of appreciated there. Thank you.

Thanks, Chris. So let me take the first one with respect to do summary and the if Humira biosimilar story, and then I’ll let McDavid Stilwell address your questions about the Surf [ph] reorg over the next years, but the directions on the spend. I think that it is very, very early days with respect to the Humira biosimilar opportunity. There’s a lot of people in the market. There’s a diversity of pricing strategies, diversity of channel strategies going forward. There’s folks who have, high and medium sort of wax, low wax and so on. So, I think that market formation is going to take a while for this to sort of shake out. So I really wouldn’t make any conclusions about that maybe. And so we get into next year and see how things are kind of going, I think it’s just way too early to say or call winners or losers. With respect to the Surf reorg, its impact on spend. I’ll send one that one over to McDavid Stilwell for comment.

Yes. So Chris, I think it’s too early for us to be putting out there a direction for where R&D spend is going specifically in 2024. I will tell you though, that, we are beginning to reap the benefits of the cost cutting programs that we put into place this year, and we are intensely focused on constraining the expense line throughout this company. And we are also intensely focused on returning to being cash flow positive over the course of 2024. So all of that is very much top of mind for us as we operate this company and as we make decisions about R&D programs. And we look forward to updating everybody in the fourth quarter after we’ve had our portfolio prioritization program post-closing of the Surface Oncology acquisition. And I think that’ll be the most relative – relevant time point to be able to provide some more information about that.

And I’ll just give you one more on that one at low mark color, Chris, is that, we’re – we do not anticipate starting any expensive Phase 3s next year, those, with the way the portfolio has positioned, those that get rolled in the 2025 when we anticipate having additional revenues to support that. So, we’re not going to go out and bang out real expensive Phase 3 studies to make, hundreds, hundreds of million dollar commitments, right? As McDavid pointed out, we’re really focused on driving the business back to profitability and cash flow positivity next year. And so we’re going to start there now. The also, the other point I would make is, we have a very strong track record here of delivering on our projections for spending control. Last year we said we’d take our 435 spend down to about three and a quarter. We’ve done that. We did a riff and we said we’d recognize savings. We’ve done that, we’ve gone ahead and delivered on what we said on the spending side. And so I think we’re, you’ll see us continue with that sort of very, very tight discipline. We don’t have a lot of additional heads that we’re going to add. Maybe just a few with respect to the Surface Oncology merger. So, I think we’re relatively tight fisted when it comes to spending.

Great. I appreciate the color. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Jason Gerberry [Bank of America Merrill Lynch]. Jason, your line is open.

Hey guys, this is Bob [indiscernible] on for Jason. Two questions for me. First on Lucentis, as you look at the market opportunity, are you seeing any surprises in terms of pricing, brand share retention, or just the shift of market to other treatment alternatives? And then the second on gross margins, maybe if you can provide some commentary on how you see gross margins in the second half of 2023 and in 2024, looks like we’re seeing step downs, even absent the one-time inventory costs. So just wanted to get some thoughts on how we should think about that moving forward? Thank you.

Thanks. We’re actually very pleased with the way the Lucentis biosimilar similarly market is shaping up for us. I had the opportunity to attend the American Society of Retina Specialists be in Seattle. In fact, my entire commercial team did last weekend we made a presentation there. And what really struck me about that was that the way Coherus really is being embraced by the ophthalmologist as a very, very, solid partner. As I indicated earlier, we have over 65,000 injections now, and the ophthalmology market is one in which doctors have long-term relationship with their patients. They have these patients 10 years, 15 years, 20 years. And that means there’s trust. And what that translates to is that these ophthalmologists have to in a very similar fashion, trust manufacturers and the companies, they’ve had issues with new products that have come in. And so they really want to make sure that any product that shows up it’s safe and efficacious for their patients. But this means is that you have to sort of get a critical mass of administrations under your belt. And then they know that it’s a safe and efficacious product, and it’s working well. We’ve done that, and then they will adopt into your practice. And now we’ve seen that too, as Paul recited. So, overall we think that’s going very well. I think Paul reiterated places where we’re focused in terms of like gaining the scripts, Paul?

Yes. We, I think that getting through the, the Q-code, was really the primary barrier that opened up a lot of practices that were ready to adopt biosimilars, but just wanted the ability to bill electronically and not take on that manual process. So, I think what we’re seeing in the market now is a real optimism around role that biosimilars play in the market. And what similarly brings to them in the ranibizumab class is a product that is interchangeable, which means that they can feel confident that they can switch a stable Lucentis patient to similarly and get the same results. And that level of confidence and the safety, is really bearing out now. And the experience that the doctors are seeing, they told us last week, on multiple occasions that the product is delivering on the clinical profile and all of that now, just breeds, continued optimism for the –for adopting similarly and will help to contribute to share gains in the second half year. So I think we’re really getting our stride there.

Yes, I think just one last remark for him David, I think the interchangeability is really important. This is a non-glycosylated molecule, so this is really an amino acid sequence, and we have exactly the same amino acid sequence, exactly the same formulation, exactly the same, excipients and buffers and PH and so on. So this is really, the same product being administered. So, I think that gives the physicians ophthalmologists a lot of comfort and confidence, as Paul said, we’re now past the reimbursement issue with the Q-code. So, I think we’re rather bullish on that. McDavid do you want to follow up with the other question?

Sure. And, and our gross margin is obviously going to be a function of the product mix and the cost of goods and the various products. As CIMERLI sales increased, CIMERLI has a larger influence on the overall gross margin. And CIMERLI, cost of goods includes a low-to-mid 50% royalty on gross profits. So as the product revenue mix evolves, so will the gross margin and next year YUSIMRY and toripalimab will have an increasingly influential role in the overall gross margin as well.

And however, next year the UDENYCA of royalty comes up right.

Exactly. The UDENYCA royalty, the mid-single digit royalty that we pay on the UDENYCA net sales will roll off in July of 2024.

So that’ll be advantage?

That will.

Thank you. Thank you for your question.

Thank you. Please stand by for our final question. Our final question comes from the line of Ash Verma from UBS. Ash, your line is open.

Hey guys thanks for taking my question. So just wanted to ask about the pricing on biosimilar Humira. Do you think this type of aggressive pricing is a one-off, or does this set the template for you to price future products going forward? And is this a type of level of discount that you can get to for existing products much faster now versus, what you were previously thinking? So just would be helpful to get some comments on that. Thanks.

Thanks, Ash. So, I think that each of the products have to be priced in a specifically for the market that they’re in. And our conclusion, as I indicated before with respect to this Humira biosimilar pricing, is you really didn’t need a, another high price, high whack competitor in the market. So we felt this was the right place to go. And we think the strategy for this market is unique. You go from the bottom up with a very low price that does not apply to the other markets. Now that does not apply to oncology or, PD1s or even to UDENYCA and we have the highest, one of the highest ASPs after five years UDENYCA. So I think it, this particular pricing strategy is unique to what’s going on over on the Humira biosimilar side of business, which is part of the key and a number of other, moving parts.

Okay. Thanks.

Thank you very much. At this time, I would now like to turn the conference call back to Denny Lanfear for closing remarks.

Thank you Operator. Thank you all for joining us on our Q2 2023 call. We’re pleased with the progress that we’ve made so far. We look forward to seeing you on our next call, which will be sometime in November. We further look forward to seeing you at Analyst Day, which would probably be in late November, December timeframe with post the merger closure. Thank you. Bye-Bye.

Thank you. This concludes today’s call. You may now disconnect.