Coherus Oncology Inc (CHRS) 2023 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Coherus BioSciences Second Quarter 2023 Conference Call. (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, Cory, 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 expectation for a 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 of these forward-looking statements include 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 risks and uncertainties about 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 filed 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 of future periods. With me on today's call are Denny Lanfear, CEO Coherus; Dr. Theresa Lavallee, Chief Development Officer; Mr. 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 continued to make good progress in our strategy to build an innovative geo-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 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 benefits beyond checkpoints.

In a moment, our Chief Development Officer, Dr. Lavallee, will recap for you the mechanism of accent synergies for (inaudible). We'll also update you on our own proprietary asset balance Q4, which continues toward IND filings. With respect to development, Theresa and Rosh Dias, our Chief Medical Officer, will recap for you the projected timing of data emerging from various ongoing studies across the pipeline. This will update you, of course, on the potential 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 to manage average selling price to support follow-on presentation launches of the auto-injector and on-body device has been successful. We launched UDENYCA auto-injector in April and are pleased with the market reception. We continue to project UDENYCA on approval and launch this year.

Regarding (inaudible), as you recall, the reimbursement Q-code was deployed April 1, and we projected a subsequent increase in market updates. This has now occurred. Paul Reider, our Chief Commercial Officer, will provide additional background and color. Additionally, we have successfully launched YUSIMRY, or Humira biosimilar with a highly innovative pricing addressing unmet access needs, providing a low-cost alternative to high-priced competitors. Finally, our Chief Financial Officer, McDavid Stilwell, will report on our financial position to provide additional color on how these mergers will allow us to reduce our projected spending over the 2023, 2025 planning period. We continue to focus sharply and holding the line with expenses while driving the top line with our objective to reach cash flow positive in 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 of our 18-month 5-product launch up. 3 products have launched over the last 9 months, and we are executing plans to launch 2 more by the end of the year. Our total number of marketed assets would have increased from 1 to 6 over an 18-month time period. We believe these product launches will drive top-line revenue growth over the coming years. Combined CIMERLI with UDENYCA's debt revenue for Q2 was $58.5 million, an increase of 81% over Q1. I'll now speak to each brand and will start with YUSIMRY, a biosimilar to this segment.

Our strategic approach to the market is first, to maximize the conversion of existing set this 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 code, which was successfully implemented on April 1. This facilitate seamless, timely billing and reimbursement to retinal practices. CIMERLI net sales in Q2 were $26.7 million compared to $6.2 million in Q1, driven by a 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 severally by 75% to 321. And of those, 72% have rewarded. New accounts continued to grow in the first 3 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 YUSIMRY once accounts begin an opt. 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 YUSIMRY net revenues will exceed $100 billion. I'll now turn to UDENYCA.

UDENYCA net revenue grew 21% quarter-over-quarter and $31.7 million compared to $26.2 million in Q1. This increase was driven primarily by a 10% increase in overall demand of our base field strange 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 surge segment has been increasingly competitive. Our strategy is to balance price and share in order to maintain a strong ASP in advance of our launches of 2 new presentations with the longer-term objective to regain share. We launched the UDENYCA auto-injector commercially in June, and this presentation represents the first innovation in the pegfilgrastim class in 8 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 the UDENYCA franchise is well-positioned to regain market share beginning in the second half of 2020. Turning now to YUSIMRY or 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 loan price. We launched YUSIMRY on July 3 at a list price of $995 per carton with 2 auto-injectors, 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 for retail channels, including the Mark Cuban Cost Plus drug company and through its team (inaudible), at 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 analog in that market is highly competitive, and Humira retains a formulary position during this market formation period of nearly all PBM and health plan formularies.

We expect steady growth for biosimilars to 2024 and then a significant acceleration of our CIMERLI albumen adoption with the implementation of the inflation reduction in 2025. We continue to target up to 10% unit share of the alumina market for YUSIMRY coming in the 2026 to 2027 time frame. With YUSIMRY, low-user operating expenses will allow us to generate good user operating margins and enable us to compete for the long term to the adalimumab market. I'll now provide an update on Toripalimab.

Launching the company's first immuno-oncology product is a critical step forward in the advancement of our I-O franchise. Our mission is to extend cancer patient survival, offering new hope to patients, and nasal perogy carcinoma is an excellent example. Today, the approximately 2,000 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 a 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 basal (inaudible). Due to the impressive final overall survival data presented at ASCO and feedback from the top head net KOLs with whom we engaged with the Congress, we believe Toripalimab plus chemotherapy will establish a new standard of care in NPC in all lines of therapy, including first line, and will be practice-changing.

We feel confident Toripalimab plus chemo will gain a dominant market share and estimate the MPC market opportunity at peak could reach up to $200 million. During our Q1 call, I announced the launch of apcfacts.com, which is designed to be a primary source of disease state information for patients and their caregivers to learn about APC. We've also launched a sister site for healthcare professionals. Our aspiration is to identify and appropriately engage with all NPC patients for their caregivers by the end of the year. And I'm pleased to report that since launch, we've enrolled over 1,500 NPC patients and caregivers into our community. We will be ready to launch and educate doctors of toripalimab's differentiated mechanism of action and the impressive overall survival benefit demonstrated in NPC and irrespective of PD-L1 expression status. We are 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 care. 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 continues to demonstrate excellent drug development execution from 3 clinical studies through regulatory approval of new products that we then pass on to our commercial colleagues to deliver to the market. And a year ago, we projected 5 new product launches through year-end 2023. We are now more than halfway towards that target. CIMERLI, with approval last August with interchangeability, the CIMERLI auto injector presentation and manufacturing scale-up supplements were both approved in the first quarter of 2023, and we launched the drug in July.

UDENYCA auto-injector, the first innovation in the (inaudible) market in 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 or 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 on-site inspections. We still believe an FDA approval decision as possible in the third quarter but in the absence of a PDUFA date as a deadline. It is possible the FDA action may take into the fourth quarter of 2023. Given there are no approved treatments for MPP 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 NCC, we are hopeful the FDA will act in a timely manner following the completion of the clinical inspection.

Toripalimab is the next-generation PD-1 inhibitor with (inaudible) of T cells, including demonstrating clinically meaningful (inaudible) tumors that are like to plan 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 the agents that target elements of the tumor microenvironment that have been shown across PD-1 resistance. With our recent announcement of the signing of the merger apace with Surface Oncology and our in-house developed ILT4 antibody, we are assembling a compelling novel IO pipeline; 2, well-characterized immune suppressive cell types are macrophages and T-like cells. SRF388 targeting IL-27, an immune suppress cytokine that dampens the immune activation of lymphoid cells such as T cells, and NK cells is accreted in many tumors by M2 macrophages.

CS1000, an antibody directed at ILT4 and M2 macrophages causes macrophages when polarized to a more immune response phenotype. With the merger with surface, we will have SRF114 an ADCC-enhanced antibody that selectively binds and chose tumor residency cells. That is to say, it was designed to target here specifically in the tumor microenvironment and not (inaudible), and thus the potential to reactivate and thank for runout out broad anointed effects. Combining each of these agents with Toripalimab has a strong mechanistic rationale and preclinical data to show improved antitumor activity.

Each of these programs has a bridge scientific data set to indicate which tumor type these mechanisms are most prevalent in, including lung, (inaudible) liver, and breast cancer. 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'll now turn the call over 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, these showcase the consistency of activity of Toripalimab as a next-generation PD-1, and we remain excited about its potential to form the backbone of combinations in other normal Asia, particularly with our merger, Surface Oncology. Eylea ASCO included, first of all, the final overall survival analysis of our pivotal study in nasopharyngeal carcinoma with a significant benefit in overall survival inventory Toripalimab with a hazard ratio of 0.63, the consistent effect on overall survival across all PD-L1 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 (inaudible) study comparing chemotherapy plus or minus Toripalimab, showing a hazard ratio of 0.73 favoring the Toripalimab, as well as positive data in the near study, a large Phase III perioperative non-small cell lung cancer study, showing a hazard ratio of 0.4 for event-free survival favor Toripalimab.

Finally, Toripalimab 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 III study of Toripalimab and small cell lung cancer is positive, with the results as a bit to be presented later this year. Junshi will also be running a large multinational Phase III study with an anticipated start late this year, set to include U.S. sites, exploring Toripalimab in combination with the BTLA antibody as consolidation therapy for limited-stage small cell lung cancer. This will be the first multiregional registration study for Toripalimab that includes U.S. patients, and this is a great example of how combination treatment across tumor types could enable broader registration opportunities for Toripalimab in the U.S.

Regarding OCGT, our Phase I/IIA study looking at the Toripalimab combination is currently active in the U.S. and will generate data in US subjects with this novel IO combination. We noted the encouraging (inaudible) data at ASCO, evaluating the Toripalimab combination in HCC or amateur tumor type that we were planning for the expansion phase in our current Phase I/IIA study, given a high disease linkage with high PTI expression. HCC is also an indication that has shown promising activity with SRF388. More vintage 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 certain assets with Toripalimab. SRF388, the IL-27 asset, has shown encouraging activity both as monotherapy and non-core lung cancer as well as in combination with immune checkpoint inhibitors in abacavir. Importantly, responses have been shown in prior PD-1 experience as well as PD-L1 low subjects. We anticipate the presentation of the full available data set in quarter 4 this year for the monotherapy data in non-small cell, and quarter 1 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 could bring to improve patient benefit.

We look at this broad portfolio of the coming weeks with a pin as to how to best invest in and prioritize these assets, taking into account the timeline, the 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'll now turn the call over to our Chief Financial Officer, Mr. David Stilwell. David?

Thank you, Raj. Today, we reiterate our earlier financial guidance for 2023. We project revenue growth from accelerating CIMERLI sales and the launches of YUSIMRY, UDENYCA auto-injector and unapproved eugenic 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 or 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 3 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 formulations.

The cost of goods sold for the 3 months ended 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 costs, and research and development expense for the 3 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 CIMERLI costs into inventory in 2023 that were expensed in R&D during the second quarter of 2022.

We are 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 declined. SG&A was reduced to $45.1 million in Q2 '23 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 of 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 the budget. I'll now provide a bit more detail on our assumptions supporting the manifesto. Prior to the surface deal, our major planned R&D activities through the 2025 planning period included a large Phase III clinical trial to expand for a Toripalimab (inaudible). We also planned a Phase I/II clinical trial to evaluate CHS-006, our Titan targeted antibody in combination with (inaudible), followed by initiation of a Phase II/III registration study as well as completion of pre-IND activities for our ILT antibody and the Phase I/II clinical trial.

Additionally, we have planned to advance 2 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-to-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 to 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 and generation of the anticipated revenue prep, 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 questions.

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

(Operator Instructions) Our first call comes from the line of Yigal Nochomovitz of Citigroup.

Regarding UDENYCA, could you talk about the relative contribution of the auto-injector which was launched in the middle of the quarter, and whether you're seeing a mix shift away from the prefilled syringe? 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, auto-injector, and OPI.

Thank you for the question. I'll have Paul Reider, our Chief Commercial Officer, to address that for you. I'll just preface his remarks by saying, however, that UDENYCA, of course, is our foundation product and the pace of our sales. And so our efforts in bringing forward all these various presentations is really to solidify revenue stream for the mid-to-long-term UDENYCA. And with that said, I'll let Paul go ahead and answer your more specific questions regarding both the contribution of auto-injector, PFS, and the future of body.

Yes. Thank you, Denny. Thanks for your question, Yigal. So just to recap the market here is about 42% in the agile 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 auto-injector and the OPI is going to enable the UDENYCA franchise to really target that 42% of the market that's dominated now by (inaudible). That equates to about 550,000 units per year.

So in June because we just launched the auto-injector in June. We were still working through payer coverage. We're working through getting it on formularies in operational aspects. So it was a relatively minor contribution to the overall UDENYCA business in Q2. But over the course of the second half of the year and into 2024, we will now have 3 presentations to attack the entire market. And the auto-injector and OPI will enable us 2 shots on goal into that 42% of the Onpro. It's hard to project right now, Yigal, what the actual split is going to be until we get all 3 into the market and we see what the payer coverage is going to look like in the competitive dynamics. But suffice it to say, we feel very, very encouraged about our opportunity to be able to differentiate the representations and grow share over the course of the second half of the year and into '24.

And then just 2 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 on the sales projector 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 guidance for the full year?

We'll give you one out of those too, Yigal. And then we'll move on to another caller. Go ahead, Paul, can you just answer the question on the (inaudible).

Yes. So Nigel, as we reported and expect in the activation of the code was going to unlock the reimbursement perm, and that occurred. So all of the sales increase was similarly 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 those sales were driven largely by demand growth and market share growth organic into the business.

As it relates to the guidance, as David mentioned, we're maintaining guidance of $275 million for the year with at least $100 million profit per share. I would say that we feel very good about the traction that we're getting in the market. But similarly, in Q2, we like the forward trajectory that we're seeing with respect to the market uptake. I think that we've had protocol 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 they have confidence of 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 to the second half of the year.

(Operator Instructions) Our next question comes from Robyn Kay Karnauskas of Truist Securities.

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

Thanks, Robyn. So 4 approvals, there are always possible inspections. You usually don't hear about the thing of capital in the background with the COVID-related travel restrictions to China and more burdensome. So the manufacturing inspection happened, as you know, in May; we did have a remote regulatory assessment of the clinical site done already. And we will have the clinical site inspections are pretty straightforward and much more streamlined than manufacturing inspections. And then it's a matter of compiling the different divisions, and investments 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. What I will say is that the FDA did honor their words by 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.

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'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 auto-injector, can you just talk a little bit about the cadence of how quickly that auto-injector might contribute to uptake? And should there be a steady stream of share increase? Or would you think it's more like back-end loaded?

Yes. Thanks for your question, Robyn. I think with UDENYCA auto-injector, it's likely to expect more of a steady increase over the second half of the year as we continue to get payer access on board and start working on the operational implementation, particularly in the hospital segments where you're going to get through P&T committees and then get them into order sets in 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 add-on injection experience, and the auto-injector fits that need. So really, it's just working through the operational and the payer access issues that we will continue to work on over the course of the quarter and the second half of the year.

Congratulations, guys.

Thanks, Robyn. Just also with respect to the auto-injector, I may comment for a little bit. I think that we got between 1,000 and 5,000 training devices (inaudible). We have, Robert, you've seen me demonstrate that, 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.

Our next question comes from Michael Nedelcovych of TD Cowen.

I know it's early days, but I'm curious if you could give us a sense of how the CIMERLI launch is going so far. And did the actions of any of your biosimilar competitors surprising? 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 CIMERLI, your 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 with 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 is going. And Paul may have some additional color for you and your other topics. Paul?

Thanks, Denny. Thanks for your question, Michael. As about a rollout, 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 the transparent low-price product to address this exorbitant problem of the cost of adalimumab treatment. And our decision to partner with Mark Cuban drug company really centered around 2 reasons: number one, both Mark Cuban and Coherus are innovators, 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 CIMERLI fits ideally into that model. How this unfolds over the course of the year as we expand the coverage in the distribution network, it educates providers, employers, healthcare systems about CIMERLI, and its price point is something that we're executing in August. And I think we'll be able to report more on our performance in our Q3 call.

And Michael, just some additional comments dovetail with Paul's remarks. We view the build towards our targeted 10% market share on the long-term trajectory out to 26 and 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 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 probably next year and then more significantly into 2025, I think we'll see a lot more traction there. So I would just manage your expectations.

Our next question comes from Douglas Tsao of Wainwright.

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 in that while you have not necessarily been that active with some of the large payers or PBMs in 2023 that over time, you will look to increase your penetration there?

Thanks, Doug. Having been in this market for a long time, they own this market and they are the innovator. And I think there's significant incentives for AbbVie to continue to have a 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. GRA is going to show up in 2025. I think that will be an important event for traction. But I would say a sweeter, 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 2 code and there's a 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 lot little flatter, more over time, but I think it will still pick up late '24 and '25.

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 give any comment on what drove it? I mean, finally, it seemed that we started to see -- it's great to see that product start to move in the right direction again.

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

I think it's a combination of things that Denny mentioned, but also having additional presentation launches has created opportunities for the UDENYCA franchise, where we did have before. And so whether that's been payers or whether not 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 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's a great testament to year 5 into the life cycle. We're seeing the second link for UDENYCA with the device options. We continue to expect market share growth in the second half year and beyond.

Next question comes from the line of Balaji Prasad.

Good evening. It 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 (inaudible), would you consider changing your product strategy with Toray as it could potentially fulfill MS need in the U.S. market? And if I remember correctly, the FDA has granted Toray orphan drug decimation back in April 2022, which was after the (inaudible).

Thanks for that question. That's a very interesting observation that expected also. Rosh Dias, our Chief Development Officer.

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 you know, the current standard is the top side platinum in terms of the current standard of therapy to on minus serve or Cartiva based on actually a very marginal overall survival benefit for those 2 IO agents. I think as we look at the U.S., our strategy is -- I mentioned the fact that we will be initiating certainly a stage study in small cell lung cancer, that's a limited stage, and that's with our combination. So really outside NCC, our major focus will be with combination. We do Toripalimab as a very good PD-1 next-generation, which really will own the foundation of combination therapy. So that's really our strategy looking to indications over and above our current and APC indications.

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 or juncture chemotherapy. We think that sets it up very, very well for our combinations. We have a keen interest in pursuing combinations with a number of products, both approval of the MPC indication. For example, ADCs or other combination patients. So we expect to be busy on the deal front once it gets approved to really more broadly proliferate into oncology.

Our next question comes from the line of Chris Schott at JPMorgan.

Just 2 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 was 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 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? Is it down? I'm just trying to kind of balance 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.

Thanks, Chris. So let me take the first one with respect to your summary and the Humira biosimilar story, and then I'll let McDavid address your questions about Surface Oncology next year with the directions on the spend. I think that it's very, very early days with respect to the Humira biosimilar opportunity. There's a lot of people in the market. There is a diversity of pricing strategies, a diversity of channel strategies going forward. There's folks who have high and median sort of was a 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 until we get into next year and see how things were kind of going. I think just way too early to say we're all winners or losers. With respect to the Surface Oncology's impact on spend, I'll send on that one over to McDavid Stilwell for comments.

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 program 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 will be the most relevant time point to be able to provide some more information on that. And I'll just give you one more on that one a little more color.

Chris, we do not anticipate starting any expensive Phase IIIs next year, those -- with the way the portfolio is positioned, those that you rolled into 2025 when we anticipate having additional revenues to support that. So we're not going to go out and bang out really expensive Phase III studies to make 100 hundreds of million dollars of commitments, right? As David 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. Also this 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 take our 435 spend down to about 3.5%. We've done that. We did a risk, 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 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 have, maybe just a few with respect to the Surface Oncology merger. So I think we're relatively tight system when it comes to the end.

Our next question comes from the line of Jason Gerberry.

Two questions for me. First on incentives. As you look at the market opportunity, are you seeing any surprises in terms of pricing, brand share retention, or just the shift of the 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.

Thanks. We're actually very pleased with the way the Lucentis Biosim market is shaping up for us. I had the opportunity to attend the American Society of the(inaudible) last weekend. We made a presentation there. And what really struck me about that was 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 optimality market is one in which doctors have long-term relationships with their patients. They have these patients, 10, 15, 20 years. And that means there's trust.

And what that translates to is that these ophthalmologists have to be in a very similar fashion, trust manufacturers and the companies. They had issues with new products that have come in. And so they really want to make sure that any product that shows up is safe and efficacious for their patients. But this means that you have to sort of get a critical base of administrations under your belt. And then they know that it's a safe and efficacious product that'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, the places where we're focused in terms of gaining the trips. Paul?

Yes. I think that getting through the Q code was really the primary barrier that opened up a lot of practices that we're ready to adopt biosimilars but just wanted the ability to bill electronically and not take on that annual process. So I think what we're seeing in the market now is a real optimism around rolling biosimilars to 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 to a stable site patient CIMERLI and get the same results. And that level of confidence in safety is really bearing out now in 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 breathes continued optimism for adopting CIMERLI, and it will help to contribute to share gains in the second half of the year. So I think we're really getting our stride there.

I think the interchangeability is really important. This is a non-glycosylated molecule. So this is really an amino sequence. And we have exactly the same amino acid. Exactly the same formulation, exactly the same excipients and buffers and PAs, and so on. So this is really the same product being administered. I think that gives the physicians a lot of comfort and confidence. As Paul said, we're now the reimbursement with Q2. So I think we're rather bullish on that.

And our gross margin is obviously going to be a function of the product mix and the cost of goods of the various products.

CIMERLI sales increase. CIMERLI has a larger influence on the overall gross margin. And similarly, 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, CIMERLI and Toripalimab. We'll have an increasingly influential role in the overall gross margin. However, the next year (inaudible) comes up, exactly the generate royalties, the physical digital royalty that we pay the tonic net sales will roll off in July between. So that will be affected.

Our final question comes from the line of Ash Verma from UBS.

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 for existing products much faster now versus what you were previously thinking? So just it would be helpful to get some comments on that. Thanks.

So I think that each of these products has to be priced specifically for the market at their end. And our conclusion, as I indicated before, with respect to the Toripalimab pricing is you really didn't need another high-priced time-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. That does not apply to oncology or PD-1 or even to genetics. And we have the highest (inaudible) for 5 years deficit. So I think this particular pricing strategy is unique to what's going on over on the Humira biosimilar side of the business, which is part of the (inaudible) and a number of other moving parts.

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 senior at Analyst Day, which would probably be in late November, or December time frame with both the merger closure. Thank you. Bye-bye.

This concludes today's conference. You may now disconnect.