Coherus BioSciences, Inc.

Good day and thank you for standing by. Welcome to the Coherius Biosciences second quarter 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask your question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Marek Szczewski. Please go ahead.

Marek Szczewski 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 Coherence Biosciences website. It is also attached to the Form 8-K that we filed with the SEC today. Today's call includes forward-looking statements regarding Coherence's 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 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 Daniel and Fierce, CEO of Coherence, Dr. Teresa Lavallee, Chief Development Officer, Dr. Rosh Diaz, Chief Medical Officer, Paul Reeder, Chief Commercial Officer, and McDavid Silvo, Chief Financial Officer. I will now turn the call over to Danny.

Thank you, Merrick, and thank you all for joining us today on our Q2 2023 earnings call. This past quarter, we've continued to make good progress on our strategy to build an innovative VNO oncology company funded by revenues from FDA-approved products. Pursuant to that objective, the company demonstrated strong execution in Q2 across research, development, and decommercialization value chains. Specifically, we signed a merger agreement with Service Oncology, a high-science, leading-edge I.O. 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. LaValle, will recap for you Mechanism of Action Synergies for Torf CalMAP, and SERP Assets 388.114, the Anti-IL-27 MAP, Anti-CCRA MAP. We'll also update you on our own proprietary asset, IL-T4, which continues toward IND filing. With respect to development, Teresa and Raj Dias, our Chief Medical Officer, will recap for you projected timing of data emerging from various ongoing studies across the pipeline. We shall update you, of course, on the potential ToroMap approval. Now, with respect to commercial performance, we saw a strong execution across the products in the presentations this quarter, with net product revenues of $58.5 million, almost 2x Q1. Our Udenica 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 the Udenica auto-injector in April are pleased with the market reception. We continue to project Udenica on body approval and launch this year. Regarding Simerly, as you recall, the reimbursement Q-code was deployed April 1st, and we projected a subsequent increase in market updates. This has now occurred. Paul Reeder, our Chief Commercial Officer, will provide additional background and color. Additionally, we have successfully launched Simerly, our Humira voucher, with a highly innovative pricing addressing unmet access needs, providing low-cost alternatives to high-priced competitors. Finally, our Chief Financial Officer, McDavid Stilwell, will report on our financial position, provide additional color on how the CERF 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 in 2024.

And now with that, I'll hand it over to Paul. Thanks, Denny, and good afternoon, everyone.

We are now at the midpoint of our 18-month five-product launch-up. 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 will 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 in Udenica net revenue for Q2 was $58.5 million, an increase of 81% over Q1. I'll now speak to each brand, and we'll start with similarly, or about similar 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 Cimerly's sales acceleration was the product-specific Q-code, which was successfully implemented on April 1st. This facilitated seamless, timely billing and reimbursement for retinal practices. Cimerly's net sales in Q2 were 26.7 million compared to 6.2 million in Q1. driven by quadrupling of demand quarter over quarter. Similarly, market share within the Ranabizumab 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 similarly by 75% to 321, and of those, 72% have reordered. New accounts continued to grow in the first three weeks of July, with another 91 accounts ordering similarly, bringing our total to now 412. In Q2, market share among ordering accounts was 45%, which reflects the potential of similarly 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 that 2023 similar net revenues will exceed $100 million.

Now, I'll turn to Udetica.

Udetica 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 pre-filled syringe business. Udenica 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 Peckville-Graston pre-filled 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, the longer-term objective to regain share. We launched the Udenica auto-injector commercially in June, and this presentation represents the first innovation in the PEG-4 grasping class in eight years and addresses a large market segment unserved by Nelasta OnPro, Amgen's on-body device, which still retains 42% of the market. Later this year, we anticipate launching our third presentation, Udenica on-body injector, If approved, which will compete directly with the last on-prem, we believe the Eudetica franchise is well-positioned to regain market share beginning in the second half of 2023. Turning now to Yosemite, or biosimilar of Humira, the high cost of adalumin map treatment is a problem for the healthcare system and for many patients. Our patient-centric strategy is to provide Yosemite at a single, transparent, low price. We launched UCIMERI on July 3rd at a list price of $995 per carton for two auto-injectors, representing a discount of more than 85% to Humira. We are working with multiple partners to make UCIMERI available to patients. UCIMERI is available for sale through retail channels, including the Mark Cuban Cost Plus Drugs Company and through its Team Cuban cart and 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 on nearly all PBM and health plan formularies. We expect steady growth for biosimilars through 2024 and then significant acceleration of biosimilar adalimumab adoption with the implementation of the Inflation Reduction Act of 2025. We continue to target up to 10% unit share of the adalimumab market for Yosemite coming in the 2026 to 2027 timeframe. Our low Yosemite operating expenses will allow us to generate good Yosemite operating and enable us to compete for the long term in the adalimumab market.

I'll now provide an update on Torpalomat.

Launching 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 nasopharyngeal carcinoma is an excellent example. Today, the approximately 2,000 NPC patients diagnosed annually in the U.S. have no FDA-approved treatments, including biotherapies. NPC clearly constitutes a high unmet need. Torpalimab 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 or metastatic nasopharyngeal carcinoma. given the impressive final overall survival data presented at ASCO, and feedback from the top head net KOLs with whom we engaged in the conference, we believe toropalimab 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 toropalimab 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 NPCFacts.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 1,500 NPC patients and caregivers into our community. We will be ready to launch and educate doctors on Torapalimab'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 Torapalimab directly upon potential approval. With significant overlap between Udenica customers and Torapalimab targeted prescribers, the launch of Torapalimab is being efficiently integrated into our existing oncology commercial. With that, I'll now hand it over to Teresa.

Thank you, Paul, and good afternoon, everyone. Let me begin with our regulatory updates to date. Coheris continues 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. Simmerly was approved last August with interchangeability. The Usimery auto-injector presentation and manufacturing scale-up supplements were both approved in first quarter 2023, and we launched the drug in July. Udenica auto-injector, the first innovation in the Pegsel-Graston market in eight years, was approved in March 2023 and launched in June. And the FDA review of the eugenica on body injector supplement is progressing towards anticipated approval later this year. Additionally, the toropalimab VLA 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 is possible the FDA action may take into the fourth quarter of 2023. Given there are no approved treatments for MPC 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 toropalimab and MPC, We are hopeful the FDA will act in a timely manner following the completion of the clinical inspection. Chloropalamab 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. Morapalimab is the foundation of our IO 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 ILP4 antibodies, we are assembling a compelling novel IO pipeline. Two well-characterized immune suppressive cell types are macrophages and T-reg 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. CHS1000, an antibody directed at IL-T4 and M2 macrophages, causes macrophages to polarize to a more immune-responsive 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 toropalimab has strong mechanistic rationale and preclinical data to show improved anti-tumor activity. Each of these programs has a rich scientific data set 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 plan. I'll now turn the call to Raj.

Thanks very much, Teresa, and good afternoon, everyone. With respect to toripalamab, several strong data sets were presented at ASCO in June across different tumor types and settings. Together, these showcased the consistency of activity of toripalamab as the next generation PD-1, and we remain excited about its potential to form the backbone of combinations with other novel agents, particularly with our merger, Cervical Oncology. Data highlighted at ASCO included, first of all, the final overall survival in overall survival in the toripalimab arm with a hazard ratio of 0.63, with a 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 datasets were also presented in non-small cell lung cancer. The final overall survival analysis in the 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, data from 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 III study of tori in small cell lung cancer was positive, with results anticipated to be presented later this year. Junshi will also be running a large multinational Phase III study with an anticipated start later this year, set to include U.S. sites, exploring toripalamab in combination with their PTLA antibody as consolidation therapy in limited-stage small cell lung cancer. This will be the first multiregional registration study for toripalamab that includes U.S. patients, and this is a great example of how combination treatments across tumor types could enable broader registration opportunities for toripalamab in the U.S. Regarding our TIGIT, our Phase I 2A study looking at the toritigic combination is currently active in the U.S. and will generate data in U.S. subjects with this novel biocombination. 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 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 asset, has shown encouraging activity both as monotherapy, non-promosal 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 PD-L1 low subjects. We anticipate presentation of the full available data sets in quarter four this year for the monotherapy data in non-small cells, 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 cells, but also the tumor microenvironment with the potential synergies that that could bring to improve patient benefits. We'll look at this broad portfolio of the coming weeks with an eye on as to how to best invest in and prioritize these assets, taking into account timelines, 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 and tumor types later in the year. I'll now turn the call over to our Chief Financial Officer, McDavid Stilwell.

McDavid. Thank you, Raj. Today, we reiterate our earlier financial guidance for 2023. We project revenue growth from accelerating Simmerly sales and the launches of USIMRI, the Udenica Auto Injector, and, once approved, the Udenica On-Body Injector and Tora Palamount. For the full year, we expect to record at least $275 million in net sales, with at least $100 million of Simmerly 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 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 8K and 10Q that we filed this afternoon. Net revenue was $58.7 million during the three months into June 30th, 2023, representing an 81% increase over the prior quarter. This included $31.7 million of net sales of Udenica and $26.7 million of net sales of Simerly. 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 30th, 2023 was $24.8 million. Recall that Udenica COGS includes a mid-single-digit royalty on net sales payable through the first half of 2024, and similarly COGS includes a low to mid-50% royalty on gross profit. We continue to focus on keeping tight control on operating costs. And research and development expense for the three months into 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 Toro Palemap collaboration agreement and also the capitalization of certain Yosemite costs in the 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 49 cents per share, compared to a net loss of $50.2 million, or 65 cents 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 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. I'll now 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 III clinical trial to expand toropalimab's label beyond MPC. We also planned a Phase I-II clinical trial to evaluate CHS-006, our TIGIT-targeted antibody, in combination with toropalimab, followed by initiation of a Phase II-III registration study, as well as completion of pre-IND activities for our ILT antibody. and a Phase I-II 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 toropalimab for second-line non-small cell lung cancer. SRF 114 in combination with Toro Palo Alto 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 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. Thank you.

We will now conduct the question and answer session. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.

Our first call comes from the line of Yigel Nakamovich of Citigroup.

Yigel, you're on.

Hi, Danny, and thanks. Regarding Udenica, 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 mixed shift away from the prefilled syringe or if the autoinjector 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 Reeder, our Chief Commercial Officer, address that for you. I'll just preface his remarks by saying, however, that we view Udenica, of course, as our foundation product and the base of our sales. And so our efforts in bringing forward all these various presentations is really to solidify the revenue stream for the mid- and long-term with Udenica. with that said i'll let paul go ahead and answer your more specific questions regarding relative contribution of auto injector pfs and the future of our body yeah thank you danny and uh thanks for your question nigel so just uh just to you know recap the the market here is about 42 percent in the at-home market and then the other 58 in the in-office segment the the pfs operates in the in-office segment today. So the launch of the auto injector and the OBI is going to enable the Udenica franchise to really target that 42% of the market that's dominated now by odd growth. 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 were working through getting it on formularies, the operational aspects. So it was a relatively minor contribution to the overall Udenica business in Q2. But over the course of the second half of the year and into 2024, we will now have three presentations to attack the entire market. And the auto injector and OBI will enable us two shots on goal into that 42% of the on-prem. 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 but suffice it to say we feel very very uh 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 into 24.

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. Obviously, you were 10% above the upper end of guidance this quarter. Are you thinking about raising the guidance for the full year? Thanks.

Paul, would you address the... 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 the summer lease sale and where that came from? Yeah. 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 similarly was driven by the quadrupling of demand and um 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 you know 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, as McDavid mentioned, we're maintaining guidance of $275 million for the year with at least $100 million coming from Simile. Yeah, I would say that we feel very good about the traction that we're getting in the market. For Simile and Q2, we like the forward trajectory. that we're seeing with respect to that, the market uptake. I think that we've had critical mass with respect to Summerlee. We've administered more than 65,000 doses. And I think once you earn the trust of the ophthalmologists and they 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 Summerlee.

thank you very much thank you very much please keep your questions to one and a follow-up if you would please for time limit thank you very much stand by our next question comes from robin carnuscus of truist securities robin your line's open great thank you and 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'd be my first question, then I have a follow-up.

Yeah, thanks, Robin. For approvals, there are always multiple inspections. You 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 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 division assessments and coming up with an action. So typically, you work towards a PDUFA date, which is the deadline that brings everyone together and We'll be collaborating closely with our RPM to try to get this done as quickly as possible, given how long it's taken to get all of these things scheduled. What I will say is that the FDA did honor their word 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.

Go ahead with your follow-up. Yeah, I was 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're set. The following was just, you mentioned market share on Udenica going from 11% to 12.2. Now 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 like a

a steady stream of share increase or would you think it's more like back and loaded thanks yeah thanks for your question Robin yeah I think with eudetica auto injector you know it's it's likely to expect more of a steady increase over the second half of years we continue to get air access on board and start working you know on the operational implementation particularly in the hospital segments where you've got to get through B&T committees and then get them into the order sets and the EMRs. 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 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.

Great. Congratulations, guys. Thank you.

Thanks, Robin. 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, yeah, the market receptivity is very high, and, you know, a great job by the tech ops team to, you know, to provide a device that's so easy and flexible to use for patient convenience at home.

Thank you very much. One moment for our next question. Our next question comes from Michael Nedelkovic of TD Cohen.

Michael, your line is open.

Hi, all. Thank you for the question. I know it's early days, but I'm curious if you could give us a sense of how the eSIM relaunch 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 you, Simri, 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 Reeder. 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? Thanks, Denny. Thanks for your question, Michael. As a matter of rule, I don't typically comment on the actions of our competitors. What we really focused on was where we you know, felt the opportunity was in this market. And that's to bring, you know, a transparent, low-priced product to address this, you know, this exorbitant problem of the cost of adalumab treatment. And our decision, you know, to partner with Mark Cuban's Cost Plus Drug Company really centered around two reasons. Number one, you know, both Mark Cuban and Coheris are innovators, and we considered biosimilar adalumab M-Treat 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 USMRI fits 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 Yosemite and its price point is something that, you know, we're executing upon in earnest. And, you know, I think we'll be able to report more on our performance in our Q3 poll. And, Michael, just some additional comments to dovetail with Paul's remarks. We view the build towards our targeted 10% market share as a 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 starting 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 that way.

Thank you. Thank you very much. One moment for our next question. Our next question comes from Douglas Sal of H.C.

Wainwright. Douglas, your line is open.

Hi, good afternoon. Thanks for taking the questions. So, Denny, maybe following up on that last question or your last comment, You know, you expect this to take place over time and, you know, sort of being realistic about, you know, 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 know, you have not necessarily been that active with some of the large payers or PBMs in 2023, that over time you will We'll look to increase your penetration there. Thank you.

Thanks, Doug. You know, AVI's been in this market for a long time. They own this market. They're the innovator. And I think there's significant incentives for AVI 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 is going to show up in 2025. I think that'll be an important event for traction. But I would say a smoother, more linear trajectory for a market like this, you know, as opposed to the acceleration, you know, for example, that we're seeing under Simerly, right, where you get something like Q-code and their 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 pick up. Last passed at 24 and 25. Okay.

And then just a quick follow-up in terms of Eudenica. It sounds like most of the growth just came from the pre-filled syringe. You know, do you have any comment what drove, I mean, we finally, it seemed that we started to see, you know, it's great to see that product start to move in the right direction again.

You know, I'll let Paul take that one. I think that the, I think the grass to market is very dynamic. you know, with people coming in and out and so forth. But I think we've effectively managed our average selling price to that market to be attractive. We maintain a very high average selling price there, and I think that has yielded benefits and will continue to benefit, I think, across the additional presentations. Paul, any further comment on the performance of the PFS in Q2? Yeah, I think it's a combination of things that Denny mentioned, but also you know, having additional presentation launches has created opportunities for the Udenica franchise, you know, where we didn't have before. And so whether that's with payers or whether that's with, you know, clinics or hospitals, they see the value in having, you know, device options. Plus, I think, and I won't go into this for competitive reasons, but, you know, outstanding execution by the commercial team on strategies that, know that are driving organic demand and uh and that's bearing fruit and we expect that to continue you know in the second half of the year so i think it's a great testament that year five into the life cycle we're uh we're seeing the second wind for eugenica and with the device options you know we we continue to expect market share you know growth in the second half here and beyond okay great thank you thank you very much one moment for our next question

Next question comes from the line of Balji Prasad. You are up.

Good evening. This is Xiao 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 expensive stage small cell lung cancer, such as TASL. Would you consider changing your product strategy with Tauri as it could potentially fulfill an MS need in the U.S. market? And if I remember correct, the FDA has granted Tauri orphan drug designation back in April 2022, which was after the Lilly-Odak. Thank you.

Thanks for that question. That's a very interesting observation with respect to small cell.

Raj Dias, our chief medical officer, if I can address that for you, Raj. Thanks for the question. So, you know, 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 etoposide platinum in terms of the current standard of therapy plus or minus DERVA or ATISA based on actually a very marginal overall survival benefit for those two IO agents. I think as we look at the US, our strategy is, I mentioned the fact that we will be initiating Earlier stage study in small cell lung cancer, that's in limited stage, and that's with our combination. So really outside NPC, our major focus will be with combinations. We do view toripalamab as a very good PD-1 next generation, which really will form the foundation of combination therapy. So that's really our strategy is to look into indications over and above our current and NPC indications.

I think it's really an excellent point. You know, the core PowerMap continues to demonstrate really strong efficacy with a great safety profile in a number of settings, you know, monotherapy or in conjunction with chemotherapy. We think that it sets it up very, very well for combinations. We have keen interest in pursuing combinations with a number of products, both approval of the MPC indication, for example, you know, ADCs or other combination agents. So, we expect to be busy on the deal front once the story gets approved to really more broadly proliferated use into oncology.

Paul, that is very helpful. Thank you.

Thank you. One moment for our next question. 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 can 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 wanna 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, 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 trying to kind of balance some of the synergies you're talking about. relative to what the baseline expense might have been otherwise. Just any directional color would be kind of appreciated there. Thank you.

Thanks, Chris. So let me take the first one with respect to December 8th. You might have a similar story, and then I'll let McDavid Stowell address your questions about the SIRPA York over the next year with the directions on the spend. I think that it's very, very early days with respect to the humire about similar 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 you know high high and medium sort of wax and you know 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 are kind of going. I think it's just way, way too early to say all winners or losers. With respect to the surf-free Oregon impact on spend, I'll send that one over to McDavid-Stovel for comments. Yeah. 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, you know, 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, you know, 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 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, is that, you know, we do not anticipate starting any expensive phase threes next year. Those, you know, with the way the portfolio is positioned, Those will get rolled into 2025 when we anticipate having additional revenues to support that. So, you know, we're not going to go out and bang out real expensive phase three studies to make, you know, hundreds and hundreds of million dollar 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. Now, the other point I would make is we have a very strong track record here. of delivering on our projections for spending control. You know, last year we said we'd take our 435 spend down to about three and a quarter. We've done that. We did a RIF and we said we'd recognize savings. We've done that. You know, 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 add, maybe just a few with respect to the service 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 Gerbery.

Jason, your line is open.

Hey, guys. This is 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. You know, we're actually very pleased with the way the lucentis biosimilarity market is shaping up for us. You know, I had the opportunity to attend the American Society of Retinal Specialists in Seattle. In fact, my entire commercial team did last weekend. We made a presentation there. And what really struck me about that was the way Colteris 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, 15, 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 You know, 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 is safe and efficacious for their patients. What 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 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, you know, overall, we think that's going very well. I think Paul reiterated places where we're focused in terms of gaining the scripts. Paul? Yeah. I think that getting through the Q code was really the primary barrier. That opened up a lot of practices that were ready to adopt biosimilars that just wanted the ability to bill electronically and not take on that manual process. I think what we're seeing in the market now is a real optimism around the role that biosimilars can play in the market. And what Simerly 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 Simerly and get the same results. And that level of confidence and the safety you know, is really bearing out now in the experience that the doctors are seeing. They told us last week, you know, on multiple occasions that the product is delivering on the clinical profile. And all of that now, you know, just breeds, you know, continued optimism for adopting similarly and will help to contribute to share gains, you know, in the second half of the year. So I think we're really hitting our stride here. Yeah, I think just one last remark for Henry McDavid. 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. I think that gives the physicians and ophthalmologists a lot of comfort and confidence. As Paul said, you know, 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? Sure. And our gross margin is obviously going to be a function of the product mix and the cost of goods of the various products. A similarly failed increase similarly has a larger influence on the overall gross margin. And similarly, cost of goods includes a low to mid 50% loyalty on gross profits. So as the product revenue mix evolves, so will the gross margin. And next year, Yosemite and Toro Panama will have an increasingly influential role in the overall gross margin as well. And however, next year, the Udenica royalty comes up, right? Exactly. The Udenica royalty, the mystical digital royalty that we pay on Udenica net sales will roll off in... in July of 2024. So that'll be up in business. That will, yeah. 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 BuySimilar 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 type of level of discount that you can get to for existing products much faster now versus what you were previously thinking? So it just would be helpful to get some comments on that. Thanks.

Thanks, Ash. So I think that each of these products have to be priced specifically for the market that they're in. And our conclusion, as I indicated before, with respect to this, you really didn't need another high-priced, high-wax, 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, you know, competing ones or even to Udenica. We have the highest, you know, one of the highest ASPs after five years with Udenica. So I think this particular pricing strategy is unique to what's going on over on the

about similar side of business, which is part of the key and a number of other moving parts. Great thanks.

Thank you very much at this time. I would now like to turn the conference call back to Denny Lanphier 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 will probably be in late November, December timeframe, with both the merger closure. Thank you. Bye-bye.

Thank you. This concludes today's call.