Coherus Oncology, Inc. Q3 FY2023 Earnings Call

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

Good afternoon, everyone, and thank you for joining us. I am Jamie Taylor, Coherus' new Head of Investor Relations. I'm happy to be with you today. We issued a press release earlier today announcing our financial results for the third 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 revenue, projections of future market share or demand for any product, our expectations for market opportunity and the timing of our return to a cash flow positive. All of these forward-looking statements involve 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 that are discussed in our press release that we issued today as well as the documents that we file with the SEC. Forward-looking statements provided on the call today are made as of this date, and we undertake no duty to update or revise any forward-looking statements. Third quarter 2023 results are not necessarily indicative of results for future periods. With me on today's call are Denny Lanfear, CEO of Coherus; Dr. Theresa LaVallee, Chief Development Officer; Dr. Rosh Dias, Chief Medical Officer; Paul Reider, Chief Commercial Officer; and McDavid Stilwell, Chief Financial Officer. I will now turn the call over to Denny.

Thank you, Jamie, and welcome to the team, and thank you all for joining us today on our Q3 2023 earnings call. We continue to make good progress on our overarching strategy. LOQTORZI, our PD-1 inhibitor, has now improved. The Surface Oncology acquisition is now completed, providing us a competitively positioned development program focused on the tumor microenvironment. Similarly, our Lucentis biosimilar, after garnering significant cost savings, continues to gain share in sales and our UDENYCA franchise has returned to growth. However, even as we progress on the overarching strategy, we are cognizant that our revenues and expenses need to come into alignment. Progress has been significant this quarter as we saw a 27% increase in revenues over last quarter to $74.6 million, representing a 64% quarterly increase year-over-year. While year-to-date SG&A plus expenses has been reduced by around 30% from the same period last year. We plan to expand LOQTORZI utilization beyond NPC by developing it in combination with other synergistic therapeutics, including our own; this internal development will be constrained until mid-2024 as we continue to reduce expenses and pursue profitability. Although we plan to enter into partnerships with other companies interested in combining their novel assets with LOQTORZI or our T&E assets, we do not foresee sharing clinical development costs, which would increase our R&D expenses. Even as revenues increased from the growing number of commercial products, we will seek opportunities to constrain and reduce expenses as we pursue profitability. With that, I'll hand the call over to Paul, our Chief Commercial Officer.

Thanks, Denny, and good afternoon, everyone. As a commercial organization, we remain in launch mode with CIMERLI, UDENYCA auto-injector, and YUSIMRY, and are prepared to launch two new products in the first quarter next year: LOQTORZI, which was approved last month, and the UDENYCA on-body injector following FDA potential approval. This will increase our total number of marketed assets from one to six over an 18-month time period and will drive top-line revenue growth over the coming years. For the third quarter, combined net product revenue was $74.4 million, an increase of 27% over Q2. I'll now speak to each brand, and we'll start with CIMERLI, a biosimilar to Lucentis. Our strategic approach to the retina market is: first, to maximize the conversion of existing Lucentis business; and second, to grow share through new patient starts and the conversion from other anti-VEGF products. Execution against this plan remains strong as we report net sales in Q3 of $40 million, an increase of 50% quarter-over-quarter, driven by strong demand. CIMERLI's market share within the ranibizumab class was 28.6%, an increase of 11.6 market share points quarter-over-quarter. We also announced that CIMERLI passed a major milestone: for the first year of launch, we sold over 100,000 doses to retinal specialists, which reinforces the retinal community's receptivity to biosimilars and their desire for a safe and effective biosimilar option to Lucentis. In summary, total 2023 net sales for CIMERLI through Q3 were $73 million, so we reaffirm guidance that CIMERLI net sales will exceed $100 million for 2023. Now on to UDENYCA. As stated previously, our strategy has been to fortify our base prefilled syringe business while making pricing share trade-offs in order to maintain a competitive ASP in advance of the launches of both the auto-injector and on-body presentations, respectively. We guided that UDENYCA demand and market share will return to growth this year. Based on our strong execution of this plan, I'm pleased to now report two consecutive quarters of UDENYCA revenue and market share growth. Q3 net sales were $33 million, an increase of 4% quarter-over-quarter, driven by increased demand, partially offset by a lower net selling price. Market share grew to 16.5%, an increase of 4.3 market share points quarter-over-quarter. Both demand and market share gains were driven primarily from our core prefilled syringe presentation and occurred across all segments of the business. In the quarter, we launched the innovative UDENYCA auto-injector and are working with accounts on how to best position and operationalize the auto-injector within their respective clinical process. Since commercial launch, we've had over 300 accounts for the UDENYCA auto-injector and are seeing a consistent flow of new account ordering every week. We expect increases in UDENYCA auto-injector demand as the launch progresses. Another positive development that occurred in the quarter is payer coverage, which significantly increased as both UDENYCA prefilled syringe and auto-injector presentations were newly added to a number of commercial and Medicare Advantage plans. Effective start dates of this expanded coverage vary and range from September 2023 to January 2024. Regardless of the start date, these contracts extend through calendar year 2024, significantly expanding UDENYCA's access going into next year. Regarding our novel UDENYCA on-body device, we are awaiting FDA approval and will launch directly thereafter. UDENYCA is now a franchise, and following the anticipated approval, UDENYCA on-body injector will be the only pegfilgrastim brand with three presentations, becoming the total solution for oncology providers. This will enable us to compete directly with Neulasta Onpro, which retains 42% of the market. Turning now to YUSIMRY, a biosimilar to Humira. The high cost of adalimumab treatment remains a problem for the healthcare system and for many patients. Our patient-centric strategy is to provide YUSIMRY at a single, transparent, low price. We launched YUSIMRY on July 3 and were the innovators of a low list price strategy, launching at a list price of $995 per carton for two auto-injectors, representing a discount of more than 85% to Humira. As part of our low list price strategy, we established partnerships with Mark Cuban Cost Plus Drug Company and through its Team Cuban Card, as well as with independent retailers nationwide. We will continue to pursue partnerships with organizations looking for low list price alternatives as we build our YUSIMRY business from the bottom up. In Q3, we sold 2,300 cartons of YUSIMRY, generating net sales of $1.4 million. The market formation period for biosimilar adalimumab is still in its early stages, and Humira retains a formulary position for nearly all PBM and health plan formularies in 2023, and likely in 2024. Therefore, we expect slower growth for Humira biosimilars through 2024, with greater acceleration of biosimilar adalimumab adoption with the implementation of the Inflation Reduction Act in 2025. The IRA will shift financial risk during the catastrophic phase of the benefit from the government to the Part D plans, which could affect health plans' formulary selections. Finally, let me reiterate our excitement about the approval and upcoming launch of LOQTORZI, the first and only FDA-approved treatment for patients diagnosed with relapsed or metastatic NPC. We've commenced launch activities and are working to ensure that patients and providers have access to LOQTORZI as soon as the product is in the channel, which we estimate to be in the early Q1 time frame. We share with you now some more details about the NPC market opportunity for LOQTORZI. First, regarding the NPC market. We estimate that approximately 2,000 relapsed/metastatic NPC patients are diagnosed in the U.S. each year, and the split is even between those in the first line versus second line plus. With LOQTORZI's broad indication, we can access all of these patients and promote across all lines of therapy, including first line. Second, the prescriber base for NPC is fairly concentrated, with approximately 2,200 oncologists accounting for 80% of NPC treatment. 60% of this business is in the hospital setting and 40% is in the clinic. We know these doctors, and our existing oncology team currently calls on all of the accounts for these doctors' practice. So the call points are highly efficient and synergistic with UDENYCA. Third, the current treatment landscape for NPC suggests that claims data shows that chemo-only regimens are prescribed 60% of the time, which provides an immediate opportunity for LOQTORZI. We'll target these treating physicians and position LOQTORZI to be added to the existing chemo regimen, irrespective of the line of treatment. For the 40% where a combination of chemotherapy and PD-1 is used, we will position LOQTORZI as the preferred PD-1 and the new standard of care regimen based on our approved indication and the totality of the evidence, which includes overall survival data. Finally, patient engagement is being fostered through npcfacts.com, where we've enrolled a community of over 2,100 NPC patients or caregivers. We will appropriately communicate branded information about LOQTORZI, so they are informed and educated when speaking with their doctors about their individual treatment plans. Patients will also be supported through the LOQTORZI solutions for patient services hub that can be accessed via loqtorzi.com. These plans go live next week. We look forward to updating you on our progress as the LOQTORZI launch progresses.

Thank you, Paul, and good afternoon, everyone. I want to once again thank the FDA for acting so quickly to approve LOQTORZI following completion of the overseas inspection. With Toripalimab's approval now secured, we are continuing to collaborate with the FDA to complete their review of our final outstanding BLA for the UDENYCA on-body injector. As previously disclosed, UDENYCA OBI supplement received a complete response letter from the FDA on September 21, 2023, solely due to a third-party seller's inspection status. We were very pleased that our third-party manufacturer was able to resolve this with urgency, and we were able to resubmit the UDENYCA OBI supplement to the FDA in under two weeks. It is important to note that the only deficiency in the CRL from the FDA was the third-party manufacturer's issue, indicating that clinical and manufacturing data were complete. Given that there isn't any new information for the FDA to review, we anticipate approval this year or in the early part of 2024 and anxiously await the resource-constrained FDA to take action. Based on PDUFA, the review would be given a six-month clock; however, the agency has communicated to us that they expect to act significantly sooner. I will now briefly review the data for Toripalimab and our other I-O candidates that we recently presented at ESMO and SITC. LOQTORZI is a next-generation PD-1 inhibitor with potent activation of T cells, including significant activity in tumors that are less inflamed, such as small cell lung cancer, as was recently highlighted in an oral presentation at ESMO. Coherus has presented our preclinical mechanism of action studies at the AACR-EORTC-NCI triple meeting, and last week at the SITC conference, comparing Toripalimab to pembrolizumab and demonstrating in multiple assays that Toripalimab treatment resulted in statistically significantly higher T cell activation than pembrolizumab. Toripalimab's potency on T cell activation is consistent with a 12-fold higher binding affinity to PD-1 than pembrolizumab. Additionally, the unique epitope of Toripalimab at the FG loop of PD-1 may further contribute to its higher potency. LOQTORZI is the foundation of our I-O franchise, and we are excited to explore clinical opportunities to extend patient survival with novel combinations, particularly with agents that target mechanisms of PD-1 resistance due to immune suppression in the tumor microenvironment. At the SITC conference last week, we also presented two additional posters characterizing the mechanism of action of casdozokitug, our IL-27 antibody, and CHS-114, our cytolytic anti-CCR8 antibody. The casdozo poster highlighted the interferon signaling life properties of IL-27 and importantly described biomarkers that may be useful for evaluating cancer patient treatment with casdozo. The CHS-114 studies support that preclinical treatment with an anti-CCR8 antibody leads to the depletion of Treg cells in the tumor and conversion of cold tumors to hot. These data position us well for clinical development of both of these programs alongside LOQTORZI. Our third program targeting immune suppressive mechanisms in the tumor microenvironment is our CHS-1000 anti-ILT4 antibody program. We continue to progress our IND-directed studies and plan to file the IND in the first quarter of 2024. I'll now turn the call over to Rosh.

Thank you, Theresa, and good afternoon, everyone. With the approval of LOQTORZI, we're delighted to be able to bring the first and only FDA-approved treatment for nasopharyngeal carcinoma to patients in the U.S. living with NPC across all lines of therapy. The approval in both first-line patients with metastatic or recurrent locally advanced disease in combination with cisplatin and gemcitabine and also as a single agent for patients with recurrent unresectable or metastatic disease progression after platinum-containing chemotherapy marks a real step change in the treatment for these patients, where up until now, the standard of care has generally been decade-old chemotherapy. As a reminder, the approval is based on strong efficacy data from two well-conducted studies with data published in Nature Medicine and JCO, and presented at both AACR and ASCO. Firstly, in JUPITER-02, LOQTORZI in combination with chemotherapy in first-line patients showed a hazard ratio of 0.52 for progression-free survival and 0.63 for overall survival, with benefits seen across all PD-L1 expression levels with the results being both statistically significant and clinically meaningful. Secondly, in POLARIS-02 in second line and beyond, single-agent LOQTORZI met its primary endpoint with an overall response rate of 20.5% and also demonstrated a median overall survival of 17.4 months. The adverse event profile in both trials demonstrated a safety profile consistent with the drug class. Positive data sets across additional tumor types continue to demonstrate the consistency of the effect of LOQTORZI. For example, at ASCO, the Neotorch data in the perioperative non-small cell lung cancer space showed a statistically significant benefit favoring the Toripalimab arm with a hazard ratio of 0.4 for event-free survival, demonstrating the potential of Toripalimab in earlier stage non-small cell lung cancer. We're working with the FDA to explore potential avenues to bridge the data to the U.S. Also, at ESMO a few weeks ago, positive data was reported for LOQTORZI in both renal cell carcinoma as well as small cell lung cancer. With additional rich data sets continuing to emerge across several tumor types this year, we continue to view LOQTORZI as a pivotal backbone for future combinations, particularly with other novel agents, and we continue to explore both internal combinations with our own pipeline agents as well as external partnerships for LOQTORZI. Key to this is our acquisition of Surface Oncology, which, as Theresa mentioned, provided us with two early-stage assets: casdozo, a first-in-class IL-27, and CHS-114, our CCR8 asset. Firstly, with respect to casdozo, this asset has shown monotherapy activity in Phase I study in PD-L1 refractory non-small cell lung cancer and also combination activity with Atezo and Bev in hepatocellular carcinoma, data disclosed earlier this year. Updated data from these patients are anticipated to be presented in the coming months for both non-small cell lung cancer and hepatocellular carcinoma. We will be taking this early indication of activity forward with a Phase Ib combination study of casdozo with Toripalimab, which is currently in startup and we anticipate will be active in the coming months. Regarding CHS-114, this asset is currently in the clinic in dose-finding, and we have safely proceeded through several dose levels without significant safety concerns. We will continue dose escalations before moving on to dose optimization and further studies in head and neck carcinoma, a tumor type where the disease link is strong. Concerning our TIGIT, our Phase I/IIa study looking at the Toripalimab-TIGIT combination has completed enrollment of its initial cohort of subjects in the U.S. with an acceptable safety profile. We will hold further enrollment into this trial while we analyze the data from the ongoing patient pool and assess evolving data from competitor trials to complete a robust portfolio prioritization, while at the same time continuing our clinical development efforts with LOQTORZI in combination with casdozo and CHS-114, together with continued development of our ILT4, which now gives us the opportunity to target not only the T cell with LOQTORZI but also the tumor microenvironment in a potentially synergistic fashion. I'll now turn the call over to McDavid.

Thank you, Rosh. I'll briefly review third quarter results before discussing our updated 2023 guidance. As Paul detailed earlier, today, we are reporting a 27% increase in net sales across our three marketed products. Net revenue was $74.6 million during the three months ended September 30, 2023, and included $33 million of net sales of UDENYCA, $40 million of net sales of CIMERLI, $1.4 million of YUSIMRY net sales, as well as approximately $200,000 in royalties we received from the license of our adalimumab formulation. Cost of goods sold for the three months ended September 30, 2023 was $32.7 million, and gross margin was 56%. 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 of our operating costs, and research and development expense for the three months ended September 30, 2023, and 2022 were $25.6 million and $45.8 million, respectively. The significant decline in R&D expense compared to the prior year quarter resulted primarily from the reduction in the scope of the Toripalimab collaboration agreement, the capitalization of certain YUSIMRY costs into inventory in 2023 that were expensed as R&D prior to mid-2022, as well as $5.2 million in personnel and stock-based compensation expenses due to lower headcount. Selling, general, and administrative expenses increased by $3.4 million compared to the year-ago quarter to $48.2 million. The increase was attributable to higher professional services fees of $4.7 million driven by the Surface acquisition and third-party processing fees for multiple products being commercialized, partially offset by a $1.9 million reduction in employee and consultant costs due to a lower average headcount as we continued to realize savings from the cost-cutting program we announced in March. As we launch new products, we are carefully controlling incremental spending to ensure the investment is appropriate for the opportunity and that we realize the efficiencies inherent in our portfolio. Our YUSIMRY strategy is to build a business with customers attracted to our lowest price adalimumab offering, and we have very low operating expenses associated with YUSIMRY. Toripalimab will be efficiently launched using the same commercial infrastructure marketed in UDENYCA. As our product revenues increase and we continue to constrain operating expenses, we expect operating losses will continue to moderate. For the third quarter of 2023, we reported a lower net loss of $39.6 million or $0.41 per share compared to a net loss of $86.7 million or $1.11 per share for the same period in 2022. Cash, cash equivalents, and investments in marketable securities were $131 million as of September 30, 2023, compared to $192 million at December 31, 2022. We are projecting continued sales growth and expect fourth quarter net sales of $85 million to $95 million. For the full year 2023, we are reducing our earlier revenue guidance to a range of $250 million to $260 million, primarily due to the delay in approval of UDENYCA on-body injector, which we now expect to launch in the early part of 2024 following potential approval. We continue to tightly manage our expenses, and we are today reducing our combined R&D and SG&A expense guidance from an earlier range of $315 million to $335 million to a new range of $300 million to $310 million, including $40 million to $45 million of stock-based compensation expense. This range also includes the addition of Surface Oncology-related operating expenses since the closing of the acquisition in September, and it excludes any upfront or milestone collaboration payments or the closing cost of the Surface Oncology acquisition. Although we are not yet introducing revenue or expense guidance for 2024, we do expect lower expenses in 2024 compared to 2023 as well as continued growth in net product revenues as we execute our product launch plans. We are focused on ensuring the success of our commercial launches, and we will continue to maintain tight control over our operating expenses as we manage Coherus back to being cash flow positive over the course of 2024. I'll now hand the call to Denny for closing remarks.

Thank you, McDavid. Coherus is now one of the small number of I-O companies with an approved commercial stage PD-1 inhibitor and a competitively positioned development program. We believe these are the two critical success factors for any company aspiring to be a leader in I-O. We're now a revenue-generating immuno-oncology company with growing sales across a number of products, with an increasingly diversified revenue base. We look forward to keeping you apprised of our progress. Operator, we're ready for the questions.

Thank you. Our first question comes from the line of Robyn Karnauskas with Truist Securities. Your line is now open.

Hi, everyone. I appreciate the opportunity to ask my questions. Considering the reaction of the stock, it seems you were focusing on consensus. I have two inquiries regarding that. For UDENYCA, I noticed that scripts have increased. You mentioned in your prepared comments that you made some pricing concessions. Can you clarify the dynamics surrounding UDENYCA? Regarding CIMERLI, I heard on the Regeneron call that you're gaining market share. Are you indeed taking share from them, and did their performance have any impact on yours? Lastly, I'd like to ask a broader question. You indicated that you expect to be cash flow positive next year, which is significant for your company. Is that still on track, or are you reconsidering that guidance?

Robyn, thanks very much. So your first question with respect to UDENYCA is that the scripts are up, but what was the impact of pricing? And then with respect to CIMERLI, where is the share coming from? I'll let Paul first address the dynamics of the UDENYCA market and address the question of where the CIMERLI share came from. Paul?

Thanks, Denny, thanks for your question, Robyn. Yes, the UDENYCA business, Robyn, as we've guided with the launches and our strategy, market share and demand growth will increase in 2023. We reported that increase today, driven by a 30% increase in demand quarter-over-quarter. What we've always guided to was the price impact, which was a little bit harder to predict in the competitive markets. In the third quarter, we saw a net selling price decline of about 9%. So that's the puts and takes. We do expect continued market share and demand growth occurring over the fourth quarter and into 2024, driven by two things: first is the enhanced payer coverage, which has increased substantially for the brand, as well as the expected launch of now our on-body device. So between the auto-injector and the on-body, if approved, we'll have two shots on goal to go after that Onpro share, which is at 42%. Regarding CIMERLI, we're executing on our strategy of targeting the Lucentis business, and that's the first part of our strategy. So the majority of our business is coming from a combination of share from Lucentis, but also Avastin, which is also a target for us. That represents 40% of unit share. We're getting business from both of those in addition to new patient starts, those represent the largest sources of our business, in line with our strategy.

Yes. I would like to answer the last part of your question. With respect to returning to profitability and being cash flow positive next year, as I indicated in my opening remarks, we're very cognizant of bringing our expense structure in line with our revenue structure. This quarter also we guided downward with respect to our invested expenses, and we will continue to see reduced expenses next year even as revenues grow. We have not offered formal guidance on becoming profitable for next year. Once we get past our first quarter call and we look at how the launches are going potentially for the on-body device and LOQTORZI, we'll be happy to revisit that for you. But we are very, very focused on driving the business back to cash flow positive and back to profitability. As you've seen, expenses are down and sales are up.

Super helpful. And just a follow-up on UDENYCA. Like as we think about the on-body device launching, just to make sure we're all in the same realm, how do you think about the impact of pricing when you launch that? Could we see continued price declines? And shout-out to Theresa, like last call you did, again, congrats on inventory. I'm not asking one on inventory, but congrats, but maybe just like you can delve deeper into UDENYCA so that we can all model it better next quarter and for next year?

Yes, thanks, Robyn. So our focus here is we're going to be going into 2024, year six of the UDENYCA life cycle is maximizing long-term revenue and profitability of this franchise. If and when the on-body device is approved, we will launch that into each of the segments of the business where we believe we'll have a competitive value proposition, but also be able to maintain discipline with our pricing to drive profitability for this franchise. So we're going to be looking at every segment but clearly be watching the market dynamics in each of those segments, whether it's the clinic or the hospital, and approach our launch accordingly.

Robyn, I would also add that we expect to see significant market share gains with UDENYCA next year, and we're very cognizant of the margins in obtaining those gains. As you've seen, the peer coverage has significantly increased over the past quarter. We expect to see that next year. But the overarching message for the UDENYCA franchise is that the long-term strategy is succeeding. As Paul indicated, we're near five or six on this franchise. We were very, very careful with our pricing to have a strong base upon which to launch our additional presentations. That has been successful, and even as other competitors who gave away more prices have now fallen away, we are emerging in this market.

Do you think you're going to have to lower prices further? Just out of curiosity, I'm just trying to make sure that all the analysts are on the same page; we want to ensure we watch script growth, and if you miss on price, should we predict a little bit more price decline?

We would seek to protect price even as we go forward, having all three presentations.

Thank you. Our next question comes from the line of Yigal Nochomovitz with Citigroup. Your line is now open.

Hi, Denny and team. Thank you for taking the question. Just a quick housekeeping question. At one point, you discussed having an R&D Day during the fourth quarter. I'm just curious if that is still on the calendar. And you also discussed additional monotherapy data for the IL-27 program. Is that happening this year? Additionally, with regards to liver cancer, obviously, there was data from Roche earlier in the year, and then more recently, the Beijing abstracts related to the TIGIT in combination with atezo and bev. I'm just wondering how you're thinking about developing for HCC given those data points for the combo for your TIGIT and IL-27.

Thanks for your questions. With respect to R&D Day, given the delay in the approval of the on-body device, we're going to move that into Q1 from Q4. We want to have the on-body approved and ready to go on the market because that's going to be an important part of the story. So we're going to move that out into Q1. With respect to IL-27 and liver, I'll let Dr. LaVallee answer those two questions.

Thanks. We're super excited about the clinical development plan. And in terms of presentations, we do have abstracts submitted on both the monotherapy and the HCC data to give the full data set and a more mature data set. So I would anticipate that later this year and early next year. Once the abstracts are accepted, we'll make sure to publicize that. In terms of how it's positioned, we're very excited about the data to date and having a patient population more similar to the atezo-bev TIGIT HCC data than the Beijing program, and think that the data should be comparable.

Okay. And then just one on the guidance. McDavid, I think you said for Q4 '23, $85 million to $95 million. Any way you could just elaborate a little bit more in terms of the relative contribution from the three marketed products as to how that will get you into that range?

Sure. Earlier in the year, Denny provided insight into how we feel that the adalimumab market is shaping up and that we expect total YUSIMRY sales for the year in the single digits. This is important as you think about where the portfolio guidance would go for the fourth quarter. So we expect most of the revenue growth in the fourth quarter to come from UDENYCA and CIMERLI.

Thank you. Our next question comes from the line of Michael Nedelcovych with TD Cowen. Your line is now open.

Thank you for the questions. I have two. My first is, given the shift in timing of revenues and the lowering of your top line guidance, has that impacted your development plans at all? I know we'll learn more on the Q1 pipeline day call. But I'm curious if this has affected the scope of development for your pipeline portfolio or if you'd perhaps replace anticipated revenues with other types of financing to more fully develop your pipeline. My second question relates to YUSIMRY. I'm curious if you attribute ABBVIE's ability to hold on to such high share for so long; would you point to supply, the label, or perhaps price?

Thank you for the question, Michael. First, with respect to the development plan, as I indicated in my opening remarks, we are significantly constraining all R&D expenses until mid-2024 because of the revenue picture. We are very cognizant that we need to bring our R&D expenses and our overall spend into alignment with our revenue. We've made very deliberate efforts to revise our development spend and minimize it and we won't be seeking alternative forms of financing to support that. It's very important to move the company back to cash flow positivity and profitability. With respect to YUSIMRY, Humira has been able to hold on to a significant portion of the revenues. I believe about 99%. Paul might have some further color for you on the Humira and YUSIMRY revenue picture as a function of the placement on the formularies and so on.

Yes, thanks for your question, Michael. Based on what AbbVie reported, it was really a lower price that's driving their ability to maintain these formulary positions. So that's what's driving it. Again, I reiterate our strategy was very different. We intended to bring YUSIMRY to market for a segment of the business that desires a low, affordable, transparent price. We're going to build that business from the bottom up, and that's working, and our partners with Mark Cuban are really helping with that. So it's a two different strategies. We're approaching this strategy, setting ourselves up for the IRA in 2025, when we believe there will be a lot of different considerations by the PBMs and the payers when the cost shifts during the catastrophic phase from the government to the payers themselves.

Michael, I want to highlight McDavid Stilwell's comments. Although we lowered the revenue guidance for 2023 by $15 million, we also reduced the spending guidance by $15 million. This demonstrates our commitment to keeping our revenues and expenses in balance.

Thank you. Our next question comes from the line of Douglas Tsao with H.C. Wainwright. Your line is now open.

Hi, good morning. Thanks for taking the questions. So I guess, Paul, congrats on the progress that we've seen with CIMERLI. When we think about trends into the fourth quarter, should we expect to see some further acceleration? Or do you think that we'll see a little bit more of a linear trend in terms of adoption now that we have the J-code in place?

Yes, thanks, Doug. Yes, we're really pleased with the update. I think looking at the ramp, projecting the same level of growth quarter-over-quarter is probably too optimistic at this point. We're going to continue to see demand growth driven from both the current book of business and new business. Again, we haven't guided to the final CIMERLI number, but we maintain guidance that sales will exceed $100 million for the year.

And Paul, do you think the opportunity lies in improving your volume within your existing CIMERLI accounts? Or are you still picking up new accounts?

Yes, Doug. In the third quarter, we increased the number of ordering accounts by 70%. So we've got about 550 accounts now that have ordered CIMERLI. 80% have reordered at least once. It's really breadth and depth that we want to go deeper into the accounts that are ordering, convert that consensus unit volume that's available for Avastin where they've completed their step edits. While continuing to broaden out for those accounts that may have been a little slower in adopting biosimilars. What's really pushing that new account acceleration is the fact that we've got the Q-code well established and the real-world evidence presented at the ASRS meeting demonstrating that CIMERLI is safe and effective. We just hit 139,000 units shipped.

And final question, Paul, on CIMERLI. Is there a type of account that you're really doing well in? Is it the private equity-backed practices? Or is it smaller practices? Any color would be interesting.

It's been a mix of everything, Doug. Once the retinal specialists understand that biosimilar to Lucentis is a great option for them, they get on board. They trial it, they get reimbursed, and we start to see more rapid adoption.

Thank you. Our next question comes from the line of Chris Schott with JPMorgan. Your line is now open.

Great, thanks so much. Just two questions for me. I guess first, just coming back to the biosimilar Humira market. Can you elaborate more on the priorities for YUSIMRY as we head into 2024, given it sounds like 2025 is really the key year for the market opening up? Also, just as part of that, I know you did a couple of million this quarter in sales. It sounds like there won't be a huge step up in Q4. But should we think about a meaningful step-up of sales in this product in 2024, or does this remain a relatively small business until we get to '25 and more of the volume comes through? I just had one follow-up after that.

Thanks for the question, Chris. The issue with the Humira biosimilar market is really the position of Humira on the formularies. We don’t see significant growth in this market until 2025 until the Inflation Reduction Act comes into play and shifts the pricing dynamics. We expect shallow but steady growth throughout that time, but with an inflection in '25.

Okay, that's helpful. And then just on UDENYCA, any color on how much of the sales at this point is coming from the auto-injector versus the traditional presentation? Looking forward, do you expect any inflection in sales as the ecosystem becomes more educated on the product? Or is coverage really the key here? I know you've talked about some progress on that front. I'm just trying to get a sense of the key factors that might lead to broader uptake for that auto-injector.

Yes, thanks, Chris. In the third quarter, the prefilled syringe represented the vast majority of the UDENYCA volume, coming from all segments of the business. When we launched the auto-injector in the quarter, it was the first of its kind, a new innovation that the marketplace had never implemented. We had to get payer coverage set up, while educating the providers and nurses about it. We've had about 300 accounts ordering auto-injectors. As the launch progresses, we expect continued demand increases, buoyed as we move into 2024 with expanded payer coverage. Once we then have the on-body, we'll be the only brand with all three presentations, providing a total solution for patients and providers.

Our next question comes from the line of Ash Verma with UBS.

I have two. The first one, I believe you have a milestone payment due to Junshi for the NPC approval. Can you remind us what's the timeline and the amount for that? And then second, I thought there was an 8-K filed earlier that noted a smaller lease space going forward. Is there a new reduced workforce as a part of this? Just surprised to see the space is now cut in half. Any implications for your cash burn?

Ash, thanks for the questions. Let me take the last one first. We were able to reduce the footprint on the lease. Primarily, that came up because we were in a period where there was a renewal. We were opportunistic and able to consolidate some space. We have team members that work from home and then go back and forth. So we've done some sequencing with people in and out of the office. We're always looking for opportunities to reduce our expenses; this is one of them. With respect to the milestone and its timing from Junshi, I'll let McDavid Stilwell comment on that.

Yes, thanks, Ash. So it's a $25 million milestone payment, and it will be paid in March 2024.

Our next question comes from the line of Balaji Prasad with Barclays.

Good afternoon. This is someone speaking on behalf of Balaji. Our question is regarding partnership opportunities for Toripalimab. You mentioned receiving significant interest from external partners. Could you elaborate on which therapeutic areas or types of agents will be prioritized for future combination trials? Additionally, what kind of collaboration and economic structure will you implement for these partnership agreements to help reduce R&D costs next year?

Thank you. Great question. I'll let Rosh Dias, our Chief Medical Officer, address that. Rosh?

Thanks very much for the question. The wealth of data and robustness of the data for LOQTORZI across different tumor types really sets us up well for partnerships together with its unique mechanism of action. The partnership opportunities will be mainly focused on novel combinations, where we will take drug supply agreements supplying drugs for partnership studies. We have our two novel assets that came in with the Surface acquisition, and we will be looking for opportunities for these two novel assets to potentially find partnerships outside the U.S. for revenue.

Our last question comes from the line of Douglas Tsao with H.C. Wainwright.

I just wanted to touch on UDENYCA a little. I'm curious about the broader environment within the pegfilgrastim category, where you've successfully maintained share or gained some share while keeping your ASP stable, whereas others have seen a decline in ASP. What do you think has driven your success, and what are your perspectives on the next steps for this market?

I'll let Paul dive in a bit for you, Doug. We bring at the core competency on the commercial team a very deep understanding of the Medicare Part B space. Our policy for a long time has been good guardians of ASP and not to rely simply on discounting to drive sales. I think that we have successfully deployed a strategy to maintain price and share for the long term, which is the basis upon which to launch our presentation. Our average selling price is well above that of competitors in the class. I think we are confident in our ability to understand pricing and execute our value proposition strategy without resorting to price to drive market share. Paul, do you have additional comments?

Yes, that’s exactly right, Denny. If you look at what the competitors' strategies have been, we've always viewed UDENYCA as a franchise and applied the strategies necessary to maximize long-term revenue while also ensuring profitability. Other competitors have relied heavily on heavy discounting for market share gains. We've taken a long-term view; we've been disciplined, and we're bringing new presentations to market. We're positioning UDENYCA as the only franchise with all three presentations, meeting patient and provider needs. We’re delighted that our strategy is paying off, as shown in consecutive quarters.

Finally, I’d like to point out that we've successfully deployed our Medicare Part B competency from oncology to ophthalmology. We've shown that we can successfully launch behind a large competitor and achieve a strong market share. I think we are exceeding 25% market share now with CIMERLI in the ophthalmology sector. We also exceeded 20% in the first year of UDENYCA following a launch against significant competition. Our proficiency has been demonstrated multiple times.

Thank you. I would now like to turn the conference back over to Denny Lanfear for closing remarks.

Thank you all for joining us today on our Q3 2023 update, and we'll see you at upcoming conferences, including the Truist conference and the UBS conference this week. Thank you, operator.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.