Speed bumps aren't uncommon in drug development. The important thing is that a business maintains momentum and continues to execute. Coherus BioSciences (NASDAQ: CHRS) has encountered its share of minor setbacks, but is kicking ass for the most part.

Let's review the latest regulatory update and expectations for the overall portfolio.

Note: My goal is to write reports for every company, but finding time has been difficult lately. Next best thing is to provide articles and analysis including prices, valuations, and entry points for supporters in the mean time.

How Does Tori Fit Into the Strategy?

The commercial-stage drug developer is focused on expanding patient access to biologic drugs. Coherus BioSciences has a two-pronged approach to deliver on that mission.

1. Develop and in-license biosimilar assets to some of the world's bestselling monoclonal antibodies.
2. Develop and in-license novel immuno-oncology assets to create new combination treatments.

The second part of strategy hinges on an anti-PD-1 antibody called toripalimab ("Tori"), which will serve as the building block for future combination treatments. Many cancer cells express PD-1 (programmed cell death protein 1) receptors on their surface to evade the immune system. Drugs that inhibit these receptors allow T cells and B cells to do their job – killing cancer cells – more effectively.

This is one of the most important "lock and key" pairings in oncology. The data clearly that up. Merck's blockbuster Keytruda generated $17.2 billion in full-year 2021 revenue globally and will become the world's bestselling drug in 2023. Equally impressive is the size of the U.S. market for PD-1 inhibitors, which is expected to eclipse $21 billion in combined revenue in 2022.

Coherus BioSciences in-licensed North American rights to Tori from Chinese drug developer Junshi Biosciences. Although the asset is being studied in over 11 unique tumor types, the first indication will be nasopharyngeal carcinoma (NPC). The cancer, which forms in a part of the throat, is relatively rare in the United States but most common in individuals of Asian descent.

That fact means Tori will earn U.S. Food and Drug Administration (FDA) approval in NPC despite recent pushback against Chinese-developed drug candidates. Whereas other indications will require clinical trials to be repeated in the United States to collect data in patients more representative of the nation's population, NPC is an indication that deserves "regulatory flexibility" given the difficulties of conducting clinical trials on American soil and the lack of treatment options. In fact, the FDA granted the in-licensed asset Breakthrough Therapy designation for all treatment lines in NPC.

• A first-line (1L) treatment can be used as the first therapy administered to a patient.
• A second-line (2L) treatment can be used after a patient has received one other treatment.
• And so on.
• Breakthrough Therapy designation is the most coveted label for a drug candidate, as it can shorten development time by years and shortens regulatory review by months.
• In general, earlier treatment options have larger market opportunities. More individuals are treated with 1L therapies than 2L therapies, and so on.
• In general, drug candidates are initially developed in later treatment settings and work their way into earlier treatment settings over time.

Specifically, a combination of Tori plus chemotherapy is being considered in the 1L treatment setting, while Tori alone ("monotherapy") is being considered in the 2L and 3L treatment settings.

Coherus BioSciences and Junshi Biosciences hit a speed bump with Tori's regulatory timeline, but are now back on track.

• In November 2021, the duo submitted a biologics license application (BLA) for all three treatment settings in NPC.
• In May 2022, the FDA issued the dreaded complete response letter (CRL). Regulators requested a change to the manufacturing process and needed to visit the manufacturing facility in China, but couldn't due to pandemic lockdowns.
• In July 2022, the partners announced the FDA had accepted the resubmitted BLA and set an approval decision date of December 23, 2022.

It's important to point out that Coherus BioSciences only manufactures drug products in the United States for biosecurity reasons. However, the tech transfer won't be completed until Tori receives FDA approval, which means the BLA included data from the Chinese manufacturing facility. It's a small speed bump in the grand scheme of things.

More important, the company expects to launch Tori in the United States in the first quarter of 2023, pending approval. That sets up a solid next 12 months for the portfolio.

Red Hot Growth Engine

Coherus BioSciences is nearing an inflection point in its growth trajectory. That's getting more interesting against a backdrop of tightening financial conditions globally, as the portfolio could launch four new drug products by the end of 2023.

The financial picture looks a little depressing right now. Coherus BioSciences currently has one approved product, Udenyca (pegfilgrastim biosimilar), which is being thrashed by a cutthroat competitive landscape. It's still the bestselling pegfilgrastim on the market and on pace to generate over $200 million in full-year 2022 revenue. But that's down from $327 million in 2021 and $476 million in 2020.

To be blunt, year-over-year comparisons suck, but investors always knew that would be the case in 2021 and 2022. To be doubly blunt, competition and falling prices are the point of biosimilars, which have saved the American health care system $9.8 billion from 2017 to 2021. It's a feature, not a bug.

Image Source: Amgen Biosimilars Report 2021.

But investors need to be careful not to be too sour. Udenyca may have falling revenue, but it has provided positive cash flow and allowed the company to self-fund development of multiple other programs. Additionally, Coherus BioSciences could deliver rapidly improving financials in 2023 and 2024.

Consider the potential timing and market opportunities of product launches on the horizon:

• Cimerli (ranibizumab / Lucentis biosimilar): The FDA will make an approval decision for Cimerli by August 2, 2022. Coherus BioSciences expects to immediately launch the product and participate in market formation. I expect the drug to generate up to $25 million in revenue by the end of 2022, which climbs to between $50 million and $100 million in 2023.
• Tori (not a biosimilar): If the immuno-oncology asset earns approval in NPC and launches in early Q1 2023, then I expect it to generate $25 million in 2023. I model a lower and slower ramp than the company, but management thinks NPC could represent a $100 million annual revenue opportunity. Keep in mind two things. First, there are no approved treatments, so there's no competition on pricing. Second, there's a 20% royalty on net revenue payable to Junshi Biosciences.

Image Source: Coherus BioSciences Investor Presentation, March 2022, Slide 75.

• Yusimry (adalimumab / Humira biosimilar): Coherus BioSciences earned FDA approval for Yusimry in December 2021, but it cannot legally launch until July 2023. The wait should be well worth it. If the $16 billion U.S. market for adalimumab contracts to $5 billion under the weight of cutthroat competition, then Yusimry would generate $100 million for every 2% market share it captures. The company aims to capture at least 10% market share. I expect the product to generate at least $50 million in 2023 revenue and quickly ramp in subsequent years, reaching at least $200 million in full-year 2025 revenue.
• Udenyca OBI: This is arguably the most important drug candidate in the portfolio. If Coherus BioSciences earns approval and avoids legal battles from Amgen for a new formulation of Udenyca, then I would immediately make it a significantly larger allocation in my personal portfolio (see section below). Udenyca OBI could generate over $200 million in revenue during its first year on the market. The company hasn't submitted an application to the FDA yet, but an approval decision would only be 10 months beyond submission.

Zooming out to the portfolio level, Coherus BioSciences should return to revenue growth in 2023 and continue growing for at least several more years.

• My model estimates full-year 2025 revenue could eclipse $725 million, assuming Udenyca OBI has launched. That compares to my full-year 2022 revenue estimate of $225 million.
• The company estimates it could generate full-year 2026 revenue of $1.2 billion to $2.2 billion with commercial execution.

Let's use the low-end of 2026 "guidance" calling for $1.2 billion in annual revenue.

• Assume Coherus BioSciences generates gross margin of 70% (conservative), expands the number of shares outstanding to 100 million (conservative by being a likely overestimate), and accrues $640 million in operating expenses (conservative by being a likely overestimate).
• The stock would trade between $40 and $48 per share based on historical valuation benchmarks for commercial-stage drug developers.
• It's important to note these benchmarks have held steady for over 15 years. They aren't impacted by Fed policy or valuation contraction among growth stocks. In fact, investors have been running to profitable drug developers for safety!
• It's also important to point out that management didn't pick 2026 out of thin air. That's when the industry faces its next patent cliff, which means many pharma titans will need to replace billions of dollars of revenue churn. Anchoring expectations to 2026 positions the company as an acquisition target.

That's a pretty solid investment. Of course, a significant part of the company's success in the next four years hinges on Udenyca OBI. However, it's important to remember that the overall strategy relies on core competencies of Coherus BioSciences. That includes developing biologic drugs in-house (Udenyca and Yusimry), working with partners to in-license biologic drugs (Cimerli and Tori), and throwing elbows in competitive landscapes to wrestle away market share (Udenyca). These are well within the company's circle of competence.

What's an Attractive Entry?

The current risk/reward for Coherus BioSciences is considered favorable overall. This is considered an investment-grade Growth (Speculative) position. An attractive entry for Coherus BioSciences is estimated at:

• Attractive valuation: $1.2 billion / ~$15.50 per share
• Consider prioritizing: <$840 million / ~$10.80 per share (to be honest this wouldn't be at the top of my list in the current market, as of this writing)
• Feel good adding up to: $1.5 billion / ~$19.35 per share

The valuation estimates above are based on 77.4 million shares outstanding as of April 30th, 2022. They account for the revaluation of the biotech sector and tightening financial conditions that began in early 2022. Investors are cautioned against using 2021 valuations as a benchmark or for comparison. Additionally, these estimates and suggested entry points are provided for investors with a long-term mindset, not traders.

‍Further reading

• I've always hated that I cannot upload PDFs to articles at any place I've worked. That's because links to presentations on company websites often break over time. I'll make sure Solt DB has the ability to embed / upload PDFs in articles, although each company covered will have a unique landing page as well. For now, investors are encouraged to flip through the Analyst Day presentation from March 29, 2022. If the link is broken or you're having trouble viewing it, then email me for a copy: invest@soltdb.com
• Press release from May 2022 on complete response letter from the FDA
• Press release from July 2022 on accepted resubmission of BLA
• Amgen Biosimilar Trends Report 2021 (a must read for shareholders)