Coherus BioSciences Earns 3rd FDA Approval, but…

Bottom-Up Insights
  • Cimerli will become the second commercial product of Coherus BioSciences and a key part of the company's growth strategy.
  • This article explores a high-level overview of the product's potential and the competitive landscape's structure.
MVP Article Disclosure: Please note this article was from our MVP platform and was written prior to September 2023. We've made numerous refinements, which means article structure, image and data visualization formats, and terms may have changed.

Well, well, well. Look what happens when partners aren't fumbling manufacturing responsibilities. Coherus BioSciences (NASDAQ: CHRS) earned U.S. Food and Drug Administration (FDA) approval for its first ophthalmology product, Cimerli (ranibizumab), a biosimilar to Lucentis.

Okay, that's not entirely true. The approval was actually delayed to August 2022 because the creator of the asset, Bioeq, fumbled its manufacturing responsibilities. The FDA requested additional manufacturing data in 2020. It's a curse, I tell you.

The important thing is Cimerli has earned FDA approval and can launch early enough to take part in market formation for ranibizumab biosimilars. On the one hand, it will launch four months after the first biosimilar in the market. On the other hand, it has an advantageous label and an experienced commercial steward in Coherus BioSciences.

Shares are undervalued according to my conservative model. Nonetheless, my job is to provide accurate forecasts – and forecasts aren't about predicting what I want to happen, but rather what is most likely to happen. Investors are encouraged to await second-quarter 2022 operating results after market close on Thursday, August 4 before making drastic moves.

The Cimerli Market Opportunity, Explained

Biosimilars are copycats to innovator drug products. In this case, the original ranibizumab was marketed as Lucentis by Roche (Genentech) and Novartis. The monoclonal antibody inhibits a protein called vascular endothelial growth factor A (VEGF A). VEGF helps new blood vessels form. That's good for wound healing, but not so good for cancerous tumors or certain age-related eye disorders.

Lucentis is used to treat wet age-related macular degeneration (wet AMD) and several related conditions. It's administered as an injection into a patient's eye once every 28 days, although doctors and patients sometimes stretch dosing beyond that four-week window. The procedure may make you squirm, but Lucentis raked in about $1.5 billion in U.S. sales in 2021.

A next-generation anti-VEGF drug from Regeneron, called Eylea, generated $5.8 billion in domestic sales last year. The advantage: Eylea is dosed once every 28 days for the first three injections, then once every 56 days thereafter.

Coherus BioSciences arrives at a $7 billion market opportunity for Cimerli by combining the anti-VEGF markets for Lucentis and Eylea. Will doctors and patients really use a less convenient option just because it's priced at a steep discount? We're all about to find out together. However, I've always used the more conservative $1 billion market opportunity that excludes Eylea.

Encouragingly, 55% of eye doctors are open to using a Lucentis biosimilar. Another 33% will wait to see what colleagues do. Doctors who are open-minded about biosimilars wouldn't hesitate to switch patients from Lucentis or Eylea. One-third wouldn't hesitate to start new patients on a biosimilar.

Image Source: Investor Presentation.

The beautiful thing about Coherus BioSciences is that a small amount of revenue can move the needle in a meaningful way. When even conservative forecasts suggest significant growth potential, investors should take a deeper look.

What can investors expect from the newly-approved biosimilar?

  • Cimerli is the first and only interchangeable biosimilar to Lucentis for all five approved indications. That means it can be substituted without any expected difference in safety or efficacy. In reality, interchangeable status is probably not very valuable in the world of biosimilars. It only exists in the United States and has been criticized as being redundant. After all, what the hell is approval for? It may be meaningful in the ophthalmology market right now, which is dealing with biosimilars for the first time. It could help to nudge the 33% of doctors who remain unsure about biosimilar use.
  • As the first interchangeable biosimilar for Lucentis, Cimerli has earned exclusivity for 12 months. That means no other biosimilar can earn interchangeability status until August 2023.
  • There are only two other ranibizumab biosimilars in the industry pipeline with potential U.S. ambitions: one from Lupin and one from Xbrane. Neither is expected to launch anytime soon. That creates a wide-open opportunity for Coherus BioSciences.
  • Cimerli will launch in early October 2022. That's four months after the launch of the first ranibizumab biosimilar, Byooviz, from Biogen and Samsung Bioepis. That's not a meaningful difference. Case in point: Udenyca wasn't the first pegfilgrastim biosimilar to reach market, but owns the highest market share to this day.

Coherus BioSciences expects to claim 10% market share for each biosimilar it launches. If investors only include Lucentis as the market opportunity, then that suggests a revenue opportunity of $100 million per year. If investors expand the market opportunity to include Eylea, then that suggests a revenue opportunity of up to $700 million per year.

The path forward is likely somewhere in between. Coherus BioSciences expects to initially capture market share from Lucentis, then gradually expand Cimerli into new use cases – such as stealing market share from Eylea.

My revenue model remains unchanged for 2022. I expect Cimerli to generate up to $25 million in sales after launching in October 2022. My model expects sales of only $50 million in 2023, which is probably an underestimate. That's because the top 20% of accounts in the United States are responsible for 80% of Lucentis prescriptions by volume. I'll remain conservative until more details emerge, but I acknowledge I could be off by a factor of two or more for next year's revenue.

Why It's Prudent to Wait for Second-Quarter Results

Now for the sobering news.

Coherus BioSciences reports second-quarter 2022 operating results on Thursday, August 4. Udenyca revenue is likely to underwhelm once again in the face of competition. That could weigh on shares. Wall Street analysts and management will likely focus on the commercial potential of Cimerli as a result, which will provide the first relief for the product portfolio. However, management has declined to provide revenue guidance historically. It's probably impossible in biosimilars anyway.

One area of focus will be the price discount of Cimerli to Lucentis. Byooviz launched at a 40% discount to Lucentis, which is pretty steep, even for a biosimilar. Will Cimerli follow suit or command a premium due to its interchangeability status? This may be kept secret until the official launch in October.

Another area of focus will be the plans for the commercial rollout. How is Coherus BioSciences optimizing and directing its sales team to focus on that top 20% of accounts? I have full confidence in the commercial infrastructure, so I'm not too anxious with the strategy here.

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
  • Feel good adding up to: $1.2 billion / ~$15.50 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.

Coherus BioSciences is fairly attractive near current levels for investors with a long-term mindset. However, I don't trust the recent rebound in the biotech sector or broader stock market.

Shares of the company were trading at less than $6 apiece, or a market valuation of less than $500 million, in mid June. That's pretty unreasonable, but investors have to acknowledge shares could tumble again on broader market volatility. I'm not here to blow sunshine up your ass, but to provide accurate forecasts.

I'm confident in the price and valuation guidance above. I don't expect it to change after Q2 2022 results are announced. But I wouldn't be surprised to see Wall Street focus on poor Udenyca revenue in the near term. So, I think investors can wait two more days just in case a better entry point presents itself.

Further Reading