Many investors are asking if the stock market has bottomed out yet or if the surge to start 2023 will prove short-lived. There are arguments to be made in either direction (I'm not sure the worst is over), but not so with Coherus BioSciences. The company's first-quarter 2023 performance is almost certainly the bottom – not just for this year, but for the rest of the decade.

Unfortunately, there's still a healthy amount of uncertainty about the timing of the company's growth trajectory. How quickly will Udenyca AI ramp revenue? Will the relative rarity of nasopharyngeal carcinoma (NPC) hamper patient discovery and slow the launch of toripalimab? Can the company's adalimumab strategy carve out sufficient market share for Yusimry?

These questions won't have even partial answers until real-world revenue figures begin to trickle in during the second half of 2023. That promises to inject volatility into shares for the foreseeable future, but solid execution through the end of the year can quickly make up lost ground.

By The Numbers

Coherus BioSciences has stuck to its stubborn strategy in the pegfilgrastim market at a significant near-term cost. Despite cutthroat pricing competition and lower overall sales volume for all molecules, the business has been slow to lower average selling prices (ASP) of Udenyca PFS. In fact, the company started the second quarter by increasing ASP by 4%.

The goal of the strategy is to maintain pricing power for upcoming launches of additional pegfilgrastim formulations. Udenyca AI will launch at the end of May 2023 (thus the recent price increase), while the company expects Udenyca OBI to launch in the second half of 2023 (Solt DB Invest doesn't expect this formulation to launch in 2023 or 2024 due to intellectual property concerns).

If proven correct, then the Udenyca franchise should reverse recent market share declines and regain market share beginning in the third quarter of 2023. If proven wrong, then Coherus BioSciences may sabotage the pegfilgrastim opportunity for good. Investors might see early signs of the strategy's effectiveness when second-quarter 2023 results are announced in August.

In the meantime, there's no doubt the plan has caused significant financial pain in recent quarters. That includes in less obvious ways. For example, the stubbornness has led to lower sales volumes, which led to higher inventory write downs, which led to lower gross margins.

Data Source: SEC filings. Note: Operating cash flow is calculated in such a way that it naturally excludes the $35 million milestone payment to Junshi Biosciences in Q1 2022.

It's not all bad news. Cimerli (ranibizumab biosimilar for Lucentis) remains on track to generate at least $100 million in full-year 2023 revenue. That may not seem obvious after generating only $6.2 million in first-quarter sales, but there's some context and nuance to consider.

The U.S. Centers for Medicare and Medicaid Services (CMS) began recognizing a new, product-specific reimbursement code (called a Q-code) for Cimerli on April 1. The Q-code allows physicians and practices to be reimbursed in as little as 14 days, rather than months from the code provided upon market launch in October 2022. The new code is helping practices better manage cash flows and billing – and is already accelerating Cimerli sales.

Coherus BioSciences reported that the number of units sold in April alone was equivalent to 72% of the first-quarter total. Additionally, Cimerli is dosed chronically for various eye disorders. That leads to steady compound growth among accounts, which isn't necessarily the trend for oncology accounts.

Investors might be more nervous about the company's cash position, which stood at only $128.1 million at the end of March 2023. Coherus BioSciences will need to deftly manage its cash position for the rest of 2023, but a successful revenue ramp and a $100 million credit facility can provide breathing room – there just isn't much room for error with execution.

• The business expects full-year 2023 operating expenses (R&D plus SGA) of up to $335 million, including approximately $50 million in stock-based compensation. That's a maximum net cash expense of $285 million.
• The business expects full-year 2023 revenue of at least $275 million. At a gross margin of 50%, that provides a minimum gross profit of $137.5 million.
• The minimum gross profit ($137.5 million) plus cash on hand at the start of the year ($191.7 million) totaled $329.2 million, which is just enough to cover the maximum net cash expense ($285 million). The business also has a $100 million credit facility available.
• The business expects to return to profitability in 2024 and might exit 2023 with a profitable month of operations in December. That could increase the ability to secure additional financing (although interest rates are pretty unfavorable) or, if management is really confident, wing it.

Around The Horn

There were updates for each asset in the company's portfolio.

Udenyca franchise

• Udenyca PFS saw its market share slip to 11.5% during Q1, which is almost half of its peak market share. Coherus BioSciences expects the launch of Udenyca AI at the end of May to stabilize the overall franchise's market share during Q2 and then begin clawing it back during Q3.
• Udenyca AI will utilize the same reimbursement codes and ASPs as Udenyca PFS. The only remaining hurdle is to gain access in formularies, which is expected in the next week or two.
• Udenyca AI is administered in less than 10 seconds, compared to 45 minutes for an OBI formulation. It can be administered in a doctor's office, at home, or anywhere really. The convenience suggests it could rapidly gain market share from both the PFS and OBI formulations. It will be the only AI formulation in the pegfilgrastim market.
• Yet another pegfilgrastim biosimilar launched recently when Fresenius Kabi introduced Stimufend. It will also explore earning FDA approval for an OBI formulation, which could provide Coherus BioSciences with an unusual ally in the likely upcoming legal fight against Amgen. My enemy's enemy is my friend kind of thing.

Cimerli

• Well I... I kind of ruined the surprise above.

Toripalimab

• The FDA put toripalimab at the top of its list for Chinese manufacturing facility inspections, but will only get around to an inspection in May 2023. That's over six months after the Chinese government lifted COVID travel restrictions, which suggests many other drug candidates across the industry are even further away from regulatory milestones. Yikes.
• Junshi Biosciences and Coherus BioSciences expect to make multiple presentations at the upcoming American Society of Clinical Oncology (ASCO) Annual Meeting. These data could inform the U.S. clinical development strategy.
• Junshi Biosciences recently announced toripalimab met the primary endpoint in a phase 3 clinical study in small cell lung cancer (SCLC). That makes it the first anti-PD-1 drug to demonstrate a benefit in this difficult to treat cancer – something even Keytruda and Opdivo couldn't achieve.
• The results in SCLC are a signal of the toripalimab's unique mechanism of action and an evolving understanding of the nuanced role PD-1 plays in suppressing T cells. Whereas Keytruda binds to the CD loop on PD-1 proteins and Opdivo binds to the N-terminus, toripalimab binds to the FG loop. That gives it over 20x higher affinity than Keytruda. This may suggest anti-TIGIT combos will be more successful with toripalimab than the competitive landscape, which has generally stumbled. This is nerdy, but worth explaining in an upcoming article with pretty pictures.

Yusimry

• Although Yusimry earned FDA approval in 2022, regulators recently approved the company's novel autoinjector formulation (allowing for added convenience) and large-scale manufacturing supply plan (allowing for supply of up to 10% of the adalimumab market).

Forecast & Modeling Insights

(Slight refinements.)

Solt DB Invest modeling has been refined with additional data, context, and nuance.

• Full-year 2023 revenue of $338 million, down from $355 million previously.
• Udenyca franchise contributes at least $125 million (lowered from $140 million), including roughly $100 million from Udenyca PFS and at least $25 million from Udenyca AI. Solt DB Invest does not expect Udenyca OBI to generate revenue in 2023.
• Cimerli contributes at least $100 million (no change), mirroring management's guidance. Solt DB Invest expects Q2 2023 revenue of at least $18 million.
• Yusimry contributes $108 million in full-year 2023 revenue (no change), reflecting roughly 2% market share at ASPs required to win over payers and pharmacies. It may take longer than expected to establish relationships and accounts, which could shift revenue generation into 2024.
• Toripalimab (Tori) contributes $15 million (no change), although this may be an overestimate depending on the specific launch date. Coherus BioSciences will have a wide open opportunity in NPC, but it's a relatively rare cancer that's often misdiagnosed as head and neck cancer. Slower-than-modeled patient discovery could shift revenue generation into 2024.

Solt DB Invest will withhold our 2024 model for an additional quarter. We now expect full-year 2024 revenue of at least $450 million without any contribution from Udenyca OBI. Our modeling is relatively conservative on Yusimry.

Margin of Safety & Allocation

(Increased expectations for dilution.)

Coherus BioSciences is considered a Growth (Speculative) position. The current Margin of Safety range for the company based on our 2023 model is below:

• Current Price (market close May 8): $8.14 per share
• Likely Undervalued:          <$8.48 per share
• Midpoint:                           $12.29 per share
• Likely Overvalued:            >$16.10 per share
• Allocation Range:             Up to 7.5%

Coherus BioSciences reported 80.554 million shares outstanding as of April 30, 2023. The Margin of Safety range above assumes 88.609 million shares outstanding, which accounts for an additional 10% dilution (increased from 5% previously). This increase is due to expected upcoming payments to Junshi Biosciences and Klinge Pharma, the former of which will be an all-stock transaction.

Further Reading

• May 2023 press release announcing first-quarter 2023 operating results
• May 2023 regulatory filing (10-Q) detailing first-quarter 2023 operating results
• April 2023 research note describing the company's Yusimry (adalimumab) strategy

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