I'm melting away in Houston at a scientific conference for the day job (and I'm booth buddies with Oxford Nanopore), but will publish a deep dive into the planned acquisition of Surface Oncology tonight.

A few quick thoughts to tease publicly:

• Dilution: Coherus BioSciences plans to acquire Surface Oncology for $65 million in an all-stock transaction. That will result in meaningful dilution considering the company's last close valued it at $507 million. However, the transaction will bring in two new clinical-stage assets with great combination potential for toripalimab (which will alter the modeled valuation) and include cash on Surface Oncology's balance sheet that will be sufficient to fund their development through the end of 2024. Shares may dip initially as the market digests the terms or adjusts for the dilution, but the expected November 2023 or February 2024 inflection point for the business remains intact.
• New Assets: The acquisition would include the only IL-27 antibody in development globally (phase 2), which has encouraging early data in multiple cancer types. Intriguingly, the asset has demonstrated activity in no and low PD-1 patients, which could make it a valuable combination with toripalimab given the unique mechanism of action. The acquisition would also include an anti-CCR8 antibody (phase 1) -- a target Coherus BioSciences was developing in-house with CHS-3318 before discontinuing development in October 2022.
• Monetization Potential: Coherus BioSciences suggested it will seek to outlicense international rights to the two acquired assets. Given the combination potential with PD-1 treatments, investors can place a high probability on Junshi Biosciences being the likely suitor in China and the Asia Pacific region. That could more than offset the acquisition cost and/or strengthen the economics of the existing relationship.
• News Flow: Coherus BioSciences will be significantly ramping news flow developments in the next 36 months -- and this acquisition would further add to the calendar. The business will be launching and ramping multiple commercial assets, in addition to providing updates on U.S. clinical trials for novel immuno-oncology assets. The latter will now include initial clinical data for:
• IL-27 in lung cancer in late 2023
• TIGIT antibody in early 2024
• IL-27 in liver cancer in early 2024
• ILT4 preclinical data in early 2024 (after a phase 1 clinical trial begins)
• Financials: Coherus BioSciences reiterated prior guidance for revenue and operating expenses. The business still expects full-year 2023 revenue of at least $275 million and operating expenses of less than $335 million (Surface Oncology's cash will pay for itself through the end of 2024). However, the business said it expects second-quarter 2023 revenue of $48 million to $53 million. Solt DB Invest modeled $44.338 million for the current quarter, which suggests our full-year 2023 model might be too conservative. That figure won't be shared in this public article.

I will publish a full update for subscribers tonight, which will include an update to our 2023 model.

Separately, there was also some legal back and forth between Coherus BioSciences and AbbVie regarding the adalimumab (Humira / Yusimry) market, specifically relating to the list price of Yusimry. It was settled (for now), but I'll dig into that within the next week, too.

Further Reading

• June 2023 press release announcing intention to acquire Surface Oncology
• June 2023 research note analyzing toripalimab's successful FDA inspection and Yusimry list price announcement
• May 2023 research note analyzing the public offering of common stock