Foxes and hedgehogs.

A hedgehog solves every problem it encounters with a singular response: Curling up in a ball. It works. Er, it works sometimes. Other times that just makes it easier for a hawk to sink in its talons and fly off with lunch.

A fox is shrewd and calculating. It can read nuance and adapt to information of the present situation. If the environment changes, then so, too, does a fox's strategy. It's usually the one walking away with lunch.

Coherus BioSciences limped into 2023, but it certainly looks more like a fox than a hedgehog. The launch of Cimerli (ranibizumab) in October 2022 made it a multi-product company for the first time. The expected launches of Udenyca AI (pegfilgrastim, autoinjector formulation), toripalimab, and Yusimry (adalimumab) by July 2023 will further expand the company's strategic surface area.

The launch of Yusimry in particular has the potential to greatly influence the company's valuation – in either direction. Placing manufacturing capacity at the center of its strategy could force Wall Street to quickly recalibrate its expectations near the end of 2023.

By the Numbers

The next earnings season for our coverage ecosystem begins next week. Although I updated modeling when needed for the last earnings season in February and March, I didn't provide much written coverage as I focused on building out Beta 2.0 website. Let's just say grabbing Solt DB Invest for $10 per month (or $80 per year) will be considered a crime in 42 states in a few years. But I'll fight for you guys, don't worry.

Let's quickly recap full-year 2022 operating results to set the stage for 2023.

Data Source: SEC filings.

Another year, another not-so-pretty year-over-year comparison.

But an inflection point is in sight. Coherus BioSciences expects full-year 2023 revenue of at least $275 million, which would represent year-over-year growth of at least 30%. We'll come back to that below.

Total revenue encountered a precipitous decline due to the company's bend-don't-break strategy for its Udenyca portfolio, which includes the pre-filled syringe (PFS), autoinjector (AI), and on-body injector (OBI) formulations.

• The company has resisted reducing selling prices for its PFS formulation as quickly as competitors (it has the highest-priced pegfilgrastim on the market – higher than the originator Neulasta). Udenyca PFS reduced selling prices 14% as the entire PFS market experienced an 8% decline in demand. Combined with ruthless competition, the flagship formulation ended the year with a market share of only 12.4% -- down from over 20% at its peak.
• Coherus BioSciences has argued it would absorb short-term pain for long-term gain. That is, the launches of Udenyca AI (autoinjector formulation) and Udenyca OBI (on-body injector formulation) are expected to position the Udenyca brand to resume capturing market share. That includes the 44% slice of the pegfilgrastim market reserved for OBI formulations and out of reach of biosimilars.
• Solt DB Invest isn't fully convinced this strategy will pay off. For example, we expect Udenyca OBI to be contested by Amgen due to intellectual property concerns, which would delay its launch until at least 2025, according to our forecast.
• There's significant statistical fog for the AI formulation considering it's the first and only such formulation on the market. When in doubt, we go conservative. Our models assume Udenyca AI helps the franchise find a revenue floor, but we're assuming contributions aren't meaningful beyond that.

Gross margin tumbled due to the write-off of $26 million in inventory at risk of expiration. That amounted to 37% of the total cost of goods sold for the year. It's important to acknowledge Cimerli is in-licensed from Bioeq and gets slapped with a low- to mid-50% royalty on gross profits, so the product will contribute lower margins than Udenyca products.

Falling revenue and gross margin leads to some pretty brutal operating metrics further down the income statement and cash flow statement, which is exactly what the table above reflects. Coherus BioSciences made the decision to reduce headcount by 60 employees and other expenses, which is expected to reduce R&D and selling, general, and administrative (SGA) expenses by $100 million in 2023.

The cost reductions arrive as the company's cash balance dwindled to $191.7 million at the end of 2022, down from $286.8 million just three months prior. The business has access to a credit facility worth $100 million.

Foxy Strategy for Yusimry

Humira (adalimumab) is the best-selling drug in the world. It racked up a record $18.6 billion in full-year 2023 revenue. That's primarily because AbbVie is an asshole and the United States doesn't regulate drug prices, but there's a gargantuan opportunity nonetheless.

So, what are the most important metrics for an adalimumab biosimilar? It depends on who you ask.

• When Cardinal Health asked 103 rheumatologists (doctors), 62% said a citrate-free formulation was "very important." Every biosimilar has a citrate-free formulation, so perhaps they're not very educated. Then again, this is the first time a biosimilar has been available in immunology markets, so perhaps they deserve some slack.
• The same survey found 60% of doctors thought interchangeability was "very important." An interchangeable biosimilar product can be switched out at the pharmacy without a change to the prescription.

On the one hand, Wall Street analysts are assuming interchangeability status might be more important for the adalimumab market because prescriptions will be filled at pharmacies. That presumably gives pharmacists more power to alter the market landscape. Most biosimilar products on the market today are cancer treatments, which generally aren't filled at pharmacies.

On the other hand, there's some controversy about the label. Interchangeability status only exists in the United States. It's also redundant considering the whole point of a biosimilar is, um, interchangeability to the reference product.

Most adalimumab biosimilars have not earned interchangeability status (Yusimry is not interchangeable), which requires head-to-head clinical trials.

• Boehringer Ingelheim has snagged the label for Cyltezo
• Pfizer expects to be granted interchangeability for Abrilada
• Alvotech hopes to earn the label for AVT02, although it's bogged down in its second complete response letter for a facility in Iceland

For all the focus on interchangeability status leading up to a wave of launches this summer, there are critical nuances that Wall Street analysts might be overlooking. Doctors aren't that important in the market. Pharmacists might not be that important, either.

• If an adalimumab biosimilar is interchangeable, then a prescription for Humira can be switched by the pharmacy filling the order without consent from the prescribing doctor.
• If an adalimumab biosimilar isn't interchangeable, then a pharmacy can still switch the prescription by providing a 90 day notice.

Instead, the crowded landscape might be separated into haves and have nots based on what metrics matter most to payers. Payers consider interchangeability the least-important attribute of an adalimumab biosimilar, right after citrate-free formulations – almost the opposite priorities of doctors in the Cardinal Health survey.

Insurance companies are eager to reduce expenses related to Humira's stranglehold on the market, but they need to manage risks, too. Payers have signaled they'll prioritize prices and rebates first, followed by biosimilars with a dedicated supply.

That echoes the strategy of Coherus BioSciences, which has secured ample manufacturing capacity ahead of launch with the potential to scale if needed. The company plans to offer supply guarantees to market participants and win over payers. Yusimry will have 500,000 units available at launch, which is enough to supply 4.5% of the total adalimumab market on an annual basis. Solt DB Invest modeling only expects 2% market share.

How will investors know if the strategy is working? It could take time.

Investors won't get the first hints at the market launch of Yusimry until the second-quarter 2023 earnings conference call in August. However, the product is launching in July, so initial data likely won't be meaningful. Coherus BioSciences may not share any data until the third-quarter 2023 earnings conference call in November. Beyond that, the first revenue guide for the product is unlikely to be issued until at least February 2024.

It's possible for Coherus BioSciences to announce payer coverage ahead of market launch or throughout the second half of 2023 in separate press releases, which could provide useful clues to the competitiveness of Yusimry.

It's also worth pointing out that Coherus BioSciences will be going up against Amgen, Boehringer Ingelheim, and Pfizer – companies that presumably won't struggle with supply. Nonetheless, being in the top half of the crowded field would allow the business to reach its long-term goal of capturing at least 10% market share.

Even if the value of the adalimumab market falls by 70% in the next few years to "only" $5.5 billion, then Yusimry could generate nearly $500 million in annual revenue.

Solt DB Invest expects the market to decline significantly below $5.5 billion by the end of the decade as next-generation oral treatments become available, but that's a problem for your future self to navigate. That won't become a market headwind until 2026 or 2027. In other words, Coherus BioSciences could be a great investment in the next few years, but there may come a time to jettison it from your portfolio entirely.

Forecast & Modeling Insights

(Refined 2023 model – same revenue, refined valuation contributions)

Solt DB Invest modeling differs substantially from Wall Street, primarily due to expected contributions from Udenyca OBI. Coherus BioSciences expects to launch the formulation in 2023, which Wall Street generally agrees with.

We don't expect the formulation to launch or generate revenue until at least 2025 due to expected legal challenges from Amgen over intellectual property for the on-body device. If we're wrong, then this formulation is expected to add an additional $175 million in full-year 2024 revenue over our base model.

• Full-year 2023 revenue of $355 million.Udenyca franchise (PFS + AI) contributes $140 million, Cimerli contributes at least $100 million, Yusimry contributes at least $100 million, and toripalimab (Tori) contributes $15 million. Udenyca OBI is not expected to generate revenue.
• Tori details: Our expectations for full-year 2023 revenue of $15 million could be exceeded even with delayed approval timelines. The sales team for Udenyca will execute the launch of Tori. Of the estimated 2,297 oncology accounts the sales team would need to penetrate for success in the anti-PD-1 market, roughly 2,216 are shared with Udenyca. An estimated 65% of patients with nasopharyngeal carcinoma (NPC) come from Udenyca accounts. There's uncertainty about the regulatory and commercial (reimbursement) timelines, but the pieces are in place for a relatively smooth market launch and swift ramp.
• Valuation contribution (Tori): Immuno-oncology revenue (Tori) will have a higher premium than biosimilar revenue. Full-year 2023 revenue of $15 million would be worth an additional $75 million in valuation, or roughly $1 per share. Peak annual sales in NPC of $100 million would be worth an additional $500 million in valuation and $6 per share.
• Yusimry revenue: Our model assumes $108 million in full-year 2023 revenue, reflecting 2% market share at average selling prices required to win over payers and pharmacies. It may take longer than expected to establish relationships and accounts, which would shift revenue generation into 2024.

Solt DB Invest will withhold our 2024 model for an additional quarter. We expect full-year 2024 revenue of at least $420 million without any contribution from Udenyca OBI. If the new formulation launches as expected, then we expect full-year 2024 revenue of at least $645 million. Our modeling is relatively conservative on Yusimry.

Margin of Safety & Allocation

(Widened based on refined 2023 model)

Investors keeping track of expectations for Coherus BioSciences are likely to be very confused by the significant variance. Let's summarize:

• Revenue Floor: The business expects full-year 2023 revenue of at least $275 million. Solt DB Invest cannot replicate this revenue floor even if Udenyca OBI is excluded – it appears way too conservative. Nonetheless, if investors assume historical valuation metrics and account for an additional 5% dilution, then shares would be fairly valued at $10.24 per share.
• Wall Street: The previous consensus on Wall Street expected $390 million in full-year 2023 revenue. That has since been reduced to $347 million.
• Solt DB Invest: The finch has maintained expectations for $355 million in full-year 2023 revenue, so Wall Street has once again bent toward our modeling. However, we arrive at similar numbers in different ways. Wall Street appears to be less optimistic for Yusimry and more optimistic for Udenyca OBI. The total revenue figure is similar, but news flow and recalibrations from Wall Street could lead to increased volatility until firm revenue numbers are available in late 2023 and early 2024.

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 April 21):  $8.30 per share
• Likely Undervalued:          <$9.03 per share
• Midpoint:                           $13.10 per share
• Likely Overvalued:            >$17.17 per share
• Allocation Range:             Up to 7.5%

Coherus BioSciences reported 79.609 million shares outstanding as of February 28, 2023. The margin of safety range above assumes 83.589 million shares outstanding, which prices in another 5% dilution.

Further Reading

• March 2023 article describing the approval and launch timeline of Udenyca AI
• December 2022 article describing updated expectations for the FDA approval of toripalimab
• August 2022 article describing the messy landscape and our expectations for Udenyca OBI

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