The house of mouse is back, baby: Shanghai Disneyland has re-opened following a rare policy retreat from Xi Jinping. It's the most public sign that zero-COVID has been dismantled -- for now anyway.

A winter wave could test Beijing's commitment to ending restrictive zero-COVID controls, but the at least temporary return to normal provides a window for Coherus BioSciences.

The company's rolling biologics license application (BLA) for the anti-PD-1 antibody toripalimab ("Tori") in a rare head and neck cancer called nasopharyngeal carcinoma (NPC) has been submitted, accepted, and reviewed by regulators at the U.S. Food and Drug Administration (FDA). However, inspectors haven't been able to travel to China to inspect the manufacturing facility that generated data for the regulatory submission. That has impeded review of the most crucial aspect of the BLA – chemistry, manufacturing, and controls (CMC) data. It's the only thing standing in between the drug candidate and FDA approval.

Solt DB Invest still expects the approval decision to be delayed beyond the PDUFA date of December 23, 2022, but we're now hopeful approval can be earned in early 2023. Removing this source of uncertainty will place Coherus BioSciences on firm footing heading into a crucial commercial ramp in 2023.

Tori Hole in My Heart (and Financial Models)

The drug developer in-licensed Tori from China's Junshi Biosciences in January 2021. Already approved in China for various immuno-oncology indications, the goal was to bring the asset to the United States as the foundation of an expansive immuno-oncology portfolio to be built by Coherus BioSciences. That's because anti-PD-1 drug products such as Keytruda from Merck and Opdivo from Bristol Myers Squibb are most valuable in combinations with other oncology drugs. Importantly, Tori had the potential to provide long-term revenue growth and diversification from the company's biosimilar portfolio, which Wall Street isn't terribly excited about.

Things quickly unraveled.

First, the regulatory landscape shifted unexpectedly. Many Western drug developers went to China searching for anti-PD-1 drug products that had already proven themselves in clinical trials and could be brought to the United States. This class of immuno-oncology products generated over $19 billion in U.S. revenue in 2021 and is expected to grow to near $30 billion in 2026 – again, mostly driven by combination treatments. Most of the opportunity will be gobbled up by Keytruda and Opdivo. In fact, the former will become the world's bestselling drug in 2023 when Humira loses patent protection.

The opportunity is still large enough to generate hundreds of millions of dollars in annual revenue for each new entrant. For example, at an Investor Day in 2021, Coherus BioSciences expected full-year 2026 Tori revenue between $250 million and $600 million. That's meaningful for a company of this size, although the revenue range is much higher than Solt DB Invest forecasts.

Many peers had similar ideas. In addition to Coherus BioSciences and Junshi Biosciences, Eli Lilly tapped Innovent Biologics, EQRx tapped CStone Pharmaceuticals, Novartis tapped BeiGene, and Arcus Biosciences tapped Taiho.

The FDA squashed those plans. Despite previously communicating to the industry that clinical trials conducted in China could be used to earn approvals in the United States (tipping off the rush of deals), regulators in 2021 determined data from Chinese clinical trials wouldn't be sufficient. The FDA worried that studies enrolling only individuals of Asian descent wouldn't be representative of more diverse demographics in the U.S. population. Differences in genetics could skew efficacy and safety results by impacting how individuals respond to immune-altering drug compounds.

Regardless of whether a drug candidate is approved in other countries, the FDA now will only accept clinical trial data from studies with patient populations that more closely resemble the diversity of the United States. All plans for quickly bringing anti-PD-1 drug products to market in non-small cell lung cancer (NSCLC) and other gargantuan market opportunities evaporated overnight.

However, Tori is unique. Coherus BioSciences and Junshi Biosciences planned to first request FDA approval for a rare head and neck cancer called NPC. The malignancy has no approved treatments and poor prognosis. Importantly, it occurs most frequently in individuals of Asian descent. American regulators welcomed a BLA submission for Tori in NPC and offered what's known as "regulatory flexibility," meaning they would accept clinical trial data generated in China for this specific indication. Tori has earned Breakthrough Therapy designation across first-, second-, and third-line treatment settings.

The relatively small NPC indication was neglected by both Western-Chinese collaborations and U.S.-developed anti-PD-1 assets, which creates a wide-open opportunity for Tori. Coherus BioSciences estimates peak annual revenue of at least $100 million if the drug product is priced at a similar wholesale acquisition cost (WAC) as Keytruda.

Then came the manufacturing setbacks.

Coherus BioSciences only manufactures drug products in the United States. Products that are in-licensed from international partners are transferred to the United States after earning regulatory approval. However, the supply of Tori used in the NPC clinical trial was manufactured by Junshi Biosciences in China, which means the FDA must inspect that specific facility.

The BLA had an original approval decision date in April 2021, but manufacturing issues forced the companies to resubmit data. That kicked the approval decision date to December 23, 2022, but zero-COVID restrictions kept inspectors from visiting the manufacturing facility.

If the at least temporary end to zero-COVID policies provides a window for inspections to occur, then FDA approval could be near.

Forecast & Modeling

(No change, added detail for Tori.)

• Full-year 2022 revenue of $220 million. Udenyca contributes $200 million and Cimerli contributes $20 million.
• Full-year 2023 revenue of $355 million. Udenyca contributes $140 million, Cimerli contributes $100 million, Yusimry contributes at least $100 million, and Tori contributes $15 million. Udenyca OBI is not expected to generate revenue.
• Tori details: A conservative estimate for full-year 2023 revenue of $15 million for Tori 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 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: 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.

The largest sources for a positive surprise are Yusimry and Udenyca OBI.

• My Yusimry model assumes 2% market share of a $10 billion average market opportunity, but only for the six-month period the product will be available in 2023. It could easily be 4%, which adds another $100 million in revenue to next year's total. The uncertainty is mostly upside for this product through 2024.
• If Udenyca OBI somehow manages to launch next year, then it could generate $200 million in revenue over the first 12 months on the market. Not to be confused with contributing $200 million in revenue during the 2023 calendar year.

The number of moving parts makes forecasts for 2024 and 2025 more challenging, but Solt DB Invest expects full-year 2025 revenue of at least $775 million.

Margin of Safety & Allocation

(No change.)

Coherus BioSciences is considered a Growth (Speculative) position. The current margin of safety range for the company is below:

• Current Price (market close December 7):   $6.64 per share
• Likely Undervalued:          <$10.81 per share
• Midpoint:                            $13.45 per share
• Likely Overvalued:            >$16.09 per share
• Allocation Range:              Up to 7.5%

Coherus BioSciences reported 77.78 million shares outstanding as of October 31, 2022. The margin of safety range above doesn't include dilution and assumes 77.78 million shares outstanding.

Further Reading

• November 2022 company update for third-quarter 2022 operating results
• November 2022 press release for third-quarter 2022 operating results
• November 2022 SEC filing (10-Q) for third-quarter 2022 operating results
• August 2022 company update discussing approval of Cimerli
• August 2022 company update discussing strategic secrecy surrounding Udenyca OBI

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