Coherus BioSciences Announces Job Reductions, Omits Revenue Guidance, But Provides A Clearer Outlook
Taking a Look at Coherus BioSciences' (CHRS) Earnings Results.
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Coherus’ Mixed Quarter
CHRS announced their Q4 2023 financial results and full-year 2024 guidance yesterday after-hours:
Corporate Restructuring Focus on Oncology:
Divested ophthalmology franchise to Sandoz for $170M upfront, plus an additional $17.8M for product inventory and assets, on March 1, 2024.
Plans to prepay $175M of its term loan, reducing annual interest payments by approximately 70%.
Anticipated workforce reduction of 30% by end of 2024, aiming for over $25M in annual savings.
Reduced expected 2024 SG&A and R&D expenses to $250-265M, a decrease of at least 12% from 2023.
Product Launches and Sales Performance:
UDENYCA and ONBODY: Launched UDENYCA OBI in Q1 2024 with strong demand; net sales of $36.2M in Q4 2023 and $127.1M in FY 2023.
CIMERLI: Net sales of $52.4M in Q4 2023 and $125.4M in FY 2023.
LOQTORZI: Launched in Q1 2024 as the first FDA-approved treatment for recurrent or metastatic nasopharyngeal carcinoma (NPC).
Advances in Immuno-Oncology Pipeline:
Entered a clinical collaboration with INOVIO for a Phase 3 trial evaluating LOQTORZI with INO-3112 in HPV16/18 positive oropharyngeal squamous cell carcinoma.
Presented promising clinical data for casdozokitug, a first-in-class IL-27 antagonist, at the 2023 ESMO IO Congress and 2024 ASCO Gastrointestinal Cancers Symposium.
Plans to file an IND application in Q2 2024 for CHS-1000, a novel ILT4-targeted antibody.
Fourth Quarter and Full Year 2023 Financial Results
Revenue and Sales:
Net revenue of $91.5M in Q4 2023 and $257.2M for FY 2023.
Notable increases driven by CIMERLI and YUSIMRY launches and UDENYCA growth.
Costs and Expenses:
Cost of goods sold (COGS) rose significantly, partly due to inventory write-downs and increased royalty costs.
R&D expenses decreased YoY, reflecting reduced collaboration scope and other efficiencies.
SG&A expenses saw a slight decrease due to lower headcount and operational optimizations.
Net Loss:
Reported a net loss of $79.7M in Q4 2023, improving to $237.9M for FY 2023.
Non-GAAP net loss was $68.9M for Q4 2023, showing a reduction to $186.2M for FY 2023.
Liquidity:
Cash, equivalents, and marketable securities totaled $117.7M as of December 31, 2023.
2024 Guidance
Combined R&D and SG&A expenses are expected to range from $250M to $265M, excluding potential strategic impacts and unforeseeable transactions. This guidance does include $40M of stock-based compensation expense as well.
No revenue guidance.
My Take
Despite the initial appearance of a challenging quarter for CHRS, highlighted by the absence of revenue guidance, workforce reductions, and increased dilution, a deeper analysis suggests a strategic redirection during a pivotal phase. The company's decision to divest CIMERLI and focus on ramping up UDENYCA OBI and LOQTORZI reflects a deliberate shift toward prioritizing "Quality" revenue, as emphasized by management. This approach, although leading to no immediate revenue guidance, demonstrates a commitment to long-term value over short-term gains. The lack of guidance, as explained, stems from the nascent stages of each franchise's development and an emphasis on cultivating substantial, profitable revenue streams.
The job cuts, though initially concerning, are part of a strategic restructuring to streamline operations and improve financial health. Coupled with adjustments in stock-based compensation, these measures are aimed at enhancing shareholder value, with the expectation of patience during this transition. Looking ahead, CHRS projects significant revenue growth from its UDENYCA franchise and LOQTORZI, forecasting over $445 million by 2026, exclusive of YUSIMRY, pointing to a business model that's not just viable but comfortably profitable.
Notably, the company has managed to reduce its cash burn to $13.4M, with a strategic focus on becoming cash flow+ by 2024. The sale of CIMERLI is expected to inject an additional $17.8M, bolstering the cash balance to $117.748M. Payment obligations to Junshi Biosciences are also strategically planned, with $12.5M due by Q2 and the remainder, potentially less, by Q1 2025, contingent on proceeds from Canadian rights.
In terms of product development, both OBI and LOQTORZI are showing promising early results. OBI, in particular, is expected to perform exceptionally well from the outset, contrasting with the slower uptake of the AI presentation. LOQTORZI is on a promising trajectory, anticipated to generate over $200M by the end of 2026. The ongoing multi-regional trials for toripalimab by Junshi underscore a robust research and development effort.
While full-year guidance has yet to be provided, the strategic moves indicate a strong focus on commercial execution and profitability. This focus is evidenced by the careful management of trade receivables and accrued rebates, which stand at significant figures. The company's approach to maintaining high Average Selling Prices (ASPs) through strategic rebates for its AI and OBI presentations suggests a sophisticated pricing strategy that could yield substantial benefits.
So, despite the challenges and uncertainties faced by CHRS, the company's strategic decisions and operational adjustments suggest a resilient and forward-looking approach. By prioritizing long-term profitability and efficient commercial execution, CHRS is laying the groundwork for sustainable growth and shareholder value, requiring patience and trust in the company's vision and execution capabilities. I will be adding to my position with my conviction remaining intact.