Coherus BioSciences Divests Udenyca Franchise
Taking a Look at Coherus BioSciences (CHRS) Recent News.
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Management Shows Their Hand
This week, Coherus BioSciences (CHRS) announced they are selling Udenyca, their best-performing oncology franchise. The company has entered into an asset purchase agreement with Intas Pharmaceuticals Ltd. to divest its Udenyca (pegfilgrastim) franchise for up to $558.4M. This deal includes an upfront payment of $483.4M, which will be adjusted for inventory at closing, and potential net sales milestone payments totaling $75M.
CHRS plans to use a portion of the proceeds to fully repay its existing $230M in convertible notes due April 2026. Additionally, they intend to spend $49.1M to buy out certain royalty obligations related to Udenyca. This move can be looked at as a strategic step to strengthen their financial position and focus resources on their innovative immuno-oncology portfolio.
According to Denny Lanfear, CHRS' Chairman and CEO, the divestiture aligns with the company's strategy to concentrate on their immuno-oncology assets, particularly Loqtorzi (toripalimab). Loqtorzi is a novel PD-1 inhibitor with growing sales and is currently the only FDA-approved treatment for nasopharyngeal carcinoma (NPC). By monetizing the Udenyca franchise, CHRS aims to accelerate the development of their immuno-oncology pipeline in combination with Loqtorzi.
Under the terms of the agreement, Intas will acquire assets related to the Udenyca franchise, including the pre-filled syringe, autoinjector, and Udenyca Onbody. They will also assume certain liabilities. Accord BioPharma, Inc., the U.S. specialty division of Intas focused on oncology, immunology, and critical care therapies, plans to take full responsibility for the Udenyca franchise in the U.S. once the deal closes.
The CHRS Board of Directors has unanimously recommended that shareholders vote in favor of the proposed divestiture. The transaction is subject to customary closing conditions, including shareholder approval, regulatory clearances under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and any required approval by the Committee on Foreign Investment in the United States (CFIUS). The deal is expected to close by the end of the first quarter of 2025.
Financially, CHRS anticipates using previously unrealized tax attributes to offset substantially all U.S. federal income taxes related to the divestiture. They also expect to realize substantial cost savings moving forward by reducing financial liabilities—resulting in expected annual financing cash savings exceeding $10M—and by transferring certain full-time employees to Intas. Eliminating Udenyca-related overhead and commercial expenses will further contribute to cost savings.
The company plans to provide updated projections for Q4 2024 sales and Q1 2025 cash in early January 2025. Current post-close cash runway projections extend beyond two years, surpassing key data readouts expected in 2026.
Looking ahead, they intend to strengthen its focus on advancing its immuno-oncology portfolio in combination with Loqtorzi. They plan to:
Continue building momentum for Loqtorzi as the first and only FDA-approved treatment for recurrent, locally advanced, or metastatic NPC.
Develop new indications by combining Loqtorzi with internal pipeline assets to advance two drug candidates.
Enter into capital-efficient external partnerships for additional label expansions, with plans for further partnerships evaluating Loqtorzi with novel cancer agents in 2025.
In addition to Loqtorzi, they are advancing other promising candidates like Casdozokitug, a first-in-class, clinical-stage IL-27 antagonist, and CHS-114, a highly selective cytolytic CCR8 antibody. Key upcoming milestones include initiating Phase 2 trials, announcing final data from ongoing studies, and reporting new data readouts throughout 2025 and into 2026.
My Take
As an investor, you have to expect the unexpected. Without this mindset, you're likely to be disappointed and may struggle to hold onto your positions. Whether you're holding broad market funds or individual stocks, unexpected events happen: economic crises, catastrophes, geopolitical events, companies performing poorly, or even companies executing exceptionally well—you get the gist.
In this case, I don't think many of us anticipated that management would entertain bids to sell their best-performing Udenyca franchise. After digesting this news, I'm somewhat disappointed because of the future growth Udenyca could have contributed. It might have strategically helped get their debt under control, coupled with Loqtorzi's growth and future pipeline candidates creating even more overall value. I think management is showing their hand here, hinting that selling Udenyca was the only way to get the debt under control; otherwise, this would never have happened if they had other options. Udenyca was just too valuable.
One point remains: even after the spike in the share price, the company appears undervalued assuming the Udenyca deal closes. However, I plan on selling half of my 21,390-share position at a reasonable price. With an overall cost basis of $0.98 per share, I've essentially doubled my investment, so I'd like to make a respectable exit anywhere around the $2 range for half my position.
I'll likely reinvest these proceeds into a couple of names I have high conviction in—both Relay Therapeutics and/or Avita Medical. I'll hold onto the other half until their January business update to gain more clarity on their future projections. This could further clear the air about their prospects, possibly leading to another significant rise in the share price—or possibly the other direction (?)—but I want to hear them out.
One thing I'd like to point out is the elimination of the short campaign or thesis. Much of it was built around the debt issue, and the supply issue exacerbated it, but now both of these concerns are gone. We might start to see shorts exiting. Some say they did upon the news due to the volume. The gradual decline after the pop was likely due to tax-loss harvesting toward market close since many investors have been underwater and wanted to exit on the pop; therefore, it wasn't sustained. However, I can imagine many shorts did head for the exit though.
What I'm getting at—though it's a personal choice for everyone—is that CHRS might still have some room to run for a squeeze. But I don't like playing this game since it strays from foundational investment principles, and to be frank, I’m not very good playing this type of game. For now, if you follow me on Savvy Trader you can be notified when I do, I’ll be selling half my position at a reasonable price and hold the other half until January's business update.