Coherus BioSciences Spikes 20% After Earnings
Taking a Look at Coherus BioSciences' (CHRS) Earnings Report.
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Coherus BioSciences Q3 2024 Financial Results and Business Highlights
Coherus BioSciences (CHRS) has reported strong financial results for the Q3 2024, driven by its oncology portfolio and a strategic focus on innovative cancer therapies.
Financial Highlights
Net Revenue: $70.8M, including $66.1M from Udenyca and $5.8M from Loqtorzi.
Revenue Growth: Udenyca revenue increased by 30% compared to Q2 2024 and doubled YoY. Loqtorzi sales grew by more than 50% QoQ.
Net Loss: $10.8M, or $(0.09) per share, improved from a net loss of $39.6M, or $(0.41) per share, in Q3 2023.
Non-GAAP Net Loss: $1.7M, or $(0.01) per share, down from $26.9M, or $(0.27) per share, in Q3 2023.
Cash Position: $97.7M in cash, cash equivalents, and marketable securities as of September 30, 2024.
“Revenue growth was strong this quarter, with both Udenyca and Loqtorzi showing impressive increases. Our continued focus on oncology is driving results, with higher gross profit and lower expenses compared to last year,” stated Denny Lanfear, Chairman and CEO.
Key Business Updates
Udenyca Performance and Supply Chain Developments
Revenue: Q3 2024 sales reached $66.1M, up from $50.9M in Q2 2024 and $33M in Q3 2023, driven by a 54% increase in demand for OnBody and improved pricing.
Market Position: Udenyca holds the #2 position in the pegfilgrastim class with a 28% market share.
Supply Chain: Production at CHRS’ third-party CMO for Udenyca labeling and packaging is resuming, addressing a backlog of approximately 120,000 units, which will be expedited over 5 weeks to attempt to make up for lost revenue. Additionally, a new CMO will commence production by the end of 2024, doubling labeling and packaging capacity by Q1 2025, subject to FDA approval.
Loqtorzi Launch Progress
Product Launch: As the only FDA-approved treatment for recurrent, locally advanced, or metastatic nasopharyngeal carcinoma (NPC), Loqtorzi has seen steady adoption since its launch in January 2024.
Sales Growth: Q3 net sales were $5.8M, a 54% increase over Q2 2024.
Patient Uptake: The treated patient base expanded by over 60%, with significant uptake in advanced and metastatic cases, and 80% of NCCN institutions have prescribed Loqtorzi since its launch.
Immuno-Oncology Pipeline Advancements
Phase 2 Study: CHRS is initiating a Phase 2 study of casdozokitug (IL-27 antagonist) in combination with toripalimab and bevacizumab for unresectable hepatocellular carcinoma (HCC).
Upcoming Data: The Company expects final data from the Phase 2 casdozokitug trial with atezolizumab and bevacizumab in HCC by Q1 2025.
CHS-114 Program: The Phase 1 study of CHS-114, an anti-CCR8 antibody, continues, with expansion data expected in early 2025 and further trials in head and neck squamous cell carcinoma (HNSCC) and gastric cancer planned for early 2025.
Detailed Financial Performance
Nine-Month Results: Revenue for the first nine months of 2024 totaled $212.8M, up from $165.7M in 2023, with contributions from the divestiture of Cimerli and Yusimry.
Cost of Goods Sold (COGS): Q3 2024 COGS was $20.7M, a decrease from $32.7M in Q3 2023 due to divestitures.
Research and Development (R&D): R&D expenses decreased to $21.7M in Q3 2024, attributed to reduced headcount and lower costs following divestitures.
Selling, General, and Administrative (SG&A): SG&A expenses fell to $34.7M in Q3 2024, driven by headcount reductions and asset adjustments from recent divestitures.
Interest Expense: Reduced to $5.4M in Q3 2024, following the prepayment of $250M in debt principal earlier this year.
Gain on Divestitures: Nine-month gain of $176.6M from divesting Cimerli and Yusimry franchises.
My Take
The recent quarter was excellent for CHRS, primarily due to strong commercial execution and successful scaling of their franchises. Udenyca is expected to be the primary revenue generator, continuing to gain market share in the pegfilgrastim market. Meanwhile, Loqtorzi is gradually scaling and is anticipated to do so over the next year and a half. I believe Loqtorzi has the potential to achieve double-digit revenues over the next 12 months, exceeding my initial expectations of its growth rate.
Currently, CHRS appears to be one of the most neglected stocks on Wall Street, with a growing short interest that, while partially warranted, has been dramatically overdone. The company now has a Price-to-Sales (P/S) ratio of around 0.25x to 0.27x, with a market capitalization fluctuating around the $80M range. Considering CHRS just generated $70M in net revenue for one quarter, this valuation seems unreasonable. Due to this apparent undervaluation and overselling, I am continuing to double down on my position. My cost basis is just over $1, and my goal is to reduce it below $1, so I plan to add more shares over the next couple of months.
Despite the positive outlook, there are risks that concern me, though not enough to deter me from accumulating more shares. I want to clarify the speculation among investors, address the real risks at hand, and discuss the partially warranted sell-off affecting the company.
One significant issue is the "labeling and packaging" problem, which has contributed to a massive drawdown from the last quarter and fueled extreme speculation. This issue is part of a combination of factors holding the stock down. The company made a misstep after their Q2 earnings release by quietly submitting an SEC filing a couple of days after reporting a strong quarter, disclosing that they had labeling and packaging issues with their supplier and wouldn't be able to distribute Udenyca for a couple of weeks. In my opinion, this was a distasteful move by management, who should have issued a normal press release.
This disclosure negatively impacted the stock price because it implied that CHRS would lose revenue for weeks in a competitive market, potentially prompting clients to switch to competitors. Additionally, the absence of revenue for several weeks could accelerate cash burn. The timing was particularly unfortunate, as the company was at an inflection point when this occurred. Much of the reaction is speculative, with many making irrational decisions without fully digesting the information.
The exact amount of revenue lost is uncertain, and estimates vary widely. Management has stated they don't have a clear estimate but will provide exact figures in January. Regarding concerns that CHRS's accounts would switch to competitors, this was addressed during the Q&A session on the earnings call. When analysts pressed the issue, management firmly stated they would not be losing any accounts. Unless they are being dishonest—which would raise serious issues—we should trust their assertion.
Cash burn is a serious concern and depends on the impact of the Udenyca situation. If the impact is severe, the company could face a liquidity crunch. However, by the time this becomes critical, the company is expected to return to normal operations, potentially with increased market share, mitigating liquidity risks. It wouldn't be surprising if they pursued a capital raise under these circumstances. On a positive note, management mentioned during the call that the new Contract Manufacturing Organization (CMO) will double their labeling and packaging capacity. They are expediting 120,000 units of Udenyca over five weeks, which is unprecedented and has recently resumed. In my opinion, the only valid concern is the cash burn; other issues are speculative and a risky basis for decision-making.
In summary, the speculation around the labeling and packaging issue and the potential cash burn leading to a liquidity crisis are likely suppressing the stock to unreasonable levels. Importantly, these are short-term roadblocks, not long-term, permanent issues—a fact that many seem to overlook. The Udenyca issues are manageable in the short term, and the associated cash burn should also be controllable. While a sell-off in Q4 due to the Udenyca impact wouldn't surprise me—and we should be mentally prepared for this—I'm personally accumulating more shares of CHRS. I'm looking past these temporary setbacks and focusing on the prospects for 2025. Patience is key.