Coherus Closes on Udenyca, Debt Repayment to Begin

Coherus BioSciences (CHRS) Closes Udenyca.

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Udenyca is Divested

The past six months have been a wild ride for Coherus BioSciences (CHRS) and, by extension, its shareholders. Over the last five years, practically since the company’s IPO almost a decade ago, shareholder value has declined significantly. It turned out that the biosimilar business was too cutthroat, leading CHRS into a downward spiral punctuated by poor capital allocation, mounting debt, & overall questionable management decisions.

I always kept an eye on the company but didn’t consider starting a position until I saw promise in their Udenyca franchise. Udenyca, a pegfilgrastim biosimilar, came on the scene in a highly competitive market that was dealing with shortages at one point. However, I recognized an opportunity: if Udenyca could rebound, stabilize, and gain market share, something it was actively doing, CHRS might turn a corner making this a classic “turnaround” play. Their commercial strategy was (and still is) quite strong, which reinforced my confidence. Plus, their Loqtorzi (toripalimab) franchise looked like it could become a significant growth driver.

A Surprise Divestment

Unexpectedly, at the end of 2024, CHRS found a buyer for the Udenyca franchise: Intas Pharmaceuticals. Together, they entered into an Asset Purchase Agreement (APA) for up to $558.4M, with $483.4M paid upfront (including $118.4M for Udenyca inventory) and up to $75M in potential milestone payments.

Initially, I was frustrated because my thesis hinged on Udenyca continuing to scale, generating enough cash flow to refinance the convertible notes maturing in 2026. It took me a moment to step back and process the deal rationally, especially after the stock price soared nearly 80% on the news. But in retrospect, management likely chose the best path. They’d been cornered by the debt situation (something short sellers had seized upon), and the divestment solved a major overhang.

Under this agreement, the plan is to use the proceeds to repurchase $170M of convertible notes immediately after the sale closes (as per an 8-K) and then repurchase another $60M of convertible notes shortly after. This negotiation required an amendment to the existing bond indenture, resulting in $230M of debt wiped off the balance sheet. After these moves, CHRS expects to have about $250M in cash, plenty of liquidity to support the expanding Loqtorzi franchise & key IPs in their pipeline. The deal officially closed on April 11th but was publicly confirmed on April 14, with debt repurchases starting April 15 (more on this below).

Finer Details

During the acquisition process, one interesting detail is that a demand letter was filed against CHRS by shareholders claiming the Udenyca sale was not at fair value. The company disclosed this via an 8-K to avoid any delays with Intas. However, CHRS actually sold the franchise around the midpoint valuation (arguably a slight premium), so shareholders shouldn’t feel shortchanged.

There’s also been talk on social platforms about Udenyca winning $60M+ worth of contracts from the U.S. government during the CHRS–Intas negotiations. According to the APA, these contracts do not remain with Coherus after the deal officially closed on April 11th; instead, they transfer to Intas, along with any related cash. But here’s the nuance: CHRS could use the funds as necessary in the interim, under Intas’s authorization, to shore up critical parts of its business. This arrangement ultimately helps Coherus achieve those potential milestone payments of up to $75M, which is going to be much faster than I originally anticipated.

In fact, it was a pretty good move by CHRS to spend about $60K lobbying the U.S. government to secure these contracts, because it paves the way for those milestone triggers. Specifically:

- $37.5M is payable if Udenyca’s net sales reach $300M for four consecutive quarters (anytime from Q3 2025 through Q3 2026).

- Another $37.5M is payable if net sales hit $350M for four consecutive quarters (anytime from Q3 2025 through Q1 2027).

What’s Next?

Let’s talk about the future of CHRS, what investors should be aware of, and where I stand. The short version: my bullish stance still holds in many ways, but my outlook has evolved post-divestment.

My Position
I plan to exit half my holdings when the valuation looks more reasonable. Right now, the market is still undervaluing the company, significantly. Sure, maybe I should have sold back on the December peak. I can’t time the market. But I personally believed at the time, and still do, this stock has much more value to unlock, coupled with the massive short interest behind the name fueling it.

Long-Term Value Proposition
From my previous articles, you might recall I’m excited about the Loqtorzi franchise scaling across multiple indications (the data is very strong to support this). The pipeline also includes two assets, Casdozokitug and a CCR8-targeting candidate, that show real promise. My intrinsic valuation model continues to put CHRS somewhere between $5–$7, setting the stage for a potential turnaround as a pure-play oncology company.

M&A Opportunity
Post-divestiture, Coherus is in a healthier position, enough to attract potential acquirers, especially in a biotech climate that’s rife with distressed valuations. I’ve speculated in earlier writing about possible suitors. Now, with a cash windfall from Intas, plus pipeline assets (data readouts end of April), the company could be an even more compelling M&A target.

Tariffs and Geopolitics
With Loqtorzi coming from Chinese partner Junshi Biosciences, investors should keep an eye on any U.S.-China tariff battles. Fortunately, most pharmaceuticals are currently exempt from tariffs, so Loqtorzi isn’t subject to extra import taxes. Still, the evolving geopolitical landscape could shift, so we’ll need to stay alert.

Short Front / Complex Dynamic
The short narrative originally revolved around runaway debt and subpar management. Now that a major chunk of the debt is gone, taking away 90% of the original short thesis, the only bear argument left is “poor management.” But let’s be fair: Coherus has shown strong commercial execution, and their biggest stumbling block was the biosimilars space, which is notoriously competitive.

Since the Udenyca sale announcement, we’ve seen short interest remain high (over 30 million shares), yet only about 1 million shares were covered after an 80% price spike. That’s puzzling to me. Let’s dig into why this could lead to a short squeeze (below).

Convertible Arbitrage and the Short Squeeze Opportunity

CHRS has a large short interest, partly because of good old-fashioned skepticism, but also due to what is known as convertible arbitrage. When Coherus issued $230M in Convertible Senior Notes (due 2026 at 1.5% interest), many hedge funds bought those notes and shorted the stock to hedge their position. It’s a common strategy: they collect interest from the bonds while offsetting equity risk with a short position.

Why the Udenyca Deal Matters

With the Udenyca sale, CHRS now has enough cash to retire all $230M of those notes. So, what has been happening, by shorting, they hedge the equity exposure of the convert (since a convertible bond’s value is linked to the stock price movements). This has created selling pressure at the max for years. This has allowed them to earn the interest and potentially profit from any volatility, while being relatively market-neutral. The side effect for the company is a big increase in reported short interest due to these arbitrage positions & obviously pressure on the downtrend (this is complex yet a common theme in short squeeze scenarios).

Coherus’s Notes and Hedge Dynamics: Over the past couple of years, a significant portion of Coherus’s short positions were likely held by these convertible noteholders as a hedge. When the stock price was far below the conversion price (which has been the case -- Coherus stock has mostly traded in the single digits *actually pennies*, under the hypothetical conversion threshold), the bond acts mostly like debt, and the hedge ratio (the number of shares shorted per bond) might be lower. However, many convert arb funds still short some percentage of the equivalent shares to protect against any stock rallies. This creates continuous short interest that isn’t necessarily based on outright bearish sentiment, but rather on a financial strategy tied to the bond. Think of this as a more structural shorting tactic, not technical.

Planned Repayment/Elimination of the $230M Convertible Notes: Coherus announced that, concurrent with the Udenyca sale, it has arranged to repurchase and retire all of its convertible notes. In fact, in the beginning of April, the company has already made deals with noteholders to buy back about $170M of the notes (which 170M will be happening April 15th), and it intends to repurchase the remaining ~$60 million shortly after the sale closes (under a “fundamental change” clause triggered by the asset sale). Essentially, within a short time of the Udenyca transaction, all $230M of the convertible bonds will be gone. Noteholders will receive cash at par value for their notes.

This development is crucial for the stock’s dynamics:

**Hedge Unwinding**: When the noteholders receive cash and relinquish their bonds, they no longer need their hedges. Those funds that were short Coherus as part of the convertible arb will buy back shares to close out their short positions. This is likely to be a major driver of short covering volume. Importantly, the largest portion of notes (the $170M) is being bought out via privately negotiated transactions -- presumably those are held by big institutional arb players. Many of them have maintained short positions against that $170M in principal. As they agree to sell the notes back to Coherus for cash, they will simultaneously look to cover the associated shorts. We could see this effect in the short interest data in the weeks following the closing: a sharp drop in shares sold short.

**Think about it like this: if you’re a hedge fund/institution holding Coherus’s convertible notes, you’ve been benefiting on both sides of the trade. You’ve collected interest from the bond position while hedging your exposure through massive short positions in the stock, you can’t lose. But once those bonds are retired and paid back at par -- locking in a positive return on investment -- the hedge is no longer needed. In fact, it becomes a liability. With no more debt exposure to protect, maintaining the short position now exposes you to unlimited risk if the stock rises. Hedge funds are not in the business of taking that kind of asymmetric risk, especially after their principal is returned. The logical move is to unwind the short position, and fast. Because of the dynamics of availability of short shares, fees, and days to cover, it would be a recipe for disaster to hold a short position for them. Once that covering begins, a significant influx of cash onto Coherus’s balance sheet from the Udenyca sale (there already) could act as a catalyst, triggering high-frequency trading algorithms -- many of which are programmed to react to liquidity infusions, sharp volume spikes, or unusual price movements. Since over 90% of institutional buying and selling is now algorithm-driven, this could rapidly accelerate the move upward. It’s been estimated that nearly 95% of the 30 million shares currently sold short are controlled by major institutions and funds -- meaning that once the bond repayments hit and the shorts start to unwind, the cover pressure will be intense and concentrated. That’s the entire point: once the bondholders are out, the hedge becomes dangerous, and no smart fund is going to stand in the way of a freight train.**

Timing and Scale: The company’s press releases indicate that the $170M repurchase is happening April 15th. The remaining $60M via a formal offer right after. This means the short covering may come in waves: initial covering by the majority noteholders, and then additional covering once the last tranche is taken out. Together, it could remove a large chunk of that 32 million share short interest. In fact, if convertible arb accounts for, say, 20–25 million shares of the short interest (hypothetically), covering those would dramatically lower the short percentage of float.

Impact on Stock Price: The removal of the convertible hedges can have a double benefit to Coherus’s stock. First, the technical buying pressure of shorts covering will boost the share price. Second, with the convertibles gone, there’s no looming dilution from conversion. Previously, investors knew that if Coherus’s stock rallied strongly, those notes could convert into equity (issuing millions of new shares to noteholders, which could dampen the upside and which arb funds would short into any rally). That “ceiling” is effectively lifted -- once the debt is repaid, there are no convertible holders waiting to sell or hedge. The equity is cleaner. So the stock might start to trade more on fundamentals and sentiment, without the drag of a big hedged position.

End of Interest Expense: Though not directly related to short interest, it’s worth noting the company saves on interest payments (1.5% of $230M is about $3.45M annually). More importantly, it eliminates the refinancing risk in 2026. This improves the long-term outlook, which can attract fundamental investors and dissuade new short sellers who often target companies with debt issues. **companies issue corporate bonds for immediate cash to fund growth/operations and they pay interest on those bonds, that’s what Coherus has been doing. In retrospect this was not a good decision by them**

Convertible Hedge Short Interest – A Common Pattern: It’s not uncommon to see a stock’s short interest drop after convertible debt is resolved. Coherus is following a classic path here. Initially, issuing the convert gave them cash but led to short selling by note buyers. Now, by paying it off early (facilitated by the cash from the asset sale), they are effectively squeezing out the shorts that came with that financing. The result should be a more straightforward equity story for Coherus going forward.

So…?

This idea is obviously speculative, and I went back and forth on whether to include it. However, now that the deal is officially closed, the short-interest data does point toward a classic, textbook squeeze scenario. That said, we have to acknowledge a couple of caveats: dark pools might skew the reported short stats, and some hedge funds could opt to hold onto their short positions, especially since biotech is under significant pressure right now.

Still, for convertible arbitrage players, it’s unlikely they’d continue exposing themselves to high risk once their hedges are gone, particularly in this volatile environment. It’s possible they continue to hold on until an unexpected positive event like a data readout or strong scale by Loqtorzi. Just the slightest bit of optimism could ignite the covering. Bottom line: a potential squeeze is hardly guaranteed, but it’s worth considering given the circumstances and wanted to note this in case it happens.

Historical Context (for proof)

We’ve seen similar scenarios before: Tesla in 2013, Oclaro in 2016, Dendreon in 2007, Carvana in 2023, companies with large short positions tied to debt instruments that triggered big upward moves once that debt got resolved. While those cases differ in the details, the principle is the same: removing the debt or converting notes often forces short sellers to cover, creating a squeeze and higher share prices.

Tariffs on Pharma: Watching Loqtorzi

Now, let’s pivot to a topic that’s increasingly on investors’ minds: tariffs on pharma. Coherus’s biggest growth driver is Loqtorzi (toripalimab), developed by Shanghai Junshi Biosciences. It’s the first U.S.-approved PD-1 inhibitor originating from China, indicated for nasopharyngeal carcinoma.

So far, U.S. tariffs haven’t targeted finished pharmaceuticals, medicine is generally exempt due to public health considerations. Thus, Loqtorzi imports from China haven’t been slapped with extra duties, which allows Coherus to price the drug competitively (around 20% below Keytruda).

However, there is ongoing uncertainty. If U.S.-China tensions worsen, tariffs on drugs could materialize. Coherus would need contingency plans if that happened, possibly exploring domestic manufacturing or building up inventory. For now, though, there’s no immediate tariff-related roadblock. At the time of this writing I believe the administration was going to comment on potential pharma tariffs, so this could be changed when it releases. Even if so, it wouldn’t have much effect to CHRS.

Also, I believe this is important to bring up… Loqtorzi’s approval was delayed partly because FDA inspectors couldn’t travel to China during COVID restrictions, and Coherus had to deal with a Complete Response Letter (CRL) before eventually winning FDA approval in late 2023. This shows the challenges of relying on a Chinese manufacturing site in a tense geopolitical environment too. Still, with approval secured and no tariffs at present, Loqtorzi’s commercial ramp can continue but should be monitored by investors. Management has also highlighted moving manufacturing to the U.S. by 2026 sometime, so they aren’t sitting on their hands.