Two Companies That Could Pay Off Big
Two Companies That Could Pay Off Big
Reviewing Coherus BioSciences (CHRS) and Lemonade (LMND).
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1. Coherus BioSciences (CHRS)
Coherus BioSciences (CHRS) is a biopharmaceutical company dedicated to developing and commercializing biosimilar drugs. Biosimilars are highly similar to approved biologic medicines and are designed to provide comparable safety, efficacy, and quality at a reduced cost. This differentiation sets them apart from traditional big pharma giants. However, the caveat is that biosimilar products are still relatively new and not fully accepted in the medical world, particularly in Wall Street’s eyes. Despite the company's many hiccups, which have contributed to the recent downturn, continued scaling and execution could eventually catch Wall Street's attention. I estimate the fair value of the company to be between $8 and $11 per share.
For more in-depth research on this company, please reference my archive where you’ll find recent quarterly and business updates.
The company has two primary segments they focus on: oncology and immunology. However, it's important to note that the management team has repeatedly expressed their intention to become solely an oncology-based biopharmaceutical company.
Franchises:
Oncology: UDENYCA® (pegfilgrastim-cbqv) - a biosimilar to Neulasta®, used to reduce the incidence of infection in patients receiving chemotherapy.
Immunology: YUSIMRY™ (adalimumab-aqvh) - a biosimilar to Humira®, used for treating various autoimmune diseases such as rheumatoid arthritis, psoriasis, and Crohn’s disease.
Immuno-Oncology: LOQTORZI™ (toripalimab) - an anti-PD-1 monoclonal antibody used for treating various types of cancer, including nasopharyngeal carcinoma and melanoma.
The company was previously active in the ophthalmology segment with a franchise called CIMERLI, which they labeled as a "non-core asset." They have since divested this franchise, significantly bolstering their balance sheet. Additionally, CHRS has labeled their YUSIMRY franchise as a non-core asset, so it wouldn't be surprising if they divested this product in the future. With these changes, this is the current focus of CHRS.
It should be highlighted that each franchise listed above is still actively rolling out. As they ramp up and gain market share, we will continue to see revenues increase, as observed over the past couple of quarters. Currently, the franchise with the most potential is their UDENYCA products. UDENYCA is a prescription medicine designed to reduce the risk of infection in people with certain types of non-myeloid cancer who are undergoing chemotherapy. Chemotherapy often leads to a low white blood cell count and fever, increasing the risk of infection. UDENYCA mitigates this risk by boosting the white blood cell count, providing crucial support for the immune system during cancer treatment. Within this franchise, there are three products that serve this important purpose:
UDENYCA Prefilled Syringe: 6 mg/0.6 mL in a single-dose prefilled syringe for manual use only.
UDENYCA Autoinjector: 6 mg/0.6 mL in a single-dose prefilled autoinjector.
UDENYCA ONBODY: 6 mg/0.6 mL in a single-dose prefilled syringe co-packaged with the on-body injector for UDENYCA.
What makes this a hidden gem is how these products work synergistically and are rapidly gaining market share despite being relatively new. The overall UDENYCA franchise achieved a market share of 25% on average in the first quarter of 2024, up from 17.3% at the end of December 2023 and an all-time low of 11.5% in the first quarter of 2023. This positive trend continues, and it's important to note that it doesn't fully account for their OnBody Injector (OBI).
Regarding their other franchises, YUSIMRY will likely be divested soon and doesn't hold much importance for their core business. However, LOQTORZI is expected to be another strong performer for the company. This medication treats nasopharyngeal cancer by working with the immune system and is currently the only medication on the market for this specific cancer. Although LOQTORZI hasn't fully ramped up yet, it shows promise in a smaller market. Since its launch in early January 2024, roughly 80 people with nasopharyngeal carcinoma (NPC) have received LOQTORZI. NPC is relatively rare, with a total patient population of 1,200-2,000 people per year. Despite the small market, there's no competition or alternative treatments available in the industry pipeline.
If CHRS can continue to execute and scale their existing franchises, this could become a significant winner for investors. Currently, this investment idea appears to be at peak pessimism, mainly because Wall Street hasn't acknowledged its potential, favoring endorsements from big pharma, which views CHRS as a competitor. Additionally, CHRS has a few other franchises in their pipeline, although these are years away from becoming integral to the core business. Having a reasonable outlook and vision of a company is crucial for long-term investors right now. When I consider CHRS at its current level and its potential with continued execution, this could evolve into a $7B-$10B company, while it currently sits just above a $200M valuation.
A reasonable investor should also consider the risks associated with this investment idea. What if the company doesn't see an uptick in revenue due to lower-than-anticipated market share? What if they can't control their cash burn? These are valid concerns with serious implications for the company's future. The most significant threat to CHRS, reflected in the current stock price, is their liquidity position, followed by the potential failure to scale as expected. However, I believe the balance of risk and reward currently leans more towards the reward side, making this a promising opportunity for patient long-term investors.
2. Lemonade (LMND)
Many investors have soured on Lemonade (LMND) over the past four years. Much of this negativity stemmed from investors buying at unreasonable levels when the company IPO'd. I was an extreme bear on this company at that time. LMND went public at $29 in July 2020, skyrocketed to an all-time high of $185 per share in January 2021, but now trades around $16 per share, with volatility plaguing its performance.
As an investor who seeks reasonable high-risk/reward opportunities, I see potential in LMND. The greats have often invested in ideas during times of uncertainty, and LMND has experienced maximum pessimism from both retail and institutional fronts. If you dig deep into the LMND business, you'll find that this company could be a big winner *if* they can consistently execute. However, this isn't a short-term play; it's an ultra-long-term idea that could deeply reward investors over time.
For more in-depth research on this company, please reference my archive where you’ll find recent quarterly and business updates.
The company initially impressed investors with the disruptive potential of its AI-driven customer cortex, which simplified the process of buying insurance plans. As a start-up in the insurance industry, LMND faced significant challenges, competing against established giants with high barriers to entry. LMND has encountered these obstacles, especially with its new AI-centric platform, which was met with skepticism about its effectiveness. However, if we step back and evaluate LMND’s performance as a business, it has consistently improved. Although its gross loss ratios have been inconsistent, I would say this is typical for a new start-up that was continually fine-tuning its customer cortex. Now, having navigated these challenges, the company has gathered enough data to achieve more consistent underwriting and lower gross loss ratios, which gives me optimism about this company’s future.
In the past, much of the bearish sentiment around LMND has been based on warranted and reasonable concerns, which should be acknowledged by bulls. However, moving to the present, the bearish arguments have weakened as the company is improving faster than anticipated. While there is still a long way to go, LMND is doing much better. It's important to note that much of the criticism comes from individuals working within traditional insurance companies. These critics know the industry well and often make valid points, but their comments can sometimes be biased. This bias can sway investors who lack strong conviction in the company. My point isn't to ignore these critics—listen to them if they're being reasonable—but also recognize that their perspectives are influenced by their positions within legacy insurers, which may limit the positivity in their assessments.
I was fortunate to get in at an average price just over $15 per share, but I acknowledge that I could be wrong about this idea. I hold myself accountable, and I've had many ideas that took a bad turn, leading me to exit those positions. That said, I don't believe LMND is heading down a thesis-breaking path. In fact, I believe the investment thesis is getting stronger with more consistent underwriting and an uptick in scale. I'm comfortable with my position size, and from a long-term perspective, this company is starting to look more like a coiled spring. It has the potential to reward patient long-term investors who have done their homework.