UDENYCA Divestiture And LOQTORZI Progress Will Forge Opportunity Amid Risks

Key Takeaways

• UDENYCA divestiture and headcount reduction will strengthen the balance sheet and improve margins through reduced expenses.
  
• Strategic expansions in oncology and new market opportunities aim to drive long-term revenue growth.
  
• Coherus faces risks from potential delays in FDA approval, intense competition, and execution challenges, impacting revenue growth and strategic financial goals.

Catalysts

A biopharmaceutical company, researches, develops, and commercializes immunotherapies to treat cancer in the United States.

• The anticipated completion of the UDENYCA divestiture is expected to strengthen Coherus' balance sheet with an additional $250 million in cash, which will provide financial stability and facilitate continued investment in development efforts. This is likely to positively impact future earnings and cash flow, reducing debt obligations.
  
• The ongoing expansion of LOQTORZI's indications, particularly its recent establishment as the standard-of-care for nasopharyngeal cancer, is projected to drive revenue growth. The company expects LOQTORZI to eventually capture a $150 million to $200 million market opportunity.
  
• Coherus' strategic acquisition of Surface Oncology's promising oncology pipeline, which includes first-in-class agents like casdozokitug and CHS-114, is expected to enhance long-term revenue growth and profitability. These assets are anticipated to unlock new combination therapy opportunities and expand the market presence alongside LOQTORZI.
  
• Successful execution of pivotal trials and further indication expansions for toripalimab, with key data readouts expected in 2025 and 2026, are likely to contribute to revenue growth. The broader application of toripalimab in combination therapies may improve net margins through higher-margin innovative oncology products.
  
• The planned reduction of headcount by 30% post-UDENYCA divestiture will lower operating expenses, potentially improving net margins. This optimization alongside focusing on high-margin innovative oncology products is expected to improve earnings performance.

Coherus BioSciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coherus BioSciences's revenue will decrease by 21.3% annually over the next 3 years.
• Analysts are not forecasting that Coherus BioSciences will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Coherus BioSciences's profit margin will increase from 10.7% to the average US Biotechs industry of 16.8% in 3 years.
• If Coherus BioSciences's profit margin were to converge on the industry average, you could expect earnings to reach $21.9 million (and earnings per share of $0.18) by about April 2028, down from $28.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.6x on those 2028 earnings, up from 4.4x today. This future PE is greater than the current PE for the US Biotechs industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 1.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.56%, as per the Simply Wall St company report.

Coherus BioSciences Future Earnings Per Share Growth

Risks

• The substantial risks and uncertainties associated with forward-looking statements, such as the UDENYCA divestiture and clinical development progress, could affect Coherus' projected future revenues and cash runway.
  
• Any delay in obtaining FDA authorization for the sale of UDENYCA products from the new contract manufacturing organization could impact the timely completion of the divestiture, thus affecting cash position and balance sheet restructuring.
  
• The competition from other PD-1 inhibitors and off-label use of other I-O agents in nasopharyngeal cancer (NPC) could impede the growth of LOQTORZI, impacting its ability to achieve planned sales and thus affecting overall revenue growth.
  
• The execution risk involved in expanding LOQTORZI into additional indications and the reliance on positive readouts from ongoing clinical trials introduces uncertainty in realizing projected long-term revenue growth from the oncology pipeline.
  
• The company's reliance on maintaining and potentially expanding market share and the ongoing need for significant commercial execution to increase awareness of LOQTORZI's benefits present challenges that could affect revenue projections.
  

Valuation

• The analysts have a consensus price target of $4.833 for Coherus BioSciences based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $130.3 million, earnings will come to $21.9 million, and it would be trading on a PE ratio of 35.6x, assuming you use a discount rate of 10.6%.
• Given the current share price of $1.09, the analyst price target of $4.83 is 77.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.