Coherus: 2022 Is In Many Ways A Make Or Break Year (NASDAQ:CHRS)

It is interesting to see that despite its foray into original R&D through a Chinese partnership, biosim is what still moves Coherus BioSciences, Inc. (NASDAQ:CHRS) stock. The stock went soaring from a June bottom of below $6 to over double that starting earlier this month after its Lucentis biosim Cimerli got FDA approval for all five Lucentis indications. The approval gives it one year of interchangeable exclusivity, a tag given by the FDA to the first approved interchangeable biosimilar.

Cimerli (ranibizumab-eqrn), approved for Neovascular (wet) Age-Related Macular Degeneration, Macular Edema following Retinal Vein Occlusion, Diabetic Macular Edema, Diabetic Retinopathy, and Myopic Choroidal Neovascularization, is the only biosim interchangeable with Lucentis across all five indications, and “will provide both greater treatment access and choice for patients, payors and providers in the U.S. retinal disease community,” said Coherus Chief Commercial Officer, Paul Reider.

While all that is good and true, I have, in my coverage of Coherus, deplored its unnecessary foray into the anti-PD1 market through a partnership with Junshi of China. I recall writing last year, in June:

Clearly, the market does not appreciate one more developer of anti PD-1 therapeutics for oncology targets. They preferred the old version, where Coherus did biosimilars only.

I said this because the stock took a sharp downward movement right around the time the Junshi deal was announced. The huge Junshi deal – $1.1bn for a small biopharma like Coherus – occurred right in the middle of the period of slump, and I believe I was correct in attributing a causal relation to the two events – the deal and the fall. Some analysts seem to agree with my take – JPM’s Christopher Scott said that toripalimab “remains a key point of controversy for CHRS.” A few months later, the same analyst deplored the “increasingly uncertain outlook for toripalimab.”

Tori continued producing consistently positive data meanwhile, in a variety of cancers. Its only problem was that almost all of this data was from China, whereas it was seeking approval in the U.S.

A number of Western biopharma have been trying to collaborate with Chinese companies to import their lower-cost, lower-priced anti PD-1 inhibitors to the US market. However, the FDA had not taken kindly to this. In a burst of scientifically colored but well-placed patriotism, the FDA scolded Eli Lilly (LLY) last year for its sintilimab candidate, which they were aiming to get approved in the US based on Chinese data alone. A similar fate followed Chinese company Hutchmed. So I had my doubts whether Coherus will fare in the same manner as these other companies.

I thought my doubts were confirmed when Coherus/Junshi received a CRL back in May. However, the two companies confirmed that the FDA did not question the data or its geography, merely that the FDA has requested a “quality process change” that the companies said could be “readily addressable.” This was borne out by the fact that within two months, the FDA accepted a revised BLA, and has set a date of December 23 for the approval.

If the FDA approves toripalimab in nasopharyngeal carcinoma in the US based on two trials which were mostly carried out in China, this will be a solid win for Coherus. More interestingly, it will be a major win for the “China pathway.” Drugs developed at a lower cost in China by trialing them on Chinese patients will become approvable in the U.S., for U.S. patients, based on Chinese patient data alone. This will be a paradigm shift for the industry and will have a major impact on the U.S. economy in the long run.

The FDA has a habit of surprising drug sponsors. I can recall more than one case when sponsors were made to run around solving a simpler problem, only to be flummoxed by the FDA with a rejection based on a tougher one. So December 23 is not exactly a slam dunk for Coherus.

Financials

CHRS has a market cap of $975mn and a cash reserve of $275mn. Net revenue, consisting primarily of net sales of UDENYCA, was $60.2 million during the three months ended June 30, 2022, which has seen a large decline from previous quarters. Cost of goods sold (COGS) was $11.3 million, Research and development (R&D) expense was $41.6 million and selling, general and administrative (SG&A) expense was $51.3 million. The company is not exactly in a financially comfortable position.

Bottom Line

CHRS has a very important event with the tori PDUFA, which will either jumpstart a new venture for the company, or bring it to a dead end. While that makes CHRS interesting, it doesn’t exactly make it a safe bet. I will watch this closely, but from the sidelines for now.