In life, it's generally good advice to only focus on the things you can control. Try telling that to Coherus BioSciences.

The drug developer keeps getting slowed down by third-party mishaps. The regulatory approval of Cimerli was delayed when a partner moved a piece of equipment in a manufacturing facility, requiring a costly reinspection. The U.S. approval of Loqtorzi was delayed by over one year due to China's strict coronavirus policy, which kept FDA officials from inspecting the initial manufacturing facility. In late 2023, mistakes by a third-party fill/finish partner delayed the approval and market launch of Udenyca Onbody by at least three months.

These delays combine to make a material difference, especially considering Coherus BioSciences needs to execute commercially, scale revenue, and improve cash flow to put investor concerns about debt to rest. Loqtorzi could be one-third of the way to peak annual revenue by now, while Udenyca Onbody could have been one quarter deeper into its commercial ramp.

Unfortunately, things will get worse before they gets better.

On September 13, Coherus BioSciences revealed a third-party contract manufacturing organization (CMO) was suffering from overcommitments and capacity constraints. As a result, the company expects a supply shortage of Udenyca units in mid-October that will take at least one month to overcome.

What Does the Supply Disruption Mean?

There's never a great time for a supply disruption. The timing is pretty not great for Coherus BioSciences in particular.

The company is racing to scale its business with high-margin revenue from Loqtorzi and Udenyca. The faster it makes progress the faster it can alleviate investor concerns about liquidity. When investors received the first full update in August 2024, they were treated to solid early commercial ramps for both franchises.

The supply chain issues now risk throwing a wrench into that momentum.

Coherus BioSciences expects the following sequence of events:

• The final packaging disruption will result in inventory being exhausted by mid-October.
• The CMO expects to resume final packaging activities for Udenyca in mid-October.
• If that schedule holds, then product availability would resume in early November.

The limited disclosure available as of this writing suggests it will take at least one month for revenue to return to trend. Coherus BioSciences plans to expedite shipping to customers once new supply becomes available in early November.

The business also announced a second third-party CMO will begin fulfilling final packaging activities for Udenyca by the end of 2024, which will hopefully spread and mitigate future supply risks.

If Coherus BioSciences has a core strength of commercial execution, then it will need every ounce of that to address the supply disruption and roll into 2025 on solid footing.

Forecast & Modeling Insights

(Downgraded and refined lower.)

My updated model for Coherus BioSciences now assigns an estimated fair valuation of $1.164 billion (vs. $1.351 billion) after several refinements.

• Reduced investment category from Growth (Quality) to Growth (Speculative). As a result, the suggested allocation range fell from a maximum of 15% to a maximum of 10%.
• Reduced full-year 2024 core product revenue estimate from $239.359 million to $205.672 million. This reduction is driven by fourth-quarter 2024 Udenyca franchise revenue representing 50% of the prior model.
• The supply disruption will reduce the company's cash runway by approximately $20 million, as I currently model it. That's a meaningful reduction given the circumstances.

I think Coherus BioSciences management gets a little too much criticism, but the decision to quietly announce this supply disruption in an SEC filing (not a press release) and do so after market close on a Friday should not be received well by investors.

Margin of Safety & Allocation

Coherus BioSciences is considered a Growth (Speculative) position. The current modeled fair valuation for the company based on my 2024 model is below:

• Market close September 13: $1.30 per share
• Modeled Fair Valuation: $8.72 per share ($10.12 per share previously)
• Allocation Range: Up to 10% (vs. a maximum of 15% previously)

Coherus BioSciences reported 115.209 million shares outstanding as of July 31, 2024. The modeled fair valuation above assumes 133.508 million shares outstanding, which is equivalent to fully pricing in the 2026 convertible notes and an additional 5% dilution.

Further Reading

• September 2024 regulatory filing (8-K) disclosing the supply disruption caused by final packaging constraints
• August 2024 research note analyzing Q2 2024 operating results

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