Coherus BioSciences (CHRS 2.23%) had the best-performing drug launch of 2019, doubled revenue in the first half of 2020 compared to the year-ago period, and turned 37% of total revenue into net income during the first six months of the year. Wall Street has responded with a yawn.
Shares of the biosimilar leader have gained only 4% since the beginning of the year. That matches the lowly performance of the S&P 500, which has faced significantly more uncertainty in the past seven-plus months. As a biosimilar developer, Coherus BioSciences faces limits on its near-term growth from its lone commercialized product, but it appears to be well positioned for success.
Here's what investors need to know about the latest operating results and the growth stock's puzzling trajectory.
Image source: Getty Images.
By the numbers
Biosimilars are essentially generic versions of biologic drugs. They're not true generic drugs, because it's currently impossible to guarantee that biosimilar compounds share the exact chemical structure as the innovator drug. They also have to progress through rigorous clinical trials and manufacturing certifications, whereas generic drugs generally do not.
Those extra regulatory hurdles increase both the risks and opportunities of biosimilar development. Coherus BioSciences has been one of the early success stories so far, as evidenced once again by its quarterly operating results.
In the second quarter, the business reported $135 million in revenue, $65 million in operating income, and $59 million in net income. The company's Neulasta (pegfilgrastim) biosimilar, Udenyca, remains the only source of revenue, but it's difficult for investors to complain about the current lack of commercial diversification.
|
Metric |
First Half 2020 |
First Half 2019 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$251.8 million |
$120.5 million |
109% |
|
Operating expenses |
$145.7 million |
$109.6 million |
33% |
|
Operating income |
$106.2 million |
$10.9 million |
N/A |
|
Net income |
$94.6 million |
$3.6 million |
N/A |
Data source: SEC filing. YOY = Year over year.
The latest results make clear Udenyca has maintained its momentum -- an encouraging sign, considering it was the most successful drug launch in the United States in all of 2019. But there are some headwinds to keep an eye on.
During the second-quarter 2020 earnings conference call, management admitted the coronavirus pandemic briefly weighed on the product's share of the pegfilgrastim market. Udenyca ended 2019 with a roughly 20% market share, which increased to about 23% before the pandemic struck and then fell to just below 20% during the second quarter.
Coherus BioSciences reminded analysts on the call that Neulasta retains a roughly 70% market share, and the company expects to slowly chip away at its competitor's lead in the next few years.
Image source: Getty Images.
Looking ahead
Coherus BioSciences might not be able to push Udenyca revenue too much higher above its current $500 million annual run rate. There are multiple pegfilgrastim biosimilars on the market now, including top-tier competition from the likes of Sandoz (owned by Novartis) and Mylan. Therefore, even if Udenyca can maintain its current market share or grow it slowly, investors can expect downward pressure on selling prices. That would be a great trend for patients but would present a headwind for the industry.
The important thing is that the business is comfortably profitable, and that's not likely to change due to moderate competitive pressures. That will allow Coherus BioSciences to focus on transitioning development-stage assets to the market in the next five or so years.
|
Biosimilar Asset |
Origin |
Upcoming Events |
|---|---|---|
|
Lucentis |
In-licensed from Bioeq |
A new biologics license application (BLA) is expected to be submitted before the end of 2020. |
|
Avastin |
In-licensed from Innovent |
A new BLA is expected to be submitted in 2021. |
|
Humira |
Developed in-house |
A new BLA is expected to be submitted before the end of 2020, which could enable market launch in 2023. |
|
Eylea |
Developed in-house |
A phase 3 trial is expected to begin in 2021, which could enable market launch in 2025. |
Data source: SEC filing.
Wall Street is timid, but investors can go long
Given the complexity and uncertainty of biosimilar development, Wall Street has maintained a cautious stance. Analysts want to see Coherus BioSciences replicate Udenyca's success with other assets. That's understandable, but given the financial success of the business, the risk-reward profile seems to favor investors with a long-term mindset, even if a few unforeseen speed bumps appear over the horizon.
