On Monday 7/8/2019, Coherus (“CHRS”) pre-announced revenues of $79-$84mm for 2Q19. This represents more than 100% increase over last quarter, and is well above consensus revenue estimate of around $50mm. It also blew away my own estimates. In my write up last week, I estimated Udenyca peak revenue of $300mm. Now, only in the second quarter of launch, Udenyca is already at annualized rate of $320mm!
Yet the stock tanked, at one point down 20%. It bounced back slightly later in the day to sustain above its 50 day moving average. A couple days later it is back above $20 - still a material drop from peak of ~$23.
Thoughts on Monday’s Price Drop
So what might be the problem? No one knows for sure. But usually when something like this happens it’s due to 1) growth deceleration, 2) industry bad news, or 3) competitor did something.
Let’s review these possible causes one by one.
First is the question of growth deceleration. Udenyca’s volume spiked shortly after 1Q. Using Udenyca’s April pace of sales alone, I was able to project around $70mm in revenue for 2Q19. Some analysts had data that says May is even better. I can certainly see someone extrapolating the April and May growth into June, and came up with something like $90mm for 2Q19.
Viewed this way, 2Q19 revenue landing at $79-84mm does imply a slowdown in Udenyca sales for June. Take it a step further, does the slow down imply that previous revenues were boosted by some sort of inventory/channel pull forward? That’s certainly possible.
But I don’t invest base on monthly trends. If anything, given Udenyca’s way above expectation performance, we should be upgrading our estimate of peak sales. If some slowdown in June is the reason for the stock drop, then I’d say it’s a buying opportunity.
Second, industry news. I don’t think this is it. Trump made some noise about cutting drug prices, but it’s just that – noise. In fact, government effort to cut drug costs may actually be bullish for Coherus if it means pushing for more biosimilars.
Third is if there are any news from competitors. CHRS's next product in the pipeline is bHumira. On Monday, Samsung Bioepis's Imraldi (biosimilar Humira) received an updated EU label, allowing them to doubles the days of storage. So Samsung's bHumira could actually be better than the original Humira! This is not good for Coherus.
But does this matter that much? Coherus’ own bHumira doesn’t launch until 2023. It’s possible the company can still adjust the product to match whatever product advantage that Samsung Bioepis has. It’s also questionable if longer storage days really matter much to customers.
I concluded that none of the above factors have a material impact on Coherus’ big picture prospects. So I added a little bit to my position.
But I’m nervous. Stock dropping on good news is usually a bearish signal, and the vehemence of the sell-off tells me “someone knows something I don’t know”.
I do have some reservations about Coherus beyond Monday’s event. They are 1) Sandoz’s version of bNeulasta likely coming later this year. 2) what happens to Udenyca’s revenue after it peaks.
I will post some thoughts on these in the next few days.
Let’s review these possible causes one by one.
First is the question of growth deceleration. Udenyca’s volume spiked shortly after 1Q. Using Udenyca’s April pace of sales alone, I was able to project around $70mm in revenue for 2Q19. Some analysts had data that says May is even better. I can certainly see someone extrapolating the April and May growth into June, and came up with something like $90mm for 2Q19.
Viewed this way, 2Q19 revenue landing at $79-84mm does imply a slowdown in Udenyca sales for June. Take it a step further, does the slow down imply that previous revenues were boosted by some sort of inventory/channel pull forward? That’s certainly possible.
But I don’t invest base on monthly trends. If anything, given Udenyca’s way above expectation performance, we should be upgrading our estimate of peak sales. If some slowdown in June is the reason for the stock drop, then I’d say it’s a buying opportunity.
Second, industry news. I don’t think this is it. Trump made some noise about cutting drug prices, but it’s just that – noise. In fact, government effort to cut drug costs may actually be bullish for Coherus if it means pushing for more biosimilars.
Third is if there are any news from competitors. CHRS's next product in the pipeline is bHumira. On Monday, Samsung Bioepis's Imraldi (biosimilar Humira) received an updated EU label, allowing them to doubles the days of storage. So Samsung's bHumira could actually be better than the original Humira! This is not good for Coherus.
But does this matter that much? Coherus’ own bHumira doesn’t launch until 2023. It’s possible the company can still adjust the product to match whatever product advantage that Samsung Bioepis has. It’s also questionable if longer storage days really matter much to customers.
I concluded that none of the above factors have a material impact on Coherus’ big picture prospects. So I added a little bit to my position.
But I’m nervous. Stock dropping on good news is usually a bearish signal, and the vehemence of the sell-off tells me “someone knows something I don’t know”.
I do have some reservations about Coherus beyond Monday’s event. They are 1) Sandoz’s version of bNeulasta likely coming later this year. 2) what happens to Udenyca’s revenue after it peaks.
I will post some thoughts on these in the next few days.
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