8-K: Coherus Biosciences Announces Temporary Supply Interruption of UDENYCA Due to CMO Capacity Issues

Coherus Biosciences reports a temporary supply interruption of its UDENYCA product due to capacity constraints at its third-party packaging facility, while also outlining long-term supply chain improvements.

Summary

• Coherus Biosciences has announced a temporary supply interruption of its UDENYCA product due to over-commitments and capacity constraints at its third-party contract manufacturing organization (CMO) responsible for final labeling and packaging.
• The supply interruption is expected to cause channel supply to be substantially depleted by mid-October, with manufacturing expected to resume in mid-October and product availability to begin to resume by early November.
• The company has been using the same CMO for final packaging for over ten years without incident, and is working closely with them to address the delay.
• Coherus is also working with wholesalers and prescribers to minimize disruption and has implemented expedited shipping measures.
• The company has invested over $30 million since 2021 to diversify and increase product production across the entire supply chain, including $25 million to double drug substance manufacturing capacity to 1 million UDENYCA doses, and $6 million to increase drug product fill manufacturing capacity to 1.5 million doses annually.
• Coherus has secured a second final packaging and labeling CMO, with commercial supply expected to commence in the first quarter of 2025, which is expected to more than double packaging capacity to over 1 million packaged UDENYCA units.
• These supply chain improvements are projected to reduce the production cost of UDENYCA by approximately one-third from current levels.
• The company has reaffirmed its 2024 R&D and SG&A expense guidance of $250 to $265 million, which includes approximately $40 million of stock-based compensation expense.
• Coherus plans to provide an update on the supply interruption's impact on revenue in conjunction with its third quarter 2024 earnings announcement.

Sentiment

Score: 4

Explanation: The document contains both positive and negative elements. The supply interruption is a significant negative, but the company's proactive measures to address the issue and strengthen its supply chain are positive. The reaffirmation of financial guidance is also a positive, but the overall impact of the supply interruption is likely to be negative in the short term.

Positives

• Coherus has invested significantly in diversifying and increasing its product production across the entire supply chain since 2021.
• The company has secured a second final packaging and labeling CMO to mitigate future supply risks.
• The supply chain improvements are projected to reduce the production cost of UDENYCA by approximately one-third.
• The company has secured FDA approval for the use of frozen bulk product with three-year expiration, increasing production capacity and extending product stability.
• Coherus is working closely with its wholesalers and prescribers to minimize any disruption caused by the temporary supply interruption.

Negatives

• A temporary supply interruption of UDENYCA is expected due to capacity issues at a third-party packaging facility.
• Channel supply is projected to be substantially depleted by mid-October.
• The company is reliant on third-party CMOs for its product supply, which introduces risk.

Risks

• The company is reliant on third-party CMOs to supply its products, which introduces risk of delays and capacity issues.
• There is a risk of manufacturing delays and the company's CMOs not complying with extensive FDA regulatory requirements.
• The company faces risks related to its competitive position and potential litigation.
• There are risks and uncertainties associated with the regulatory approval process.
• The company may not be able to offset the short-term revenue impact of the supply interruption with sales later in the fourth quarter.

Future Outlook

The company expects to offset the short-term revenue impact of the supply interruption with sales later in the fourth quarter and anticipates commercial supply from the second CMO to commence in the first quarter of 2025. They also project a one-third reduction in UDENYCA production costs due to supply chain improvements.

Management Comments

• The Company is dedicated to ensuring that its commercial products reach the patients who rely on them in a timely and efficient manner.
• The Company is working closely with the CMO to address the delay.
• The Company also will be working closely with its wholesalers and prescribers to minimize any disruption caused by the temporary supply interruption.

Industry Context

This announcement highlights the challenges of relying on third-party contract manufacturers in the pharmaceutical industry, particularly for complex biologics. It also underscores the importance of supply chain diversification and redundancy to mitigate risks of disruptions. The biosimilar market is competitive, and supply interruptions can impact market share and patient access.

Comparison to Industry Standards

• The reliance on a single CMO for final packaging is not uncommon in the pharmaceutical industry, but it does expose companies to significant supply chain risks, as seen in this case.
• Companies like Amgen, which developed Neulasta, typically have more diversified and robust supply chains, often with in-house manufacturing capabilities, which reduces reliance on third parties.
• The investment in a second CMO is a positive step for Coherus, aligning with industry best practices for risk mitigation.
• The projected one-third reduction in production costs is a significant improvement and could enhance Coherus's competitive position in the biosimilar market, where cost-effectiveness is a key factor.

Stakeholder Impact

• Shareholders may experience a negative impact due to the temporary supply interruption and potential revenue loss.
• Patients may experience a temporary disruption in access to UDENYCA.
• Wholesalers and prescribers will need to manage the temporary supply interruption.
• Employees may be impacted by the operational challenges of the supply interruption.

Next Steps

• The company will work closely with its wholesalers and prescribers to minimize any disruption caused by the temporary supply interruption.
• The company will continue to work with its existing CMO to resume manufacturing.
• The company will continue to work to qualify manufacturing at the second final packaging and labeling CMO.
• The company will provide an update regarding the supply interruption's impact on revenue in conjunction with its third quarter 2024 earnings announcement.

Key Dates

Keywords

UDENYCA, supply chain, contract manufacturing organization, CMO, biosimilar, manufacturing, packaging, labeling, production, capacity, R&D, SG&A, Neulasta, pegfilgrastim