Coherus BioSciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results. Coherus is a commercial-stage biopharmaceutical company focused on biosimilars and immuno-oncology. Its marketed products were UDENYCA, CIMERLI and, beginning in July 2023, YUSIMRY.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $58.7m | $60.2m | $91.2m | $120.3m |
| Gross margin | 58% | 81% | 54% | 83% |
| Operating loss | $(34.5)m | $(44.0)m | $(102.3)m | $(124.9)m |
| Net loss | $(42.9)m | $(50.2)m | $(118.6)m | $(146.2)m |
| Basic and diluted loss per share | $(0.49) | $(0.65) | $(1.42) | $(1.89) |
Q2 revenue included $31.7m from UDENYCA and $26.7m from CIMERLI. First-half revenue included $57.9m from UDENYCA and $32.9m from CIMERLI. UDENYCA sales declined; YUSIMRY had not yet launched by June 30.
- Cash flow, first half: Operating cash use was $107.6m, versus $104.1m in 2022. Investing provided $58.9m, mainly from marketable-security maturities and sales; financing provided $58.1m, principally from equity offerings.
- Liquidity: Cash, cash equivalents and marketable securities totaled $144.7m at June 30, 2023, down from $191.7m at year-end 2022. Current assets were $385.5m and current liabilities $169.4m.
- Debt: Net carrying value was $245.963m for the senior secured term loans and $226.228m for the 2026 convertible notes, totaling $472.2m. The term-loan rate was 13.40% in Q2 and 13.76% for Q3; it is variable-rate debt secured by substantially all assets, including intellectual property.
- Balance sheet: Total liabilities were $644.4m; stockholders’ deficit was $174.8m. Inventory totaled $127.8m, including $40.1m of YUSIMRY inventory.
Material changes versus comparable periods
- First-half revenue fell 24% year over year, mainly from fewer UDENYCA units and lower net selling prices amid competition and reduced market access. CIMERLI’s launch partly offset the decline.
- Gross margin fell sharply, reflecting CIMERLI royalties and product mix, as well as UDENYCA manufacturing and inventory-related costs. Management expects full-year 2023 gross margin below 2022.
- Research and development expense declined to $57.4m from $124.5m in the first half, reflecting a prior-year $35.0m CHS-006 option payment, reduced toripalimab development scope and lower YUSIMRY and UDENYCA development costs.
- Q2 selling, general and administrative expense declined to $45.1m from $51.3m. First-half expense declined to $94.3m from $100.0m, primarily due to lower headcount and stock compensation.
- Interest expense increased to $19.7m for the first half from $15.5m, mainly because of higher average debt and rates. The 2022 period included a $6.2m debt-extinguishment loss that did not recur.
- Coherus issued 13.53m shares in a May public offering, receiving approximately $53.6m net, and raised $6.8m net through its ATM offering during the first half. Shares outstanding increased from 78.9m at December 31, 2022 to 94.4m at June 30, 2023.
Outlook, risks and unusual items
- Management expects 2023 revenue to exceed 2022, citing CIMERLI growth, the May launch of UDENYCA AI, YUSIMRY’s July launch and potential second-half launches of toripalimab and UDENYCA OBI. These latter launches depend on FDA approval. Management also expects full-year R&D and SG&A below 2022, excluding unconsummated transactions, and higher interest expense.
- Management stated available liquidity, product-sale collections and financing proceeds should fund planned expenditures and obligations for at least 12 months from the financial-statement issuance date. It cautioned that assumptions may change and additional financing may be needed.
- Coherus obtained a waiver of the term-loan requirement that trailing 12-month sales at June 30, 2023 be at least $200m. It reported compliance with other loan covenants and no debt defaults. Future minimum sales thresholds rise, reaching $300m from Q4 2024.
- The Surface Oncology merger agreement, signed June 15, was expected to close in Q3 2023. Consideration includes Coherus shares and contingent value rights; Coherus recorded $1.9m of acquisition costs in Q2. Completion, integration and dilution are risks.
- A nonbinding term sheet for U.S. commercialization rights to FYB203, an Eylea biosimilar candidate, contemplated an approximately €30m upfront payment plus milestones and profit sharing; definitive agreements remained outstanding in the filing.
- Coherus accrued $6.4m for legal matters. A Zinc Health Services demand letter seeks approximately $14m relating to historical UDENYCA sales; the company’s estimate of liability is included in its accrual, but ultimate loss could differ. A separate AbbVie license dispute over YUSIMRY distribution was subject to a June stipulation allowing notice and an opportunity to cure before termination.
- Other notable items include a workforce reduction affecting about 50 employees, with $5.4m of first-half restructuring charges, and $2.9m of net inventory write-offs in the first half. The filing highlights competition, reimbursement and pricing pressure, reliance on third-party manufacturers and collaborators, regulatory uncertainty for toripalimab, variable-rate debt costs and potential financing/dilution needs.
Most important facts for investors to verify
- Whether CIMERLI growth and the July YUSIMRY launch offset continuing UDENYCA price and volume pressure, and whether reported revenue and margin expectations are achieved.
- FDA decisions and timing for toripalimab and UDENYCA OBI, including completion and outcomes of required inspections.
- Liquidity and cash consumption against the stated 12-month funding expectation, including debt interest and rising loan sales covenants.
- Surface merger closing terms, final share dilution, integration costs and potential CVR-related receipts; separately, whether FYB203 definitive agreements are executed.
- Resolution and adequacy of the Zinc-related accrual, the AbbVie license matter and remaining manufacturing, inventory and royalty commitments.