Coherus BioSciences, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The filing identifies the registrant as Coherus BioSciences, Inc.; the request metadata says Coherus Oncology, Inc.
Business context
Coherus is a commercial-stage biotherapeutics company focused on biosimilars and immuno-oncology. UDENYCA, its U.S.-marketed pegfilgrastim biosimilar, was its only commercialized product. Its pipeline included toripalimab, biosimilar candidates for Humira, Avastin and Lucentis, and other programs. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net product revenue | $82.5 million | $113.6 million | $253.2 million | $365.4 million |
| Gross margin | 74% | 92% | 82% | 93% |
| Research and development | $54.1 million | $38.9 million | $312.3 million | $98.1 million |
| Selling, general and administrative | $39.9 million | $32.0 million | $119.7 million | $101.4 million |
| Operating income (loss) | $(32.8) million | $33.7 million | $(224.3) million | $139.9 million |
| Net income (loss) | $(38.5) million | $27.9 million | $(241.4) million | $122.5 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $14.9 million | $121.0 million |
For the nine months, investing cash outflow was $245.9 million and financing cash inflow was $50.4 million; cash, cash equivalents and restricted cash decreased by $180.6 million. At September 30, cash and cash equivalents were $360.5 million and marketable securities were $108.2 million. Management said available liquidity and expected UDENYCA collections should fund planned expenditures and obligations for at least 12 months after issuance of the financial statements.
Total assets were $741.7 million, current assets $673.0 million, current liabilities $320.3 million, and stockholders’ equity $130.8 million. Debt included $109.0 million principal of 8.2% convertible notes due March 2022, $230.0 million principal of 1.5% convertible notes due April 2026, and a $75.0 million term loan. The 2022 notes carry a 9% maturity premium; the term loan is secured by substantially all tangible and intangible assets and includes a 4% exit fee. The company reported compliance with debt covenants and no events of default.
Material changes and unusual items
- Revenue fell 27% year over year in Q3 and 31% for the first nine months, mainly because fewer UDENYCA units were sold; higher discounts and allowances also contributed to the nine-month decline.
- Nine-month R&D rose $214.2 million, largely reflecting the $145.0 million toripalimab upfront license expense, $37.6 million of toripalimab co-development costs, and higher spending on UDENYCA presentations and CHS-1420. The license payment was partly offset by a $9.0 million accounting credit related to Junshi’s stock purchase.
- Gross margin declined as UDENYCA manufacturing costs became fully reflected in cost of goods sold after previously expensed pre-approval inventory was used up. Q3 cost of goods sold also included a $5.2 million inventory write-off, net of manufacturer credits, for inventory that failed acceptance criteria.
- The company discontinued CHS-2020 development and recorded $3.2 million of prepaid manufacturing impairment and $8.3 million of cancellation costs in Q1. No further CHS-2020 discontinuation expense was recorded in Q2 or Q3.
- Junshi paid approximately $50 million for 2.49 million Coherus shares in April, subject to a two-year transfer restriction. The collaboration carries a 20% toripalimab net-sales royalty and up to $380 million in regulatory and sales milestones, in addition to co-development and related costs.
Outlook, risks and contingencies
- Management expected Q4 2021 gross margin to improve from Q3 on reduced period charges, but remain below Q4 2020, and expected Q4 R&D to be comparable to Q3. SG&A was expected to increase during the rest of 2021 with commercial and pipeline activity.
- Toripalimab’s NPC BLA received FDA Priority Review, with an April 2022 target action date. The company planned supplemental filings for additional indications. CHS-1420’s FDA user-fee goal date was December 2021; the Lucentis biosimilar BLA had an August 2022 target date. Coherus planned to submit a UDENYCA on-body injector supplement in 2022.
- Key risks include declining UDENYCA sales, pricing and competition, dependence on third-party manufacturers and collaborators, regulatory review and clinical execution, intellectual-property disputes, and COVID-19-related commercial or development disruption. Revenue was highly concentrated: the three largest distributors accounted for 99% of Q3 revenue.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls and procedures.
Key facts for investors to verify
- Whether UDENYCA sales volumes, pricing, discounts and distributor concentration continue to pressure revenue and margins.
- Progress against toripalimab’s April 2022 FDA action date and the stated CHS-1420 and Lucentis review timelines.
- Cash burn and liquidity after the toripalimab investment, including the upcoming 2022 note maturity and term-loan principal payments.
- The cause, recurrence risk and financial impact of the inventory acceptance failure and the comparability of reported gross margins across periods.
- Execution, costs and potential future milestone, royalty and co-development obligations under the Junshi collaboration.