Coherus BioSciences, Inc. — Q2 2021 Form 10-Q
The filing is for the quarter and six months ended June 30, 2021. The registrant is Coherus BioSciences, Inc. (Nasdaq: CHRS); the request metadata’s “Coherus Oncology, Inc.” does not match the filing. Coherus is a commercial-stage biotherapeutics company whose marketed product is UDENYCA, a biosimilar to Neulasta. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net product revenue | $87.6m | $135.7m | $170.7m | $251.9m |
| Gross margin | 81% | 93% | 86% | 93% |
| Research and development | $54.8m | $26.2m | $258.3m | $59.3m |
| Selling, general and administrative | $40.3m | $34.1m | $79.7m | $69.4m |
| Operating income (loss) | $(24.2)m | $65.3m | $(191.5)m | $106.2m |
| Net income (loss) | $(29.9)m | $59.0m | $(202.8)m | $94.6m |
| Diluted earnings (loss) per share | $(0.40) | $0.70 | $(2.73) | $1.20 |
- Revenue was entirely reported as net product revenue. Q2 revenue fell 35% and first-half revenue fell 32% year over year, primarily due to fewer UDENYCA units sold and higher discounts and allowances.
- Q2 cost of goods sold was $16.7m; first-half cost of goods sold was $24.2m. Gross margin declined as the company began recognizing the full manufacturing cost of UDENYCA in cost of goods sold after previously expensed pre-approval inventory was fully used by March 31, 2021.
- First-half R&D includes a $145m upfront toripalimab license expense, partly offset by a $9m credit related to the Junshi share issuance. The company also recorded $11.5m of first-quarter costs associated with discontinuing CHS-2020.
- For the six months, operating cash flow was $1.2m, versus $73.7m in 2020; investing cash flow was $(261.9)m and financing cash flow was $49.3m. Cash, cash equivalents and restricted cash decreased $211.4m to $330.2m. The company also held $124.7m of marketable securities.
- At June 30, cash, cash equivalents and marketable securities totaled $454.4m. Current assets were $660.0m and current liabilities $287.1m. The accumulated deficit was $965.6m.
- Approximate carrying value of debt was $406.1m: $107.5m of 8.2% convertible notes due 2022, $223.7m of 1.5% convertible notes due 2026, and $75.0m under the term loan. The 2022 notes were classified as current; if not converted, redeemed or repurchased earlier, they mature in March 2022 and require payment of 109% of principal plus accrued interest.
Material changes versus the prior comparable period
- Revenue and UDENYCA sales volume declined, while selling discounts and allowances increased.
- Results shifted from profit to loss in both the quarter and first half. The first-half change primarily reflects the toripalimab license charge, higher pipeline investment and CHS-2020 discontinuation costs.
- Q2 gross margin fell from 93% to 81%, in part because UDENYCA product costs are now fully reflected in cost of goods sold.
- In February, Coherus licensed toripalimab rights for the United States and Canada from Junshi Biosciences, paying $150m upfront. In April, it issued Junshi 2.49m shares for approximately $50m cash; those shares are subject to a two-year transfer restriction.
- Cash and cash equivalents were lower than at year-end 2020, while the company held $124.7m in newly reported marketable securities. The term loan’s $11.5m current portion was reclassified based on the expectation that principal payments would begin within 12 months.
Outlook, commentary and risks
- Management expected UDENYCA revenue and market penetration might rise modestly in the second half of 2021 versus the first half, conditional on COVID-19 not worsening and subject to pegfilgrastim-market pricing. It expected gross margin to moderate downward and SG&A to increase; R&D for the second half was projected to be comparable to the first half excluding the upfront license payment. These are expectations, not formal earnings guidance.
- Management stated that available cash, cash equivalents, marketable securities and expected UDENYCA collections should fund planned expenditures and obligations for at least 12 months after issuance of the financial statements, while noting additional funding may be needed and may not be available on acceptable terms.
- Toripalimab’s rolling FDA BLA submission for nasopharyngeal carcinoma was underway; completion was expected later in Q3 2021. The FDA had accepted the CHS-1420 adalimumab biosimilar BLA, with a user-fee goal date in December 2021; management anticipated a U.S. launch no earlier than July 1, 2023 if approved. The filing also reports that Bioeq submitted its ranibizumab biosimilar BLA in Q3 2021. Bevacizumab development included a three-way pharmacokinetic study and further analytical work before a potential FDA filing.
- Toripalimab collaboration terms include a 20% royalty on net sales and up to $380m in regulatory and sales milestones. Coherus may also incur co-development, regulatory and technology-transfer costs; options on anti-TIGIT and IL-2 programs would carry additional fees, royalties and milestones if exercised.
- Key risks include COVID-19 effects on sales and development, UDENYCA competition and pricing pressure, dependence on third-party manufacturers and collaborators, regulatory and clinical uncertainty, intellectual-property disputes, and the near-term 2022 convertible-note maturity. The term loan is secured by substantially all company and guarantor assets and includes covenants, including a UDENYCA annual net-sales floor. Coherus reported compliance with debt covenants and no debt defaults at June 30, 2021.
- The filing reports no material legal proceedings, no material changes in contractual obligations outside the ordinary course, and no material change in internal control over financial reporting. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether UDENYCA sales, unit volume, discounting and gross margin stabilize or improve, and how competition and the Amgen royalty affect economics.
- Cash use and funding needs after the toripalimab upfront payment, including the timing and cash cost of the March 2022 notes and term-loan principal payments.
- Progress and FDA review of the toripalimab and CHS-1420 applications, and development, manufacturing and submission timelines for the other pipeline candidates.
- Potential future Junshi milestone, royalty, option and co-development obligations, and any additional financing or dilution.
- Compliance with term-loan sales and other covenants, and any changes in COVID-19, supply-chain, regulatory, reimbursement or intellectual-property risks.