Business context and reporting period
Coherus BioSciences, Inc. (the registrant named in the filing; the request metadata says Coherus Oncology) filed this Form 10-K for the fiscal year ended December 31, 2018. The company develops biosimilars and was at the threshold of commercialization: UDENYCA, a Neulasta biosimilar, received U.S. FDA approval in November 2018 and European Commission approval in September 2018; U.S. sales began January 3, 2019. The filing also provides unaudited fourth-quarter 2018 results.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0 | $1.6 million |
| Operating expenses | $204.4 million | $233.7 million |
| Operating loss | $204.4 million | $232.1 million |
| Net loss | $209.4 million | $238.3 million |
| Net loss per share, basic and diluted | $3.22 | $4.48 |
| Cash used in operating activities | $159.3 million | $200.3 million |
| Cash and cash equivalents at year-end | $72.4 million | $126.9 million |
| Working capital at year-end | $51.2 million | $117.1 million |
Fourth-quarter 2018 revenue was $0; operating expenses were $60.5 million, net loss was $62.6 million and loss per share was $0.92. No product-sales revenue was recorded in 2018, and margins from product sales are therefore not applicable. The company reported total assets of $99.5 million, total liabilities of $138.1 million and a stockholders’ deficit of $38.6 million at year-end.
FY 2018 investing activities used $1.2 million and financing activities provided $105.4 million, mainly from equity offerings and ATM sales. Cash, cash equivalents and restricted cash declined $54.6 million during the year. The balance sheet included $103.1 million of convertible notes, net of unamortized discount and issuance costs; the notes have $109 million principal, bear 8.2% interest and mature in 2022.
Material changes versus comparable periods
- Revenue fell to zero from $1.6 million in 2017. The 2017 amount included recognition of remaining Daiichi Sankyo deferred revenue. FY 2016 revenue of $190.1 million was unusually high, principally reflecting revenue recognized upon termination of the Baxalta agreement; it is not a recurring operating baseline.
- R&D expense declined $52.2 million year over year as major CHS-1420 and CHS-0214 studies wound down, partly offset by UDENYCA pre-commercial manufacturing and resubmission costs.
- SG&A increased $22.9 million to $94.2 million as Coherus built sales, marketing and commercial functions ahead of the UDENYCA launch. Management expected SG&A to rise significantly in 2019.
- Net loss narrowed from $238.3 million to $209.4 million, while operating cash use also declined. These improvements occurred alongside lower R&D spending and do not reflect product sales.
- Cash and working capital decreased substantially. Coherus raised $80.8 million net in a May 2018 public offering and $21.0 million net through its ATM program.
Outlook, risks and unusual items
Management stated that year-end cash, the $75 million term loan closed January 7, 2019, and expected UDENYCA receipts should fund planned operations for at least 12 months after the financial statements were issued. This is a forward-looking estimate, not a guarantee. The loan bears interest at 7.00% plus LIBOR, is secured by substantially all company and guarantor assets including intellectual property, and includes UDENYCA sales covenants: at least $70 million for 2019, $125 million for 2020 and $150 million annually thereafter. These are loan requirements, not sales guidance. The loan also carries prepayment premiums and a 4% exit fee.
Key business risks include the execution and uptake of the first commercial launch; pricing, reimbursement and competition from originator products and other biosimilars; reliance on KBI as a single-source commercial manufacturer; manufacturing quality and supply continuity; and the need for additional financing if cash needs exceed forecasts. Coherus remained loss-making, with an accumulated deficit of $984.8 million. It reported no income-tax provision and fully reserved its net deferred tax assets.
Pipeline status: CHS-1420 (adalimumab) and CHS-0214 (etanercept) had completed Phase 3 programs, but further manufacturing work and regulatory submissions remained. Under a January 2019 AbbVie settlement, the U.S. license period for CHS-1420 begins December 15, 2023. Coherus stated it did not expect to commercialize CHS-0214 in the U.S. before certain originator patents expire in 2028–2029, absent a license or invalidation. CHS-3351 (ranibizumab) was in GMP manufacturing/process development, CHS-2020 (aflibercept) was preclinical, and CHS-131 had prior Phase 2 results but its NASH clinical program was still contemplated.
Unusual items included a $3.9 million impairment charge on equipment and a $3.2 million noncash gain from remeasurement of InteKrin contingent consideration. The filing also disclosed Amgen litigation, including an appeal of the dismissal of a patent suit and a separate California trade-secret/unfair-competition case scheduled for trial in April 2019; management said the potential loss could not then be estimated. The auditor gave an unqualified opinion on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether UDENYCA sales, customer adoption, pricing and reimbursement meet operating needs and the loan’s sales covenants.
- Actual cash burn and runway after launch costs, the $75 million secured loan, interest, fees and debt covenants.
- Manufacturing capacity and reliability at KBI, inventory shelf life and any inventory write-downs.
- Regulatory submission timing and remaining manufacturing requirements for CHS-1420 and CHS-0214, and the timing constraints on U.S. commercialization.
- Developments and potential financial or launch effects from Amgen litigation and other intellectual-property disputes.
- The filing’s registrant is Coherus BioSciences, Inc.; confirm whether this is the intended company given the metadata name “Coherus Oncology, Inc.”