Coherus BioSciences, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; financial statements are unaudited. Amounts below are in U.S. dollars. The filing identifies the registrant as Coherus BioSciences, Inc.
Business context
Coherus was developing and preparing to commercialize biosimilar medicines, with UDENYCA (pegfilgrastim-cbqv) its lead product. It had not generated revenue from commercial product sales by September 30, 2018. The European Commission approved UDENYCA on September 25, 2018; after quarter-end, the FDA approved it on November 2, 2018. The company planned to begin U.S. sales in January 2019.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $1.6 million |
| Research and development expense | $31.6 million | $42.6 million | $83.6 million | $130.9 million |
| General and administrative expense | $25.4 million | $14.0 million | $60.3 million | $56.3 million |
| Net loss attributable to Coherus | $58.8 million | $59.0 million | $146.7 million | $189.1 million |
| Net loss per share, basic and diluted | $0.87 | $1.09 | $2.39 | $3.68 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $111.9 million | $170.4 million |
No meaningful gross margin was reported because there were no commercial product sales. At September 30, cash and cash equivalents were $101.2 million, short-term marketable securities were $16.0 million, and cash, cash equivalents and restricted cash totaled $102.0 million. The company reported current assets of $130.3 million, current liabilities of $24.5 million, total assets of $141.5 million, and total liabilities of $129.1 million. Accumulated deficit was $922.2 million.
Convertible notes had a net carrying amount of $102.7 million, including related-party notes. The filing describes an 8.2% coupon, maturity on March 31, 2022, and a 9% premium payable at maturity or redemption; the future-payment schedule lists $109.0 million as principal amount. The company reported compliance with note covenants and no defaults.
Cash used in investing activities was $17.0 million and financing provided $102.8 million for the first nine months of 2018. Financing included $100.8 million of net proceeds from equity offerings and ATM sales. Cash and cash equivalents declined by $25.7 million over the period. The filing’s liquidity discussion cites $117.2 million of cash, cash equivalents and short-term investments and states these resources were expected to fund planned expenditures and obligations for at least 12 months following issuance of the financial statements.
Material changes versus the prior comparable period
- For the first nine months, net loss narrowed to $146.7 million from $189.1 million, primarily alongside lower R&D spending and higher other income; revenue also fell from $1.6 million to zero following termination of the Daiichi Sankyo agreement.
- R&D expense decreased $11.0 million in Q3 and $47.3 million year to date, mainly because CHS-1420 and CHS-0214 trial activity had wound down. UDENYCA pre-commercial manufacturing and resubmission work partly offset the reductions.
- G&A expense rose $11.4 million in Q3 and $4.0 million year to date as Coherus built its sales force and commercial-support functions ahead of launch.
- Operating cash use improved to $111.9 million from $170.4 million year to date. The company raised $100.8 million net from equity offerings and ATM sales, while issuing additional shares and diluting existing holders.
Outlook, risks and unusual items
- Management expected lower R&D expense in Q4 2018 because UDENYCA manufacturing costs would be capitalized after FDA approval, and higher G&A expense as commercial activity expanded. No numerical revenue, earnings or launch-sales guidance was provided.
- The company said it would need additional funds in the future and had no credit facility or committed capital sources. It cautioned that financing may not be available on acceptable terms and that it might need to delay or reduce development or commercialization activities.
- Q3 included a $3.9 million impairment charge for machinery and equipment. For the first nine months, other income included a $3.2 million non-cash gain from remeasurement of contingent consideration, reflecting a lower probability and later timing of a potential payment.
- Amgen’s California lawsuit alleges unfair competition and trade-secret misappropriation and seeks injunctive relief and damages. Coherus disputed the allegations; the company said an injunction could delay UDENYCA’s commercial release. Trial was set for January 22, 2019, and the filing said loss likelihood and amount could not be estimated. Separately, an Amgen patent-infringement complaint concerning the ’707 patent had been dismissed with prejudice in March 2018.
- Other key risks include competition from other pegfilgrastim biosimilars, pricing and reimbursement uncertainty, dependence on third-party manufacturers and suppliers, patent disputes affecting product launch timing, and the company’s history of significant losses.
- Disclosure controls and procedures were assessed as effective at September 30, 2018; no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- U.S. launch timing and commercial uptake of UDENYCA, including supply readiness, market access, pricing and reimbursement.
- Cash burn and liquidity runway after commercialization spending, and whether additional financing will be needed sooner than management expected.
- Convertible-note obligations, including the 8.2% coupon, 9% maturity premium, and the filing’s stated $109.0 million principal amount in its payment schedule.
- Status and potential consequences of the Amgen California litigation and pending AbbVie patent appeal relevant to CHS-1420.
- Progress, investment requirements and partnering plans for CHS-1420, CHS-0214, CHS-131, CHS-3351 and CHS-2020.