Coherus BioSciences, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. The registrant is Coherus BioSciences, Inc.; it describes itself as a late-stage clinical biosimilar company. It had no approved products and no commercial product sales. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration and license revenue | $1.4 million | $14.1 million | $1.6 million | $26.4 million |
| Research and development expense | $34.5 million | $65.5 million | $88.3 million | $130.9 million |
| General and administrative expense | $23.5 million | $11.3 million | $42.3 million | $22.7 million |
| Net loss attributable to Coherus | $55.3 million | $70.0 million | $130.1 million | $135.4 million |
| Net loss per share | $1.08 | $1.72 | $2.60 | $3.39 |
- Revenue and margins: Revenue was entirely collaboration and license revenue; there were no product sales. Product gross margin is not applicable. Revenue fell sharply year over year after the 2016 termination of the Baxalta agreement.
- Cash flow: Six-month operating cash use was $128.9 million, compared with $103.7 million in 2016. Investing cash use was $47.5 million, primarily reflecting purchases of marketable securities and property and equipment. Financing provided $124.8 million, mainly from common-stock issuance. Cash and cash equivalents decreased $51.6 million to $73.4 million.
- Liquidity: Cash, cash equivalents and marketable securities totaled $118.3 million at June 30, 2017; restricted cash is additional. Current assets were $153.3 million and current liabilities $35.9 million. Accumulated deficit was $667.4 million.
- Debt: Convertible notes had a $109.0 million principal balance and a $100.9 million net carrying amount, including related-party notes. They bear 8.2% interest, mature in 2022, and generally require 109% of principal plus accrued interest at maturity or redemption. The company reported compliance with note covenants and no defaults.
Material changes and unusual items
- Research and development expense declined, largely because CHS-0214 Phase 3 trials were completed and CHS-1420 trial activity decreased. General and administrative expense increased, including higher professional fees, personnel costs, stock-based compensation and pre-commercial spending.
- The FDA issued a complete response letter for the CHS-1701 pegfilgrastim biosimilar BLA in June, stating the application could not be approved in its present form. The company cited requests for immunogenicity-assay reanalysis and additional manufacturing-process information.
- A $3.6 million restructuring charge was recorded in June following the FDA response. The plan included workforce reductions; $2.1 million of restructuring liabilities remained at quarter-end.
- Other income included a $3.5 million Q2 gain from remeasurement of contingent consideration, following reduced estimated payouts. This non-cash gain helped moderate the reported net loss.
- Coherus raised approximately $124.6 million net from ATM sales and a follow-on offering in the first half. Common shares outstanding were approximately 51.3 million at July 31.
Outlook, risks and contingencies
- Management expected available cash and investments to fund planned operations and obligations for at least 12 months after the financial statements’ issuance. It also said additional funding would be needed in the future and financing may be unavailable or unfavorable; the ATM program had $39.2 million remaining at June 30.
- Management planned to resubmit the CHS-1701 BLA in Q4 2017. The European MAA was under review. The company planned a U.S. CHS-1420 BLA filing in the first half of 2018 and a European filing thereafter. These are forward-looking plans, not assured outcomes.
- Daiichi Sankyo opted out of CHS-0214 development in Japan in July 2017, returning those rights to Coherus and ending the global open-label safety extension study. The company recognized $1.4 million of remaining deferred revenue in Q2 after concluding it had no further performance obligations.
- Material legal matters include Amgen’s California action alleging unfair competition, trade-secret misappropriation and related claims, and a Delaware patent-infringement action concerning CHS-1701. Amgen sought injunctive relief; Coherus said it would vigorously defend. The company could not estimate the likelihood or amount of loss; an injunction could delay CHS-1701 commercialization.
- AbbVie appealed PTAB decisions invalidating claims in three Humira-related patents. Additional patent proceedings remained pending. Biosimilar approval, manufacturing compliance, intellectual-property litigation, partner decisions, competition, market access and reimbursement are significant risks.
- Management expected R&D expense to decrease during the remainder of 2017 as resources focused on CHS-1701, and G&A expense to decrease as much pre-commercial spending had already been incurred. The company continued to expect significant losses and had no commercial revenue.
- Disclosure controls and procedures were reported effective at quarter-end, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Review the FDA complete response letter requirements, the planned resubmission timing, and the status of the European CHS-1701 application.
- Track cash burn, the assumptions behind the stated 12-month liquidity runway, remaining ATM capacity and future financing needs.
- Assess the potential financial, operational and launch-timing effects of the Amgen litigation and outstanding patent proceedings.
- Confirm the implications of Daiichi Sankyo’s CHS-0214 withdrawal for development costs, rights and future revenue opportunities.
- Separate recurring operating performance from the one-time restructuring charge and fair-value gain on contingent consideration.