Coherus BioSciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing identifies the registrant as Coherus BioSciences, Inc. (Nasdaq: CHRS), a commercial-stage biotherapeutics company. UDENYCA was its only U.S.-marketed product; its pipeline included toripalimab and biosimilar candidates.
Financial performance and position
- Revenue: Net product revenue was $83.0 million, down $33.1 million, or about 28.5%, from $116.2 million in Q1 2020. Management attributed the decline primarily to fewer UDENYCA units sold and higher discounts and allowances.
- Profit and margins: Gross margin was 91%, versus 94% a year earlier. Operating loss was $167.4 million, compared with operating income of $40.9 million; net loss was $172.9 million, or $2.37 per diluted share, versus net income of $35.6 million, or $0.48 per diluted share. R&D expense rose to $203.5 million, principally reflecting the toripalimab license expense.
- Cash flow: Operating cash flow was positive $1.4 million, versus $13.5 million in Q1 2020. Investing cash flow was negative $285.5 million, primarily for the $145.0 million toripalimab payment and $140.3 million of marketable-security purchases. Cash, cash equivalents and restricted cash decreased $281.7 million during the quarter.
- Liquidity: At March 31, cash and cash equivalents were $259.5 million and marketable securities were $140.0 million, or $399.5 million combined. Current assets were $617.3 million and current liabilities $257.6 million.
- Debt: Debt carrying value was approximately $405.0 million: $107.0 million of 8.2% convertible notes due in 2022, $223.3 million of 1.5% convertible notes due in 2026, and a $74.7 million term loan. The 2022 notes became current liabilities and have $109.0 million aggregate principal due at maturity, including related-party notes. The term loan bears interest at 6.75% plus three-month LIBOR.
Material changes and unusual items
- In February, Coherus licensed U.S. and Canadian toripalimab rights from Junshi Biosciences. It paid $150.0 million upfront; $145.0 million was recognized as Q1 R&D expense after crediting a prior $5.0 million fee. The agreement also provides for a 20% royalty and up to $380 million in milestones, subject to future events.
- Coherus discontinued CHS-2020, an Eylea biosimilar program, and recorded $11.5 million of related Q1 R&D costs, including a $3.2 million prepaid-services write-off and $8.3 million for cancellation of purchase orders.
- On April 16, 2021, after quarter-end, Coherus issued Junshi 2,491,988 shares for approximately $50.0 million cash. The filing says the related $9.0 million discount-for-lack-of-marketability value would offset R&D expense in Q2.
- Three customers accounted for 98% of Q1 revenue: McKesson 39%, AmerisourceBergen 38%, and Cardinal Health 21%.
Outlook, commentary and risks
- Management expects UDENYCA revenue and market penetration to rise in the second half of 2021 if COVID-19 recedes and treatment patterns normalize, subject to market pricing. It expects gross margin to moderately decline during the rest of 2021; COGS was expected to reach a high-single-digit to low-double-digit percentage of revenue from Q2 as previously expensed inventory was depleted.
- Management expected R&D expense to be substantially lower after Q1, which included the toripalimab upfront payment, and SG&A to increase as commercial activity expands.
- Coherus reported $399.5 million in cash, cash equivalents and short-term investments and said it expected available resources and UDENYCA collections to fund planned expenditures and obligations for at least 12 months after issuance of the statements. It also cautioned that future financing may be needed and may not be available on acceptable terms.
- Key risks include COVID-19-related disruption to sales and clinical programs, UDENYCA competition and pricing pressure, dependence on third-party manufacturers, regulatory and clinical uncertainty, intellectual-property disputes, and the need to address the 2022 notes at maturity. The term loan includes a UDENYCA sales covenant; the filing reports covenant compliance and no debt defaults at March 31.
- The toripalimab rolling BLA submission for third-line nasopharyngeal carcinoma began in March 2021. The filing provides no formal financial guidance range. Coherus reported no material legal proceedings and no off-balance-sheet arrangements.
Investor verification priorities
- Track UDENYCA unit sales, discounts, customer concentration, competitive pricing and the conditional second-half recovery outlook.
- Verify toripalimab BLA progress, development costs, potential milestones and royalties, and the accounting treatment of the April share issuance and Q2 expense offset.
- Assess the company’s plan and funding capacity for the $109.0 million 2022 notes maturity, alongside term-loan repayment terms, covenants and associated fees.
- Monitor pipeline and manufacturing milestones, particularly CHS-1420’s December 2021 FDA goal date and the expected mid-2021 ranibizumab BLA resubmission by Bioeq.
- Reconcile quarterly cash movement and the classification of the toripalimab payment: the cash flow statement reports the payment as an investing outflow, while its operating reconciliation also includes an offsetting $145.0 million adjustment.