Coherus BioSciences, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The filing is an unaudited quarterly report. The registrant named in the filing is Coherus BioSciences, Inc.
Business context
Coherus was a late-stage clinical biologics company focused primarily on biosimilars and had no approved products or commercial product sales. Lead programs included CHS-1701 (pegfilgrastim/Neulasta), CHS-1420 (adalimumab/Humira) and CHS-0214 (etanercept/Enbrel). The company’s revenue came from collaboration and license arrangements.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Collaboration and license revenue | $0.2 million | $12.4 million |
| Research and development expense | $53.8 million | $65.3 million |
| General and administrative expense | $18.8 million | $11.4 million |
| Operating loss | $72.4 million | $64.4 million |
| Net loss | $74.8 million | $65.5 million |
| Net loss per share, basic and diluted | $1.54 | $1.67 |
| Cash used in operating activities | $73.3 million | $76.3 million |
There were no product sales, so a commercial gross margin is not applicable; the filing does not present a meaningful product margin. At March 31, 2017, cash and cash equivalents were $124.9 million and short-term marketable securities were $49.9 million, totaling $174.8 million in available cash and short-term investments. Current assets were $208.3 million and current liabilities were $47.3 million. The company reported an accumulated deficit of $612.1 million.
Cash and cash equivalents decreased by $0.02 million during the quarter. Investing activities used $51.6 million, principally for purchases of marketable securities and equipment; financing activities provided $125.0 million, primarily from common-stock issuance. The company raised $4.2 million net through its ATM program and $120.4 million net from a follow-on offering.
Convertible notes had a $100.0 million aggregate principal amount and a $100.6 million net carrying amount at quarter-end. They bear 8.2% annual interest, mature in 2022, and include a 9% premium payable at maturity, redemption or repurchase. The filing reported covenant compliance and no defaults.
Changes versus the prior comparable period
- Revenue fell $12.2 million, mainly because Shire/Baxalta terminated its CHS-0214 license agreement in 2016; Q1 2017 revenue was primarily the $0.2 million recognized from Daiichi Sankyo.
- R&D expense declined $11.5 million, largely as CHS-0214 Phase 3 studies wound down, partly offset by CHS-1420 studies, higher staffing and stock-based compensation.
- G&A expense increased $7.4 million, including higher professional-services, personnel and stock-based compensation costs as the company prepared for commercialization.
- Net loss increased $9.3 million despite lower R&D spending, reflecting the sharp revenue decline and higher G&A and interest expense. Loss per share was lower than in 2016, with a higher weighted-average share count.
- Operating cash use improved by $3.0 million year over year. The company also shifted $49.9 million into short-term marketable securities during the quarter.
Outlook, risks and unusual items
- Management said available cash and short-term investments were expected to fund planned expenditures and obligations for at least 12 months after the financial statements were issued. It also said additional funding would be needed in the future; no assurance was given that financing would be available on acceptable terms.
- Management expected R&D expense to be similar or slightly lower as late-stage programs moved through regulatory review, and expected G&A expense to increase significantly with commercialization preparation.
- CHS-1701’s U.S. BLA and European MAA had been accepted for review. The FDA action date was June 9, 2017, but approval timing and commercial launch remained uncertain. The filing highlighted patent litigation and the then-pending U.S. Supreme Court decision concerning the BPCIA’s 180-day notice period.
- Coherus reported positive CHS-1420 Phase 3 results and planned U.S. and European filings in the first half of 2017; additional bridging studies were underway or completed. CHS-0214 had completed Phase 3 studies, with further regulatory discussions anticipated. U.S. commercialization could be constrained by originator patents.
- Amgen sued Coherus and others, alleging unfair competition, trade-secret misappropriation and related claims; its amended complaint sought injunctive relief and monetary damages. Coherus disputed the claims. The company said loss likelihood and any potential loss amount could not be estimated; an injunction could delay CHS-1701 commercialization.
- Other significant risks included regulatory approval and biosimilarity requirements, patent disputes (including AbbVie Humira-related IPR proceedings), dependence on third-party manufacturers and clinical vendors, competition, commercialization execution and the need for further capital.
- The company recorded $0.4 million of expense from remeasurement of contingent consideration. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent FDA and EMA decisions, any CHS-1701 launch timing, and the effect of the BPCIA notice and patent-litigation outcomes.
- Progress and regulatory filing status for CHS-1420 and CHS-0214, including the impact of intellectual-property proceedings and U.S. patent barriers.
- Cash burn, remaining ATM capacity, financing needs and whether the stated 12-month liquidity expectation remains supportable.
- Developments in the Amgen lawsuit, particularly any injunction request or ruling and any effect on CHS-1701.
- Manufacturing readiness, third-party supply and regulatory inspection status, plus the company’s ability to build commercialization infrastructure and secure market access.