Coherus BioSciences, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing was signed February 29, 2016. The registrant is Coherus BioSciences, Inc.; the filing includes Coherus Oncology, Inc. as a subsidiary. The company was a clinical-stage biosimilar developer with no approved products and no product-sale revenue.
Business context and pipeline
Coherus was developing biosimilar candidates CHS-1701 (pegfilgrastim/Neulasta), CHS-0214 (etanercept/Enbrel) and CHS-1420 (adalimumab/Humira). It also had preclinical oncology and ophthalmology candidates and CHS-131, a Phase 2 multiple-sclerosis small-molecule program. Commercialization plans generally retained U.S. rights while relying on partners in certain non-U.S. markets.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $30.0 million | $31.1 million |
| Research and development expense | $213.1 million | $78.2 million |
| General and administrative expense | $36.0 million | $17.6 million |
| Operating loss | $219.1 million | $64.7 million |
| Net loss | $223.9 million | $87.2 million |
| Cash used in operating activities | $108.0 million | $23.9 million |
| Cash and cash equivalents at year-end | $158.2 million | $150.4 million |
Revenue was primarily collaboration and license revenue, not product sales; Baxalta accounted for 93% of 2015 revenue. Revenue declined about 3%, while the net loss widened substantially as late-stage clinical spending increased. Gross margin is not presented as a meaningful measure for this development-stage business. Working capital was $91.4 million, down from $127.4 million. Total assets were $212.4 million, total liabilities $219.3 million, and stockholders’ equity was negative $6.9 million.
Financing provided $122.7 million of cash in 2015, primarily from a follow-on share offering and a $10 million Baxalta private placement. In February 2016, the company issued $100 million of senior convertible notes bearing 8.2% interest and due no later than March 31, 2022. If not converted, redeemed or otherwise settled earlier, maturity or redemption requires cash payment of 109% of par plus accrued interest. Management expected year-end cash, the notes’ proceeds and anticipated collaboration funding to support planned expenditures through at least December 31, 2016, but stated additional capital would be needed.
Material changes and operating developments
- R&D expense rose by $134.8 million year over year, principally due to expanded Phase 3 work for CHS-0214 and CHS-1420 and BLA-enabling studies for CHS-1701.
- Operating cash use increased by $84.1 million year over year. Year-end cash increased modestly, supported by financing and collaboration receipts.
- Baxalta paid $100 million in 2015 under revised CHS-0214 milestone terms. Portions are subject to clawback; the balance sheet included $66.3 million of contingent liability to the collaborator at year-end.
- CHS-1701’s 2015 pivotal PK/PD study met primary pharmacodynamic endpoints and Cmax bioequivalence, but did not meet the AUC bioequivalence endpoint; management attributed this to an anomalously low Neulasta control profile. A follow-on study began in February 2016.
- CHS-0214 Phase 3 psoriasis and rheumatoid arthritis studies met their primary efficacy endpoints. CHS-1420 began a Phase 3 psoriasis study in August 2015.
Outlook, risks and unusual items
Management anticipated a U.S. CHS-1701 BLA filing after the follow-on study, CHS-0214 marketing applications in Europe and Japan in 2016, and CHS-1420 filings in the U.S. in 2016 and Europe in 2017. These are forward-looking plans, not assured outcomes. The filing also described a goal of advancing at least one early-stage biosimilar candidate into clinical trials in 2016.
- Key risks include clinical or regulatory setbacks, evolving biosimilar approval requirements, patent disputes and launch delays, competition from better-resourced developers, pricing and reimbursement uncertainty, and reliance on single-source contract manufacturers and CROs.
- The company’s cash runway depends partly on expected collaboration receipts and future financing; failure to raise capital could force delays or reductions in development programs.
- Coherus filed inter partes review petitions challenging three AbbVie Humira dosing patents; the USPTO was expected to decide whether to institute review in 2016. The outcome and any effect on commercialization were uncertain.
- CHS-0214 faces originator-controlled U.S. patents that the company said could prevent U.S. commercialization before 2028 or 2029, absent a license or successful challenge.
- Unusual items included a $4.6 million 2015 expense from remeasurement of InteKrin contingent consideration and a $0.4 million property-and-equipment impairment. The company also disclosed a prior material weakness involving complex securities valuation; management and the auditor reported effective internal controls as of December 31, 2015, and the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether CHS-1701’s follow-on PK/PD results support the planned BLA despite the prior AUC endpoint miss.
- Clinical, regulatory and manufacturing progress for CHS-0214 and CHS-1420, including the effects of process bridging and patent positions.
- Actual collaboration milestone receipts, the terms and potential clawback of Baxalta payments, and the concentration of revenue in that partner.
- Cash burn, timing and availability of anticipated partner funding, and whether additional financing is required sooner than management expected.
- The status and potential consequences of patent proceedings, competing biosimilar launches, and commercial coverage, pricing and reimbursement.