Coherus BioSciences, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing. The company is a clinical-stage biosimilars developer with no commercial product sales; reported revenue primarily reflects collaboration and license arrangements.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Total revenue | $190.1 million | $30.0 million |
| Research and development expense | $254.4 million | $213.1 million |
| General and administrative expense | $51.6 million | $36.0 million |
| Operating loss | $115.9 million | $219.1 million |
| Net loss | $127.8 million | $223.9 million |
| Net loss per share | $3.04 | $6.01 |
| Cash and cash equivalents at year-end | $124.9 million | $158.2 million |
| Working capital | $105.1 million | $91.4 million |
| Net cash used in operating activities | $252.5 million | $108.0 million |
| Net cash provided by financing activities | $226.2 million | $122.7 million |
- Revenue increased $160.1 million, principally because termination of the Baxalta agreement led the company to recognize $85.8 million of deferred revenue and $76.7 million of contingent liability to collaborator as revenue. This was a one-time accounting effect, not product sales.
- Despite the reported revenue, the company remained loss-making. Product gross margin is not applicable because it had no commercial product revenue; the filing does not provide a meaningful product-sales margin.
- Operating cash use rose sharply, partly reflecting the release of Baxalta-related deferred revenue and liability balances and clinical-program spending. Year-end cash declined by $33.3 million.
- At year-end, the company reported $100.3 million of convertible notes at carrying value, against $109.0 million principal. The notes bear 8.2% interest, mature in 2022, and generally require 109% of principal plus accrued interest at maturity or redemption if not converted.
- After year-end, the company reported $4.2 million net proceeds from January ATM sales and $120.3 million net proceeds from a February–March 2017 follow-on offering. Management said available funds, expected Daiichi Sankyo funding and anticipated partnership/ATM proceeds should fund planned operations for at least 12 months; that outlook depends partly on expected financing and partnerships.
Business and material developments
- CHS-1701 (pegfilgrastim/Neulasta biosimilar): U.S. BLA filed in August 2016 and accepted in October; FDA action date was June 9, 2017. European application accepted in November 2016, with an anticipated EMA action in Q4 2017. A follow-on PK/PD study and immunogenicity study met their primary endpoints.
- CHS-0214 (etanercept/Enbrel biosimilar): Phase 3 rheumatoid arthritis and psoriasis studies met primary endpoints. The company regained rights from Baxalta/Shire after Shire terminated the agreement in September 2016. Daiichi Sankyo retains Japan rights. The filing states U.S. commercialization is not expected before relevant originator patents expire in 2028–2029, absent a license.
- CHS-1420 (adalimumab/Humira biosimilar): Phase 3 psoriasis results were positive at 12 and 24 weeks. The company planned U.S. and E.U. filings in the first half of 2017; bridging studies were ongoing or completed around the filing date.
- Other programs: CHS-5217 (bevacizumab) and CHS-3351 (ranibizumab) were preclinical. CHS-131, an oral multiple-sclerosis candidate, met its Phase 2b primary endpoint, with a reported 52% reduction in contrast-enhancing lesions at the 3 mg dose versus placebo; the company was exploring licensing.
- R&D spending rose 19% to $254.4 million, led by CHS-1420 Phase 3 activity and pipeline investment, partly offset by completed CHS-1701 and CHS-0214 studies. Management expected R&D expense to be similar or slightly lower as programs moved through regulatory review, while G&A was expected to increase with commercialization preparation.
Outlook, risks and unusual items
- The company remains dependent on regulatory approval, successful manufacturing scale-up, market uptake, reimbursement and additional financing. It has never generated product-sales revenue and expects continued losses.
- Competition is significant, including approved or advancing biosimilar candidates for the same reference products. Pricing pressure, limited substitution, narrower-than-expected labels and delayed market entry could reduce commercial opportunity.
- Patent disputes could delay or prevent launches. Coherus had filed inter partes review petitions challenging AbbVie patents relating to Humira; outcomes were pending or unfavorable on certain petitions. The filing also describes uncertainty about biosimilar launch timing and patent-related litigation.
- On March 3, 2017, Amgen sued Coherus, KBI Biopharma and others, alleging unfair competition, trade-secret misappropriation and related claims, and seeking injunctive relief and damages. The company said it was evaluating the potential impact.
- An FDA inspection of KBI Biopharma, the CHS-1701 bulk drug-substance manufacturer, produced Form 483 observations; KBI submitted corrective actions for FDA review. The company also disclosed prior manufacturing-lot issues and reliance on single-source vendors for key activities.
- The filing reports an unqualified audit opinion and effective disclosure controls and internal control over financial reporting as of December 31, 2016.
Important facts for investors to verify
- Regulatory decisions and timing for CHS-1701 in the U.S. and Europe, including any manufacturing-related requirements.
- Actual cash burn and runway after the 2017 equity offerings, and whether projected partnership funding is realized.
- Progress and filing timing for CHS-1420 and CHS-0214, including relevant patent constraints and territorial rights.
- Status and potential financial or operational effects of the Amgen litigation and AbbVie patent challenges.
- Resolution of KBI’s FDA inspection observations and the company’s capacity to secure reliable commercial supply.
- How much of 2016 revenue was nonrecurring: the filing attributes nearly all of the sharp increase to termination-related recognition of Baxalta balances.