Business context and reporting period
This is Coherus BioSciences, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The request metadata says “Coherus Oncology, Inc.”; the filing identifies the registrant as Coherus BioSciences, Inc. The company was a clinical-stage biosimilar developer with no commercial product sales. Its lead programs were CHS-0214 (etanercept), CHS-1420 (adalimumab) and CHS-1701 (pegfilgrastim).
Financial performance and liquidity
Amounts below are in millions except per-share data. The company reports collaboration and license revenue, not product-sales revenue.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $16.1 | $0.5 | $24.6 | $1.5 |
| Research and development expense | $18.5 | $4.9 | $51.4 | $22.1 |
| General and administrative expense | $4.0 | $2.4 | $11.4 | $5.0 |
| Loss from operations | $(6.4) | $(6.8) | $(38.1) | $(25.5) |
| Net loss attributable to Coherus | $(7.9) | $(21.5) | $(58.0) | $(39.0) |
| Net loss per share | $(1.79) | $(6.23) | $(13.62) | $(12.48) |
Revenue growth primarily reflected Baxter-related revenue: $10.0 million from a substantive milestone recognized in Q3 and amortization of previously deferred revenue. Baxter accounted for 97% of Q3 revenue and 94% for the nine-month period. No gross margin was reported; the company had no product sales.
At September 30, cash and cash equivalents were $100.9 million, total current assets $118.9 million and current liabilities $48.1 million. Working capital was approximately $70.8 million. Total liabilities were $120.0 million, including deferred revenue and collaboration-related contingent liabilities. Convertible notes had converted into Series C preferred stock in May 2014; the filing reports no convertible notes outstanding at quarter-end. Accumulated deficit was $157.6 million.
For the first nine months, operating activities provided $9.4 million of cash, investing activities used $0.03 million and financing activities provided $52.2 million. Positive operating cash flow was substantially supported by collaboration-related deferred revenue and contingent-liability changes, rather than operating profitability. Cash increased by $61.3 million to $100.9 million.
Material changes versus the prior comparable period
- Nine-month revenue rose $23.1 million, primarily from Baxter collaboration revenue; R&D expense increased $29.3 million as CHS-0214 advanced through Phase 3 and other development and staffing costs rose.
- Nine-month net loss widened by $19.1 million. Other expense increased, including fair-value remeasurement of preferred-stock warrants and InteKrin acquisition contingent consideration. Q3 net loss was lower than the prior-year quarter, partly because prior-year results included larger warrant and embedded-derivative remeasurement charges.
- Coherus issued Series C preferred stock in May 2014 for $54.7 million net proceeds and acquired InteKrin in February for approximately $5.0 million of consideration. The acquisition added $2.6 million of in-process R&D intangible assets and $0.9 million of goodwill.
Outlook, commentary, risks and unusual items
- After quarter-end, the IPO closed on November 12, 2014. Coherus reported approximately $80.4 million in net proceeds from 6,803,702 shares sold at $13.50 per share. Preferred stock converted into common stock and outstanding warrants were exercised. Management said cash, including IPO proceeds, was expected to fund planned operations and obligations for at least 12 months; it also expected to need additional funding in the future.
- Development expectations were CHS-0214 Phase 3 results and a European filing target in 2016; CHS-1420 Phase 3 initiation in the first half of 2015, with U.S. filing targeted in 2016 and EU filing in 2017; and a potential CHS-1701 U.S. filing in late 2015 or early 2016 after a switch to the 351(k) biosimilar pathway. These timelines were conditional on trial results, regulatory feedback and approvals; no formal financial guidance was provided.
- Key risks include clinical or regulatory failure, evolving biosimilar requirements, patent disputes and launch delays, dependence on collaborators and single-source contract manufacturers, manufacturing scale-up, competition, and the need for future capital. Baxter-related receipts include potential refund or claw-back obligations under specified circumstances.
- Management concluded disclosure controls were not effective at September 30, 2014 because of a material weakness in valuation controls for warrants, embedded derivatives and contingent consideration. Remediation efforts included strengthening finance staffing and processes.
- The filing gives inconsistent figures for Russian cash: market-risk disclosure reports $0.3 million, while a risk-factor discussion reports $1.9 million held by the Russian subsidiary as of September 30, 2014. The filing text does not reconcile these values.
Important facts for investors to verify
- Progress, results and regulatory requirements for the three lead programs, particularly the CHS-1701 351(k) pathway and filing timetable.
- Cash runway assumptions after the IPO, expected development spending and timing or terms of future financing.
- Terms and potential refund exposure associated with Baxter collaboration payments, alongside the concentration of revenue in that relationship.
- Remediation and subsequent testing of the reported material weakness in financial reporting controls.
- The correct Russian cash balance and other material foreign-currency or geopolitical exposures.
- Patent, manufacturing-supply and collaboration risks that could change development timelines or commercial rights.