Coherus BioSciences, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The filing identifies the registrant as Coherus BioSciences, Inc. (Nasdaq: CHRS); the request metadata names Coherus Oncology, Inc.
Business context and key metrics
Coherus is a commercial-stage biosimilars company. UDENYCA (pegfilgrastim-cbqv), its only U.S.-marketed product, generated the reported product revenue. The pipeline includes biosimilar candidates for adalimumab, bevacizumab, ranibizumab and aflibercept.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net product revenue | $113.6 million | $111.7 million | $365.4 million | $232.2 million |
| Income from operations | $33.7 million | $51.8 million | $139.9 million | $62.7 million |
| Net income | $27.9 million | $47.0 million | $122.5 million | $50.6 million |
| Diluted earnings per share | $0.33 | $0.63 | $1.52 | $0.69 |
| Gross margin | 92% | 94% | 93% | 96% |
At September 30, 2020, cash and cash equivalents were $292.5 million and short-term marketable securities were $211.0 million. Total assets were $803.7 million, total liabilities $548.0 million, and stockholders’ equity $255.7 million. Current assets were $726.9 million and current liabilities $133.4 million.
For the first nine months, operating cash flow was $121.0 million, investing cash flow was negative $224.5 million, and financing cash flow was positive $218.4 million. Cash, cash equivalents and restricted cash increased $115.0 million to $292.9 million.
Debt carrying amounts included $222.7 million of 2026 convertible notes, $106.0 million of 2022 convertible notes, and $74.3 million under the term loan—approximately $403.0 million combined. The filing reports $414.0 million of principal outstanding across these instruments. The term loan is secured by substantially all company and guarantor assets, including intellectual property.
Material changes versus comparable periods
- Q3 revenue rose 1.7% year over year; nine-month revenue increased 57.4%. Management attributed growth primarily to higher UDENYCA unit sales, partly offset by greater discounts and allowances.
- Q3 net income fell about 41% year over year, while nine-month net income more than doubled. Q3 research and development expense rose $17.3 million to $38.9 million; nine-month R&D rose $38.9 million to $98.1 million, reflecting pipeline development, manufacturing scale-up, CHS-1420 filing preparation and Innovent license payments.
- Q3 cost of goods sold increased to $9.0 million from $6.4 million, and gross margin declined two percentage points. The filing attributes cost of goods sold partly to manufacturing, distribution and a mid-single-digit royalty to Amgen.
- Interest expense increased $1.2 million in Q3 and $2.4 million year to date, primarily due to the 2026 convertible notes issued in April 2020.
Outlook, commentary and risks
- Management expected UDENYCA revenue to remain relatively unchanged or increase modestly through the end of 2020. It expected gross margin to decline moderately during the remainder of 2020 due to competitive pressure and lower net revenue per unit; R&D to increase moderately and SG&A to remain relatively constant.
- Management stated available cash, investments and expected UDENYCA collections should fund planned expenditures and obligations for at least 12 months after issuance of the financial statements, while noting future financing may be needed.
- Management anticipated submitting a CHS-1420 351(k) BLA in Q4 2020, with U.S. launch no earlier than July 1, 2023 under its AbbVie settlement and license. CHS-2020 Phase 3 initiation was projected for 2021 and a potential launch for 2025.
- Bioeq withdrew its ranibizumab biosimilar BLA after the FDA requested additional manufacturing data following a change in equipment location. Bioeq planned to meet with the FDA in Q1 2021 to discuss the data and resubmission timing.
- COVID-19 could affect UDENYCA sales growth, clinical and preclinical work, supply, regulatory review and access to capital. The company relies on third-party manufacturers and faces biosimilar competition, pricing pressure, reimbursement uncertainty and regulatory and intellectual-property risks.
- A Q2 2020 correction to overstated commercial payer invoices and revised rebate methodology increased nine-month 2020 net product revenue by $13.3 million and diluted EPS by $0.16; it had no Q3 revenue effect. The filing reports a $7.5 million payer refund related to 2019 and a $5.8 million reduction in accrued rebates.
- The Amgen trade-secret case was settled; Coherus continues to pay Amgen a mid-single-digit royalty for five years beginning July 1, 2019. A separate Amgen patent matter was affirmed in Coherus’s favor on appeal; a fee motion remained pending in the District Court.
Important facts for investors to verify
- How much of nine-month revenue and earnings growth reflects underlying UDENYCA performance versus the $13.3 million payer-related adjustment, and how rebate, chargeback and discount reserves develop.
- Whether unit sales, net selling prices and gross margins track management’s 2020 expectations amid competition and the Amgen royalty.
- Cash generation and investment needs as pipeline R&D rises, including the timing and cost of planned filings, trials and manufacturing scale-up.
- Debt terms, covenants and potential dilution from convertible notes; the 2022 notes mature in March 2022 and the 2026 notes are convertible at an initial price of approximately $19.26 per share.
- Regulatory progress and manufacturing readiness for the pipeline, particularly Bioeq’s ranibizumab resubmission and the anticipated CHS-1420 filing.