Coherus BioSciences, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 earnings release; the filing text does not provide a clear Q4-only value for the key financial metrics below.
Business context
Coherus is a commercial-stage biopharmaceutical company. UDENYCA, its biosimilar to Neulasta, was its only marketed U.S. product during 2020. The company was using cash generated by biosimilar sales to develop a pipeline that included biosimilars of Humira, Avastin and Lucentis.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net product revenue | $475.8 million | $356.1 million | Up $119.8 million (33.6%) |
| Cost of goods sold | $37.7 million | $17.1 million | Up $20.6 million |
| Reported gross margin | 92% | 95% | Down 3 percentage points |
| Research and development expense | $142.8 million | $94.2 million | Up $48.6 million |
| Selling, general and administrative expense | $139.1 million | $137.0 million | Up $2.0 million |
| Income from operations | $156.3 million | $107.8 million | Up $48.6 million |
| Net income | $132.2 million | $89.8 million | Up $42.4 million |
| Diluted earnings per share | $1.62 | $1.23 | Up $0.39 |
| Cash provided by operating activities | $154.1 million | $28.4 million | Up $125.8 million |
At year-end, cash and cash equivalents were $541.2 million, versus $177.7 million a year earlier; total assets were $841.6 million and stockholders’ equity was $281.0 million. Current liabilities were $145.7 million. The company reported an accumulated deficit of $762.8 million and said available cash and expected UDENYCA collections should fund planned operations for at least 12 months after financial statement issuance.
Debt at year-end included $109.0 million principal of 8.2% convertible notes due 2022, $230.0 million principal of 1.5% convertible notes due 2026, and a $75.0 million term loan. Their reported net carrying amounts totaled approximately $404.0 million. The term loan is secured by substantially all company and guarantor assets and carries covenants, including minimum UDENYCA sales requirements.
Material changes and unusual items
- Revenue growth reflected higher UDENYCA unit sales, partly offset by increased discounts and allowances. Three wholesalers represented 98% of 2020 revenue: McKesson 38%, AmerisourceBergen 37% and Cardinal 23%.
- In 2020, the company received a $7.5 million refund for commercial payer invoices relating to 2019; this increased 2020 revenue and earnings.
- Reported gross margin was affected by product inventory costs expensed as R&D before UDENYCA’s 2018 approval. The filing says this zero-cost inventory was expected to be used by Q1 2021; after that, cost of goods sold was expected to be a high-single-digit to low-double-digit percentage of net revenue, including the Amgen royalty.
- Operating cash flow increased substantially, while inventory rose to $92.2 million from $55.1 million and trade receivables rose to $157.0 million from $142.0 million.
- In April 2020, Coherus issued $230 million of convertible notes due 2026, receiving $222.2 million net proceeds, and spent $18.2 million on capped-call transactions intended to reduce potential conversion dilution.
Outlook, commentary and risks
- Management expected UDENYCA revenue to decline in 2021, citing COVID-19 effects and new market entrants, and expected gross margin to decrease as net revenue per unit fell.
- Management expected 2021 R&D expense to be substantially higher, including a $150 million upfront payment under the toripalimab collaboration, potential milestones and additional development costs. SG&A was also expected to rise with expanded commercial activity.
- On February 1, 2021, Coherus agreed to pay Junshi Biosciences $150 million upfront for U.S. and Canadian toripalimab rights, plus up to $380 million in milestones and a 20% royalty on net sales. The agreement was subject to HSR clearance. Coherus also agreed to issue Junshi approximately $50 million in common stock, or 2,491,988 shares, subject to customary conditions.
- The company reported CHS-1420’s 351(k) BLA was submitted in Q4 2020 and accepted for FDA review in February 2021, with a December 2021 user-fee goal date. If approved, the anticipated U.S. launch is no earlier than July 1, 2023.
- Bioeq withdrew its Lucentis biosimilar BLA after an FDA request for additional manufacturing data; it planned to resubmit in 2021 after positive FDA pre-filing feedback. The filing also says Coherus discontinued CHS-2020 development in February 2021 and was seeking strategic alternatives for CHS-131.
- Key risks include intense biosimilar competition and pricing pressure, COVID-19 impacts on sales and development, reliance on contract manufacturers (including a single-source UDENYCA supplier), regulatory and manufacturing delays, reimbursement uncertainty, and patent or other litigation. The Amgen trade-secret settlement requires a mid-single-digit royalty on net UDENYCA revenue for five years from July 2019.
Most important facts for investors to verify
- Whether the expected 2021 UDENYCA revenue decline and lower per-unit pricing materialized, and the resulting effect on gross margin.
- The underlying earnings and cash-flow profile excluding the $7.5 million prior-year payer refund and the effect of pre-approval inventory costs on reported margin.
- The timing, HSR clearance, cash funding and potential dilution associated with the Junshi transaction, including its upfront payment, milestones, royalty and share issuance.
- FDA progress and manufacturing readiness for CHS-1420 and the Bioeq ranibizumab candidate, as well as development and regulatory timelines for bevacizumab and toripalimab.
- Liquidity and covenant headroom after planned pipeline spending; debt service and repayment terms, particularly the 2022 notes and term-loan sales covenants.
- Exposure to wholesaler concentration, rebate and chargeback estimates, and supply continuity from UDENYCA’s contract manufacturer.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2020. The auditor identified estimates for chargeback and rebate reserves as a critical audit matter.