Coherus BioSciences, Inc. — Q2 2018 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2018. Coherus is a late-stage biologics company developing biosimilars; it had no commercial product sales. Its lead candidate, UDENYCA (pegfilgrastim), was awaiting U.S. FDA action on its resubmitted application. The EMA’s CHMP issued a positive opinion on July 26, 2018, after quarter-end; European Commission approval was not yet confirmed in the filing.
Key financial metrics
Amounts below are in millions of dollars, except per-share data. Margins are not meaningful because the company reported no 2018 revenue.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration and license revenue | $0 | $1.4 | $0 | $1.6 |
| Research and development expense | $26.5 | $34.5 | $52.0 | $88.3 |
| General and administrative expense | $18.4 | $23.5 | $35.0 | $42.3 |
| Net loss attributable to Coherus | $43.6 | $55.3 | $87.9 | $130.1 |
| Basic and diluted loss per share | $0.68 | $1.08 | $1.42 | $2.60 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $69.1 | $128.9 |
- Liquidity: At June 30, cash and cash equivalents were $130.0 million and short-term marketable securities were $29.8 million, totaling $159.8 million. Current assets were $172.8 million and current liabilities were $22.2 million.
- Debt: Convertible notes had $109.0 million principal outstanding and a $102.3 million net carrying amount. They bear 8.2% interest and mature in 2022; the company reported compliance with covenants and no defaults.
- Cash flow and financing: Six-month investing cash use was $29.8 million, largely reflecting purchases of marketable securities. Financing provided $101.8 million, principally from equity issuance. Cash, cash equivalents and restricted cash increased $3.1 million to $130.8 million.
- Equity issuance: May’s underwritten offering generated $80.8 million net; ATM sales generated approximately $19.7 million net in the first half. Shares outstanding were 67.7 million at June 30 and 67.8 million at July 31.
Material changes versus the prior comparable period
- Revenue fell to zero after the Daiichi Sankyo collaboration was terminated in 2017; the prior-year revenue included recognition of deferred license revenue.
- Six-month operating expenses declined $43.7 million year over year. Lower R&D reflected completed CHS-1420 trials, winding-down CHS-0214 work, prioritization of UDENYCA and reduced personnel costs. This was partly offset by UDENYCA pre-commercial manufacturing and BLA resubmission costs.
- Net loss narrowed by $42.2 million for the first half. The comparison includes reduced expense levels and other income from remeasurement of contingent consideration; the latter is not recurring operating revenue.
- Operating cash use declined $59.7 million year over year, while the company raised substantial equity capital. The May offering and ATM issuance increased liquidity but diluted existing shareholders.
Outlook, risks and unusual items
- Management said available cash and short-term investments were expected to fund planned expenditures and obligations for at least 12 months after financial-statement issuance. It also said additional funding would be needed in the future and that financing might not be available on acceptable terms; failure to raise funds could force delays or reductions in development or commercialization.
- Management expected higher R&D expense in the second half of 2018 as UDENYCA commercialization preparations continued, including manufacturing costs expensed before approval. G&A was expected to be similar or slightly higher as pre-commercial activities resumed.
- UDENYCA’s FDA resubmission was accepted for review in May 2018, but approval remained uncertain. The prior complete response letter requested immunogenicity-assay reanalysis and additional manufacturing information. The CHMP positive opinion came after quarter-end and did not itself constitute European Commission approval.
- Amgen’s California lawsuit alleges unfair competition and trade-secret misappropriation and seeks injunctive relief and damages. Coherus disputed the claims; the trial was scheduled for January 2019. The company said an adverse injunction could delay UDENYCA’s commercial release; potential loss could not be estimated.
- Other key risks include biosimilar competition, patent disputes and regulatory delays, reliance on third-party manufacturers and CROs, and the need to build commercial capabilities. A separate Amgen patent complaint was dismissed with prejudice in March 2018; appeals concerning three AbbVie patents remained pending.
- Other income included a $3.2 million first-half gain from reducing the estimated fair value of contingent consideration, following a lower probability and later expected timing of payment. The liability fell from $3.3 million at year-end to $0.1 million.
Important facts for investors to verify
- Subsequent FDA and European Commission decisions on UDENYCA, and the timing and requirements for a potential launch.
- Actual commercial launch readiness, manufacturing capacity, supply reliability, and expected pre-approval spending.
- Cash burn and runway relative to management’s 12-month estimate, as well as the timing, terms and dilution of any additional financing.
- Developments and potential remedies in the Amgen trade-secret litigation and other biosimilar patent proceedings.
- Competitive entry, pricing, reimbursement and market-share prospects for UDENYCA and the company’s other candidates.