Coherus BioSciences, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The filing is by Coherus BioSciences, Inc. (the registrant), a clinical-stage biosimilar developer. It had no commercial product revenue; reported revenue came from collaboration and license agreements.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Collaboration and license revenue | $12.4 million | $5.8 million; up $6.5 million |
| Research and development expense | $65.3 million | $36.5 million |
| General and administrative expense | $11.4 million | $6.1 million |
| Operating loss | $64.4 million | $36.7 million |
| Net loss attributable to Coherus | $65.4 million; $1.67 per share | $40.7 million; $1.22 per share |
| Net cash used in operating activities | $76.3 million | $33.1 million |
| Cash and cash equivalents at quarter-end | $179.6 million | $158.2 million at December 31, 2015 |
| Convertible notes | $100.0 million principal; $99.3 million carrying value | None outstanding at December 31, 2015 |
Total assets were $226.2 million and total liabilities were $293.1 million at March 31, 2016; stockholders’ deficit was $66.9 million. Cash flow from investing activities was negative $2.1 million; financing activities provided $99.8 million, primarily from the notes issuance. No gross margin was reported, and a product-sales margin is not applicable because the company had no product sales.
Changes versus prior period
- Revenue rose 113%, primarily from amortization of deferred Baxalta revenue. Baxalta accounted for 97% of Q1 revenue, versus 91% a year earlier.
- R&D expense increased $28.8 million, mainly reflecting CHS-1420 Phase 3 psoriasis trial activity, other pipeline spending, and higher personnel costs.
- G&A expense increased $5.3 million, including higher personnel, stock-based compensation, and public-company costs.
- Net loss widened by $24.5 million. Other expense declined year over year because the 2015 period included a substantial contingent-consideration remeasurement.
- Operating cash use increased $43.3 million. Cash rose due to the February 2016 convertible-note financing.
Outlook, developments and risks
- Funding: Management said cash, expected collaboration funding and projected agreements should cover planned expenditures and obligations for at least 12 months. It also said additional capital will be needed in the future and financing may not be available on acceptable terms. The company anticipated up to $62 million in collaboration receipts during 2016.
- Debt: The notes bear 8.2% annual interest, mature March 31, 2022, and carry a 9% premium payable at maturity, redemption or repurchase. Initial conversion price is approximately $22.35 per share. The filing reports covenant compliance and no defaults at quarter-end.
- Pipeline: CHS-1701’s pivotal study missed the PK AUC bioequivalence endpoint because of an anomalous reference-product profile, although other co-primary endpoints were met. A follow-on PK/PD study was expected to read out late in the first half of 2016, with a U.S. BLA filing expected afterward. CHS-0214’s Phase 3 rheumatoid arthritis and psoriasis trials met primary endpoints; European and Japanese applications were expected in 2016. CHS-1420’s Phase 3 psoriasis study and a bridging PK study were underway.
- Subsequent event: On May 6, 2016, Baxalta paid a $30 million milestone following completion of last-patient follow-up visits in both CHS-0214 Phase 3 studies. This occurred after quarter-end.
- Key risks: Continued operating losses and financing needs; regulatory and clinical uncertainty; reliance on third-party manufacturers, CROs and collaborators; biosimilar competition and market access; and extensive patent risk. The company noted that U.S. etanercept patents could prevent CHS-0214 commercialization before 2028–2029 absent a license. Patent challenges involving AbbVie adalimumab patents were pending.
- Contingencies: A $66.3 million liability to collaborator reflects potential repayment to Baxalta under clawback provisions. The company disclosed a $50,000 liability for one probable or reasonably possible claim and $9.8 million of CMO commitments due within a year. It reported no material litigation, while disclosing patent-review proceedings.
- Controls: Management assessed disclosure controls as effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the CHS-1701 follow-on study supports the planned BLA despite the prior PK AUC endpoint miss, and whether filing and review milestones remain on schedule.
- Actual collaboration receipts against the up-to-$62-million 2016 expectation, including the timing and terms of milestone payments.
- Cash burn and runway as clinical spending progresses; management’s 12-month funding estimate depends on assumptions and anticipated funding.
- Convertible-note cash obligations, including interest and the 9% maturity or redemption premium, and potential share dilution upon conversion.
- Baxalta concentration in revenue and the conditions attached to its contingent payments, including potential clawbacks.
- Regulatory, patent and commercialization developments for all three lead candidates, including the disclosed AbbVie patent proceedings.