Coherus BioSciences, Inc. — Q3 2016 Form 10-Q
The filing identifies the registrant as Coherus BioSciences, Inc. (not Coherus Oncology, Inc.). This unaudited quarterly report covers the three and nine months ended September 30, 2016; balance-sheet comparisons are with December 31, 2015. Coherus is a clinical-stage biosimilars company and reported no commercial product sales.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration and license revenue | $162.8 | $7.2 | $189.3 | $19.8 |
| Research and development expense | $64.6 | $68.2 | $195.4 | $161.6 |
| General and administrative expense | $13.6 | $10.2 | $36.3 | $25.1 |
| Operating income (loss) | $84.6 | $(71.2) | $(42.5) | $(166.9) |
| Net income (loss) attributable to Coherus | $83.9 | $(71.3) | $(51.4) | $(170.9) |
| Basic earnings (loss) per share | $1.93 | $(1.86) | $(1.25) | $(4.68) |
| Net cash used in operating activities | Not presented quarterly | Not presented quarterly | $(165.7) | $(113.6) |
- Q3 reported revenue included $85.8 million of previously deferred revenue and $76.7 million of contingent liability recognized when Shire terminated the Baxalta agreement and Coherus regained CHS-0214 rights. It was not product-sales revenue; the quarter’s reported profit therefore reflects a significant unusual, noncash accounting event.
- At September 30, cash and cash equivalents were $159.7 million, versus $158.2 million at year-end 2015. Current assets were $177.3 million and current liabilities $58.4 million. Total liabilities were $160.6 million; convertible notes had a net carrying value of $99.9 million. The notes were issued for $100 million principal, bear 8.2% interest, and are due in 2022, with a 109%-of-principal cash payment at maturity or redemption if not converted.
- Nine-month financing cash flow was $170.2 million, primarily from the $100 million note issuance and $69.5 million net common-stock offering proceeds. Investing cash outflow was $2.9 million. Operating cash use rose year over year to $165.7 million, affected by reductions in deferred revenue and the Baxalta contingent liability as those balances were recognized in revenue.
- Product margins are not meaningful because Coherus had no commercial product revenue. The company reported an accumulated deficit of $461.4 million.
Material changes and business developments
- Revenue rose sharply versus 2015 principally because of termination of the Baxalta CHS-0214 license in September 2016. Coherus regained the licensed development and commercial rights and reported no further contractual obligations to Baxalta under that agreement.
- For the first nine months, R&D expense increased $33.8 million, mainly reflecting CHS-1420 psoriasis Phase 3 work and investment in other pipeline programs, partly offset by completed CHS-1701 and CHS-0214 studies. Q3 R&D decreased $3.6 million year over year as some studies wound down. Nine-month G&A increased $11.2 million, including higher personnel, stock-based compensation, and professional-service costs.
- CHS-1701 (pegfilgrastim biosimilar): the FDA accepted its BLA in October 2016, after the reporting date. CHS-1420 (adalimumab biosimilar) met the primary endpoint in its Phase 3 psoriasis study; management anticipated a BLA filing in the first half of 2017. For CHS-0214 (etanercept biosimilar), management expected marketing applications in Europe in Q1 2017 and Japan in the first half of 2017, subject to additional data and regulatory discussions.
- After quarter-end, Coherus entered an at-the-market equity sales agreement permitting up to $100 million of gross share sales, with Cowen receiving a 3% commission. The company also amended its headquarters lease to add office space.
Outlook, risks, and contingencies
- Management said cash, cash equivalents, and expected Daiichi Sankyo funding should cover planned expenditures and obligations for at least 12 months. It also stated that additional funding would be needed in the future; the ATM program was a potential source, not committed proceeds. Financing might be unavailable or dilutive, and a shortfall could delay or reduce clinical programs.
- Revenue was highly concentrated: Baxalta represented 99.8% of Q3 2016 collaboration and license revenue. The termination makes the timing and amount of future collaboration revenue and monetization of the regained CHS-0214 rights important uncertainties.
- Key risks include clinical and regulatory approval uncertainty, biosimilar competition and pricing, reliance on third-party manufacturers and research organizations, and intellectual-property disputes. Coherus retained U.S. rights to CHS-0214 but cited originator-controlled patents potentially limiting U.S. commercialization before 2028–2029 absent a license. It also disclosed instituted inter partes reviews of three AbbVie patents and non-institution of its petition concerning another patent.
- Coherus had $14.5 million of clinical-manufacturing purchase commitments due within a year and $15.1 million of future operating lease payments. The company reported no material litigation; a previously recorded $50,000 claim was settled in July 2016. Convertible-note covenants were in compliance at quarter-end, with no defaults reported.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Forward-looking statements remain subject to substantial clinical, regulatory, financing, competition, manufacturing, and patent risks.
Important facts for investors to verify
- How much of reported revenue and profit came from the one-time Baxalta termination accounting, and what recurring collaboration revenue remains?
- Progress, timing, and regulatory outcomes for CHS-1701, CHS-1420, and CHS-0214, including any additional studies or regulatory requirements.
- Actual cash runway and operating cash consumption, expected Daiichi Sankyo funding, and whether the ATM offering is used and on what terms.
- Potential effects of the AbbVie patent proceedings and other originator patents on CHS-1420 and CHS-0214 launch timing and commercial rights.
- Ability to secure manufacturing capacity, commercial partners, reimbursement, and market access amid competition from other biosimilar developers.