Coherus BioSciences, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; unaudited. The supplied filing identifies the registrant as Coherus BioSciences, Inc., not Coherus Oncology, Inc.
Business context
Coherus is a commercial-stage biopharmaceutical company selling FDA-approved biosimilars and developing oncology candidates. UDENYCA sales drove most reported revenue. CIMERLI was FDA-approved in August 2022 and launched October 3, after quarter-end; YUSIMRY was approved in 2021 and planned for U.S. launch on or after July 1, 2023. Toripalimab’s resubmitted BLA was under FDA review. The company discontinued its bevacizumab biosimilar program in May and CHS-3318 in October 2022.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $45.4 million | $82.5 million | $165.7 million | $253.2 million |
| Gross margin | 22% | 74% | 66% | 82% |
| Operating loss | $80.4 million | $32.8 million | $205.4 million | $224.3 million |
| Net loss | $86.7 million | $38.5 million | $232.9 million | $241.4 million |
| Net loss per share | $1.11 | $0.49 | $3.00 | $3.22 |
- Q3 revenue fell about 45% year over year; nine-month revenue fell about 35%. Management attributed the decline primarily to fewer UDENYCA units sold and lower net selling prices amid competition and lower patient enrollment.
- Q3 cost of goods sold was $35.2 million and included a $26.0 million inventory write-down for UDENYCA inventory at risk of expiration. The write-down reduced Q3 and nine-month gross margin and increased net loss.
- R&D expense was $45.8 million in Q3 and $170.3 million for nine months, down from $54.1 million and $312.3 million, respectively. SG&A rose to $44.8 million in Q3 and $144.9 million for nine months.
- Interest expense was $7.5 million in Q3 and $23.1 million for nine months. Nine-month results also included a $6.2 million loss on extinguishment of debt.
- Operating cash flow was negative $141.2 million for nine months; investing cash flow was negative $37.0 million and financing cash flow positive $47.7 million. Cash, cash equivalents and restricted cash declined $130.4 million to $287.2 million; balance-sheet cash and cash equivalents were $286.8 million.
- At September 30, current assets were $448.3 million and current liabilities $171.3 million. Debt carrying value totaled $470.5 million: $245.2 million of secured term loans and $225.3 million of 2026 convertible notes. Stockholders’ deficit was $97.1 million.
Material changes versus the prior comparable period
- Revenue contracted substantially as UDENYCA sales volume and realized price declined. The Q3 loss widened despite lower R&D spending.
- Gross margin compressed sharply, principally reflecting the $26.0 million inventory write-down and lower UDENYCA net pricing.
- Debt was refinanced: Coherus drew $250 million of 2027 term loans, repaid the 2025 term loan and repaid the 2022 convertible notes. Total debt carrying value increased from $408.3 million at year-end 2021 to $470.5 million.
- Cash declined from $417.2 million at December 31, 2021 to $286.8 million at September 30, 2022.
Outlook, commentary and risks
- Management expected revenue for the remainder of 2022 to decline versus the prior-year period as UDENYCA competition increased, with possible partial contribution from the newly launched CIMERLI. It expected full-year 2022 gross margin below 2021, full-year R&D below 2021, and higher Q4 SG&A and interest expense.
- The toripalimab FDA action date was December 23, 2022; management planned a U.S. launch in Q1 2023 if approved. FDA inspection timing in China remained unresolved, and COVID-19-related restrictions could affect manufacturing and inspection schedules.
- Management believed available cash, product-sale receipts and remaining funding available under the term-loan facility would fund planned expenditures and obligations for at least 12 months after issuance of the financial statements, while cautioning that assumptions could prove incorrect and additional financing might be needed.
- The $250 million term loans carry a variable rate; Q4 2022 rate was expected to be 12.00%. The facility is secured by substantially all assets, includes minimum trailing-twelve-month sales covenants that rise to $300 million from Q4 2024 onward, and restricts certain activities. Coherus reported compliance and no defaults as of September 30, 2022.
- A Zinc Health Services demand letter sought approximately $14 million concerning certain UDENYCA sales. The company had not accrued a loss, could not estimate a loss range, and said the outcome was uncertain.
- Key risks include UDENYCA competition and pricing, inventory obsolescence, reliance on third-party manufacturers and partners, toripalimab regulatory and inspection outcomes, product-launch execution, variable-rate debt, and the potential effects of COVID-19 and market conditions.
Important facts for investors to verify
- Whether UDENYCA sales and net pricing stabilize, and whether additional inventory reserves or write-downs are required.
- CIMERLI’s post-launch sales, margins and market share, alongside the costs and economics of its Bioeq and Genentech arrangements.
- Toripalimab’s FDA decision, China inspection status, launch timing and any associated milestone or commercialization costs.
- Cash burn, financing availability, debt interest costs, and compliance with the term-loan sales covenants as thresholds increase.
- Developments in the Zinc demand-letter matter and any resulting accrual or disclosed loss estimate.