Coherus BioSciences, Inc. — Q1 2018 Form 10-Q
Business context and period. The filing is for the three months ended March 31, 2018. Coherus is a clinical-stage biosimilar developer and had no commercial product revenue. Its lead candidate, CHS-1701, is a pegfilgrastim biosimilar; the company also develops candidates targeting Humira, Enbrel, Lucentis and Eylea, and the small-molecule candidate CHS-131.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Collaboration and license revenue | $0 | $0.161 million |
| Research and development expense | $25.455 million | $53.775 million |
| General and administrative expense | $16.577 million | $18.803 million |
| Total operating expenses | $42.032 million | $72.578 million |
| Net loss attributable to Coherus | $44.297 million | $74.778 million |
| Basic and diluted loss per share | $0.74 | $1.54 |
| Net cash used in operating activities | $33.584 million | $73.277 million |
No meaningful operating margin is reported because the company had no revenue in the quarter. At March 31, cash and cash equivalents were $82.021 million and short-term marketable securities were $13.143 million, or $95.164 million combined. Total assets were $128.462 million; total liabilities were $131.550 million, and stockholders’ deficit was $3.088 million. Convertible notes had a net carrying amount of $101.966 million, with an 8.2% coupon and a 2022 maturity; the notes provide for a 9% premium at maturity or redemption if not converted.
Material changes and management commentary
- Net loss narrowed by about 41% year over year, primarily as operating expenses fell. R&D expense declined $28.320 million, largely reflecting completed clinical treatment and reduced activity in CHS-1420 and CHS-0214, program prioritization and lower staffing costs. These savings were partly offset by $0.7 million of CHS-1701 BLA resubmission costs.
- G&A expense declined $2.226 million, mainly due to lower personnel and professional-services costs; higher stock-based compensation partly offset the decrease.
- Operating cash use was lower than in Q1 2017. Investing cash use was $13.181 million, principally purchases of marketable securities; financing provided $1.878 million, including $1.8 million net from ATM share sales. Cash, cash equivalents and restricted cash declined $44.900 million during the quarter.
- Management said available cash and investments, including subsequent ATM proceeds, were expected to fund planned operations and obligations for at least 12 months after issuance of the financial statements. The company nevertheless expects to need additional capital; no credit facility or committed funding source was in place.
Outlook, risks and unusual items
- Coherus resubmitted the CHS-1701 BLA to the FDA on May 3, 2018, after the FDA’s June 2017 complete response letter cited an immunogenicity-assay reanalysis and additional manufacturing-process information. Approval, review timing and commercial launch remained uncertain. The CHS-1701 MAA was under EMA review.
- Management expected R&D expense to be similar to or slightly lower in 2018, and G&A expense to be similar in Q2 before increasing as pre-commercial activities resumed in the second half of 2018.
- On May 9, 2018, the company reported $16.9 million of net proceeds from second-quarter ATM sales of 1,383,792 shares. Further equity financing may dilute existing holders; alternative funding may require unfavorable terms or rights concessions.
- Amgen’s California trade-secret and unfair-competition case sought damages and injunctive relief; the company said an injunction could delay CHS-1701’s commercial release. The trial was set for January 2019, and the potential loss could not be estimated. Separately, an Amgen patent-infringement complaint was dismissed with prejudice on March 26, 2018. The Federal Circuit appeal concerning three AbbVie Humira patents was pending, with a decision expected in 2019; PTAB denied Coherus’s petitions against two Amgen etanercept patents in March 2018.
- Key risks include regulatory and manufacturing hurdles, reliance on single-source third-party suppliers, biosimilar competition and pricing, patent disputes, and the need for additional financing. The filing also notes that the Tax Act accounting remained provisional. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- FDA acceptance and review timeline, and eventual decision, on the CHS-1701 BLA resubmission; also the status of its EMA review.
- Cash runway assumptions, actual spending, and subsequent ATM issuance, dilution and remaining offering capacity.
- Convertible-note cash obligations, including coupon payments, maturity premium and the 2022 repayment or conversion terms.
- Developments in Amgen and AbbVie litigation and appeals, including any injunction risk or effect on product launch timing.
- Whether CHS-1420 and other pipeline candidates receive the manufacturing investment, regulatory progress and commercial partners management anticipates.