Coherus BioSciences, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The registrant is Coherus BioSciences, Inc.; the filing describes a clinical-stage biosimilar company, not a commercial oncology business. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and pipeline
Coherus develops biosimilar candidates and has no approved products or commercial product sales. Revenue to date came primarily from collaboration and license agreements. Lead programs included CHS-1701 (pegfilgrastim/Neulasta), CHS-0214 (etanercept/Enbrel) and CHS-1420 (adalimumab/Humira); CHS-131 is a small-molecule candidate.
- After the quarter, Coherus reported that CHS-1701’s July follow-on PK/PD study met its co-primary endpoints and that it submitted a U.S. BLA in August 2016.
- CHS-0214 Phase 3 trials in rheumatoid arthritis and psoriasis had met primary endpoints; the company expected European filing in 2016 and Japanese filing in 2017. It did not expect U.S. commercialization before certain originator patents expire in 2028 and 2029, absent a license.
- After the quarter, Coherus reported that CHS-1420’s Phase 3 psoriasis study met its primary endpoint in August 2016; U.S. and EU filings were planned for 2016 and 2017, respectively.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration and license revenue | $14.1m | $6.9m | $26.4m | $12.7m |
| Research and development expense | $65.5m | $56.9m | $130.9m | $93.4m |
| General and administrative expense | $11.3m | $8.8m | $22.7m | $14.9m |
| Operating loss | $62.7m | $58.9m | $127.1m | $95.6m |
| Net loss attributable to Coherus | $70.0m | $58.8m | $135.4m | $99.5m |
| Loss per share, basic and diluted | $1.72 | $1.56 | $3.39 | $2.80 |
Revenue increased mainly because of straight-line amortization of deferred revenue under the Baxalta agreement, not product sales. Baxalta accounted for 98% of Q2 and 97% of first-half revenue. Higher R&D spending principally reflected the CHS-1420 Phase 3 psoriasis study and pipeline investment; lower CHS-1701 BLA-enabling costs partly offset the increase. There is no product gross margin to report.
- Cash and cash equivalents: $220.9m at June 30, up from $158.2m at December 31, 2015. Restricted cash was $0.8m in total.
- Cash flow, six months: operating activities used $103.7m (versus $53.9m in 2015); investing activities used $2.4m; financing activities provided $168.9m. Cash increased by $62.7m.
- Funding raised: $100.0m principal of 8.2% senior convertible notes issued in February, and $69.0m net proceeds from a May–June common-stock offering of 4.025m shares at $18 per share.
- Debt: notes mature March 31, 2022, bear 8.2% annual interest paid quarterly, and include a 9% premium payable at maturity, redemption or repurchase. Initial conversion price is approximately $22.35 per share. Net carrying amount was $99.6m; contractual future minimum payments totaled $156.2m. The company reported compliance with covenants and no defaults.
- Balance sheet: total assets were $251.1m, total liabilities $313.0m, and stockholders’ deficit $61.9m. Accumulated deficit was $545.3m.
- Other liabilities: $76.8m contingent liability to Baxalta for potential repayment under claw-back provisions; $6.6m contingent consideration, increased following positive CHS-131 Phase 2b data.
Management said existing cash plus anticipated collaboration funding would support planned operations and obligations for at least 12 months, while also stating that additional capital will be needed in the future. The company anticipated up to $23m in collaboration receipts during the remainder of 2016. It warned funding might not be available on acceptable terms and that a shortfall could force delays, reductions or suspension of development programs.
Changes, outlook and material risks
- Compared with the first half of 2015, first-half revenue more than doubled, but operating cash use rose by $49.8m and net loss attributable to Coherus increased by $35.8m. Interest expense began following the 2016 note issuance.
- The common-stock issuance increased shares outstanding; the filing reported 43,380,827 shares outstanding as of July 31, 2016. Potential note conversion and equity awards could add dilution.
- Development, regulatory approval, manufacturing scale-up, commercial uptake, reimbursement and competition remain uncertain. The company relies on third-party manufacturers and clinical organizations, including single-source providers for key activities.
- Intellectual-property outcomes are significant risks. Coherus’ petitions for IPR of three AbbVie patents were instituted; the filing also described a pending petition concerning another AbbVie patent. The company cautioned that patent litigation could delay or prevent commercialization, particularly for Humira biosimilars.
- Other disclosed exposures include foreign-exchange fluctuations, Russian operations and sanctions risk, and a $12.5m commitment to contract manufacturers for clinical supplies due within a year. No material litigation was reported; an earlier claim was settled in July 2016.
- Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Regulatory status and subsequent results for CHS-1701 and CHS-1420, including filing acceptance, review timelines and any further clinical or manufacturing requirements.
- Cash burn, actual collaboration receipts, and whether liquidity remains adequate as clinical and potential commercialization costs evolve.
- Terms and potential repayment exposure under the Baxalta agreement, plus the valuation assumptions behind the contingent consideration liability.
- Convertible-note cash obligations, conversion and dilution exposure, and any future financing needs.
- Developments in AbbVie and other patent proceedings, and the timing and commercial implications of relevant originator patents.
- Progress of partner-led CHS-0214 development and filings, and the impact of partner priorities or competing biosimilars.