Coherus BioSciences, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing is for Coherus BioSciences, Inc.; Coherus Oncology, Inc. is identified as a consolidated subsidiary. The company is a clinical-stage biosimilars developer and had no approved products or product-sale revenue.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $1.6 million | $190.1 million |
| Research and development expense | $162.4 million | $254.4 million |
| General and administrative expense | $71.3 million | $51.6 million |
| Operating loss | $232.1 million | $115.9 million |
| Net loss attributable to Coherus | $238.2 million | $127.3 million |
| Net loss per share, basic and diluted | $4.48 | $3.04 |
| Operating cash flow | $(200.3) million | $(252.5) million |
- Year-end cash and cash equivalents were $126.9 million, versus $124.9 million a year earlier; working capital was $117.1 million. The company held no marketable securities at year-end.
- Financing activities provided $206.8 million in 2017, mainly from a $120.4 million net follow-on offering, $74.9 million net proceeds from a Temasek private placement, and $11.1 million net ATM proceeds. The company also issued shares to KBI in exchange for fees and future manufacturing reservation services.
- Convertible notes had a $109.0 million principal balance and $101.6 million carrying value at year-end. They bear 8.2% coupon interest and mature in 2022; contractual minimum payments total $143.9 million, including interest and premium.
- No product gross margin was reported because the company had not begun commercial sales. Operating and net margins were negative; the filing does not present a meaningful product-margin measure.
Material changes and operating developments
- Revenue plunged from 2016’s $190.1 million, principally because the 2016 termination of the Baxalta agreement generated recognition of $85.8 million of deferred revenue and $76.7 million of contingent liability as revenue. FY 2017 revenue was mainly the remaining Daiichi Sankyo revenue recognized after it discontinued CHS-0214 development in Japan and the agreement was terminated.
- R&D expense fell 36% as Phase 3 work on CHS-0214 and CHS-1420 wound down and resources were prioritized toward CHS-1701. G&A rose 38%, in part due to legal and professional fees, pre-commercial activity, and restructuring-related stock compensation.
- Net loss increased to $238.2 million from $127.3 million, despite lower R&D spending, reflecting the absence of the large, non-recurring 2016 collaboration revenue. Operating cash use improved to $200.3 million from $252.5 million.
- CHS-1701 (pegfilgrastim biosimilar) received an FDA complete response letter in June 2017 requesting reanalysis of certain immunogenicity samples and additional manufacturing-process information. The company planned to resubmit after its early-2018 FDA meeting and related follow-up work. Its European application remained under review.
- CHS-1420 (adalimumab) had positive Phase 3 psoriasis results and completed key bridging studies; additional manufacturing work was expected before regulatory filings. CHS-0214 (etanercept) had completed Phase 3 trials, but U.S. commercialization may be blocked by originator patents expiring in 2028 and 2029 unless successfully challenged or licensed. CHS-3351 and CHS-2020 remained preclinical; CHS-131 had positive Phase 2b results and was being considered for partnering.
Outlook, risks, and unusual items
- Management expected R&D expense to be similar to or slightly lower in 2018; G&A was expected to be similar in the first half and rise in the second half as pre-commercial activities resumed. No product-revenue or profitability guidance was provided.
- Management stated available cash, cash equivalents, and January 2018 ATM proceeds should fund planned operations for at least 12 months after the financial statements’ issuance. The filing also says additional funds will be needed, and that financing may not be available on acceptable terms; cash needs depend on development, approval, manufacturing, and commercialization costs.
- The company recorded $3.6 million of restructuring charges in June 2017 after the CHS-1701 FDA letter and reduced its workforce. It reported $0.6 million of property-and-equipment impairment and a $2.3 million gain from remeasuring contingent consideration.
- Key risks include regulatory delay or rejection, manufacturing and single-source supplier dependence, competition from other biosimilar developers, patent barriers, pricing and reimbursement pressure, and the need for further financing and potential shareholder dilution.
- Amgen brought a California trade-secrets and unfair-competition case and a separate patent-infringement case concerning CHS-1701. In the patent case, a magistrate recommended dismissal with prejudice; the district court had not yet ruled. The company said potential litigation outcomes could delay commercialization; loss exposure was not estimable.
- The 2017 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Investor facts to verify
- Whether the FDA accepted and approved the CHS-1701 resubmission, and the status and timing of the European review.
- Cash burn, financing runway, remaining ATM capacity, and any subsequent equity or debt financing; reconcile management’s 12-month runway statement with its stated need for additional funds.
- Convertible-note principal, 8.2% interest, 2022 maturity terms, and potential dilution from conversion and equity awards.
- Developments and potential financial or launch consequences in the Amgen lawsuits, AbbVie patent challenges, and etanercept patent proceedings.
- Regulatory filing plans and required manufacturing investment for CHS-1420 and CHS-0214, and the commercial-partner strategy for pipeline assets.