Business context and reporting period
Coherus BioSciences, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2023. The commercial portfolio included UDENYCA, CIMERLI and newly launched YUSIMRY; the company was also developing oncology candidates and preparing to launch LOQTORZI following its FDA approval on October 27, 2023. The September 8 acquisition of Surface added the clinical-stage candidates casdozokitug and CHS-114.
Financial performance and position
| Metric | Three months ended September 30, 2023 | Nine months ended September 30, 2023 |
|---|---|---|
| Net revenue | $74.6 million, versus $45.4 million | $165.7 million, essentially unchanged from $165.7 million |
| Gross margin | 56%, versus 22% | 55%, versus 66% |
| Operating loss | $32.0 million, versus $80.4 million | $134.3 million, versus $205.4 million |
| Net loss | $39.6 million, or $0.41 per share | $158.2 million, or $1.79 per share |
- Quarterly revenue growth reflected CIMERLI sales of $40.0 million and YUSIMRY sales of $1.4 million, partly offset by lower UDENYCA revenue. For the nine-month period, CIMERLI contributed $72.9 million and YUSIMRY $1.4 million, while UDENYCA revenue declined $74.6 million.
- Cash, cash equivalents and marketable securities totaled $131.1 million at September 30, 2023, down from $191.7 million at December 31, 2022. Trade receivables were $216.5 million, and inventory was $145.8 million, including $79.0 million classified as non-current.
- For the first nine months, operating cash use was $161.9 million, investing activities provided $109.4 million, and financing provided $69.2 million. Operating cash use increased from $141.2 million in the comparable period.
- Debt carrying value was $472.8 million: $246.2 million on the secured term loans and $226.6 million on the 2026 convertible notes. Term-loan principal is $250 million and bears variable interest; the rate was 13.76% in Q3 and was expected to be 13.91% in Q4. The company reported covenant compliance and no defaults.
- Total liabilities exceeded assets by $133.6 million; accumulated deficit was $1.5 billion. Management said available resources, expected product-sale collections and financing proceeds were expected to fund planned expenditures and obligations for at least 12 months after issuance of the financial statements, while noting estimates depend on assumptions.
Material changes versus the prior comparable period
- Q3 revenue increased 64% year over year, but nine-month revenue was flat as growth from CIMERLI and YUSIMRY was offset by UDENYCA declines, mainly from lower average net selling prices.
- Q3 gross margin improved from 22% to 56%, in part because Q3 2022 included a $26.0 million inventory write-down. Nine-month gross margin fell from 66% to 55%, reflecting product mix, CIMERLI royalties and costs, and other manufacturing-related charges.
- Research and development expense declined to $25.6 million in Q3 and $83.1 million for nine months, from $45.8 million and $170.3 million, respectively. Drivers included completion of studies, reduced UDENYCA development costs, a narrower LOQTORZI development plan, and lower personnel costs; CHS-1000 development partially offset the declines.
- The Surface acquisition was funded principally with Coherus shares and CVRs. Preliminary consideration was $64.6 million; the purchase allocation included $26.2 million of in-process research and development and $13.5 million of out-licenses. Acquisition costs were $4.5 million for the nine months.
- The company raised $53.6 million net in a May public offering and $18.2 million net through its ATM offering during the nine months. Shares outstanding increased to 109.1 million at quarter-end from 78.9 million at year-end.
Outlook, risks and unusual items
- Management expected 2023 revenue to exceed 2022, supported by CIMERLI growth and UDENYCA market-share gains. It expected full-year gross margin to be lower, R&D and SG&A expense to be lower, and interest expense to be higher than in 2022.
- The FDA issued a September 21 complete response letter for the UDENYCA on-body injector supplement due to review of inspection findings at a third-party filler. The company said it resubmitted the application October 5 and anticipated an FDA decision in Q4 2023 or early 2024.
- LOQTORZI received FDA approval on October 27, after quarter-end; the company expected a U.S. launch in Q1 2024. A $25 million milestone payment to Junshi was expected in March 2024. The agreement also includes a 20% royalty on LOQTORZI net sales and up to $380 million in regulatory and sales milestones.
- Key risks include continued UDENYCA pricing and competitive pressure, uncertain YUSIMRY uptake in a crowded market, CIMERLI royalties and product-mix effects, reliance on third-party manufacturers, clinical and regulatory execution, and integration and realization of benefits from Surface. Three distributors represented 98% of Q3 gross product revenue.
- Variable-rate debt creates interest-rate exposure; management estimated a 100-basis-point increase could add up to $2.5 million in annual interest expense. The term loans are secured by substantially all company assets and include minimum-sales covenants that rise to $300 million for the quarter ending December 31, 2024 and thereafter.
- Non-cancelable manufacturing and raw-material purchase commitments totaled $81.9 million. The company accrued $6.4 million for legal matters; this included its estimated liability for a Zinc Health Services demand seeking approximately $14 million relating to historical UDENYCA sales. The final outcome remains uncertain.
- After quarter-end, Coherus issued a CMO 2.2 million shares valued at $8.2 million to pay for manufacturing services. It also reduced its Redwood City office space and extended the lease on the remaining premises through September 2027.
Important facts for investors to verify
- Whether CIMERLI growth and any LOQTORZI launch generate sustainable revenue and margins, and whether UDENYCA pricing and market share stabilize.
- Actual cash burn, collection of the large receivables balance, and the assumptions supporting management’s stated 12-month liquidity outlook.
- Term-loan interest costs, future minimum-sales covenant compliance, and the timing and funding of debt obligations and the $25 million Junshi milestone.
- FDA timing for UDENYCA OBI, manufacturing reliability, and the clinical, integration and commercial progress of Surface’s acquired programs.
- Potential dilution from equity financing and share-based payments, and the resolution of the Zinc demand and other legal contingencies.