erus BioSciences(CHRS) - 2022 Q4 - Annual Report

PART I This section details the company's business operations, product portfolio, market opportunities, strategic collaborations, regulatory environment, human capital, and key risk factors Item 1. Business Coherus BioSciences is a commercial-stage biopharmaceutical company shifting its focus to building an immuno-oncology franchise, funded by its portfolio of three FDA-approved biosimilars: UDENYCA®, CIMERLI®, and YUSIMRY™. The company's pipeline is led by toripalimab, an anti-PD-1 antibody under FDA review. The business operates in a highly regulated and competitive environment, relying on strategic collaborations for development, manufacturing, and commercialization, and actively manages its intellectual property portfolio - The company's core strategy is to build a leading immuno-oncology franchise funded by cash flow from its diversified portfolio of FDA-approved biosimilar therapeutics[12][68] - Coherus has three commercially approved biosimilar products: UDENYCA® (pegfilgrastim-cbqv), CIMERLI® (ranibizumab-eqrn), and YUSIMRY™ (adalimumab-aqvh). CIMERLI was launched in October 2022, and YUSIMRY is planned for launch on or after July 1, 2023[31] - The company's lead immuno-oncology candidate, toripalimab, has a Biologics License Application (BLA) under review by the FDA for nasopharyngeal carcinoma (NPC). The review has been delayed due to the FDA's inability to conduct a required on-site inspection of the manufacturing facility in China due to COVID-19 travel restrictions[13][56] UDENYCA® Net Product Sales (2020-2022) | Year | Net Product Sales (USD Million) | | :--- | :--- | | 2022 | $203.8 | | 2021 | $326.5 | | 2020 | $475.8 | - In January 2023, Coherus entered into a term sheet with Klinge Biopharma for exclusive U.S. commercialization rights to FYB203, a biosimilar candidate for Eylea® (aflibercept), involving an upfront payment of approximately €30 million in cash and stock[16][33] Products and Product Candidates Details the company's therapeutic product portfolio across oncology, immunology, and ophthalmology, including biosimilars and pipeline candidates - The company's portfolio is structured across three main therapeutic areas: Oncology, Immunology, and Ophthalmology[36][37][56] - Oncology: Includes UDENYCA®, toripalimab (anti-PD-1), CHS-006 (anti-TIGIT), and CHS-1000 (anti-ILT4). The company is developing additional presentations for UDENYCA, including an on-body injector (OBI) and an autoinjector (AI), to compete with Neulasta Onpro®[17][18][34][58] - Immunology: Features YUSIMRY™, a biosimilar of Humira® (adalimumab), approved in December 2021 with a planned U.S. launch on or after July 1, 2023[59] - Ophthalmology: Includes CIMERLI®, a biosimilar to Lucentis®, which was launched in the U.S. on October 3, 2022, with 12 months of first interchangeable exclusivity[31][60] - The company has discontinued several development programs to focus resources, including CHS-305 (Avastin biosimilar) in May 2022 and CHS-3318 (anti-CCR8) in October 2022[32][44][67] Market Opportunity Assesses the market size and growth potential for the company's key therapeutic areas and products U.S. Market Size for Key Therapeutic Areas (2022) | Therapeutic Area / Product | 2022 U.S. Net Sales (Approx.) | | :--- | :--- | | Anti-PD-L1 Antibodies | $21.6 billion | | Pegfilgrastim Products | $1.3 billion | | Lucentis® | $1.1 billion | | Humira® | $18.6 billion | - The U.S. market for anti-PD-L1 antibodies is projected to grow to approximately $30.3 billion by 2025[38] - The company aims to expand its UDENYCA market opportunity by launching an on-body injector (OBI) presentation, targeting the 46% of the pegfilgrastim market currently held by Neulasta Onpro®[62] Collaboration and License Agreements Outlines the company's strategic partnerships for product development, commercialization, and intellectual property rights - Junshi Biosciences: Coherus paid $150.0 million upfront for exclusive rights to toripalimab in the U.S. and Canada, with obligations for a 20% royalty on net sales and up to $380.0 million in milestones. The agreement also includes options for other immuno-oncology candidates like CHS-006 (anti-TIGIT), for which a $35.0 million option exercise fee was paid in March 2022[83][110][111] - Bioeq AG: Coherus has exclusive U.S. commercialization rights for CIMERLI®. The agreement involves profit sharing with Bioeq in the low to mid-fifty percent range. A €2.5 million milestone was paid in 2022 upon FDA approval[105][106] - AbbVie Inc.: Settlement and license agreements grant Coherus global, non-exclusive, royalty-bearing rights to commercialize YUSIMRY™, with the U.S. license period commencing on July 1, 2023[52][104] - Klinge Biopharma: A binding term sheet was signed for exclusive U.S. commercialization rights to FYB203 (Eylea® biosimilar). The deal includes an upfront payment of ~€30 million, milestone payments, and profit sharing[87][114] Government Regulation Describes the extensive regulatory framework governing the company's pharmaceutical products, including FDA approval pathways and healthcare laws - The company's products are subject to extensive regulation by the FDA under the Public Health Service Act (PHSA) and the Federal Food, Drug, and Cosmetic Act (FFDCA), covering all stages from development to post-market surveillance[90][91] - Biosimilar products follow an abbreviated licensure pathway under Section 351(k) of the PHSA, requiring demonstration of high similarity to a reference product without clinically meaningful differences in safety, purity, and potency[99][149] - The Biologics Price Competition and Innovation Act (BPCIA) provides a 12-year exclusivity period for new biologic reference products, during which the FDA cannot approve a biosimilar application[152] - The company is subject to healthcare laws including the federal Anti-Kickback Statute, False Claims Act, and price reporting requirements for programs like Medicaid and Medicare, which can result in significant penalties for non-compliance[137][160][188] - The Inflation Reduction Act of 2022 (IRA) introduces significant changes, including Medicare price negotiations, inflation-based rebates, and a new Part D discounting program, which are likely to have a significant impact on the pharmaceutical industry and the company's business[191][438] Human Capital Management Provides an overview of the company's workforce, including employee numbers, recent reductions, and diversity initiatives - As of December 31, 2022, the company had 359 full-time and part-time employees, all located in the United States[193] - In March 2023, the company committed to a workforce reduction of approximately 20% (impacting ~60 employees) to focus resources on strategic priorities[172] - The company emphasizes diversity and inclusion, reporting that as of year-end 2022, ethnically diverse employees represented approximately 41% of the workforce, and women comprised 51%[175] Item 1A. Risk Factors The company faces substantial risks, including a history of net losses and uncertainty of future profitability, heavy reliance on the commercial success of a few products, and the challenges of transitioning to an immuno-oncology focus. Key risks stem from intense competition, regulatory hurdles such as potential FDA rejection of clinical data from China for toripalimab, manufacturing and supply chain dependencies on third parties, and potential intellectual property disputes. Furthermore, healthcare reforms like the Inflation Reduction Act and the ongoing impacts of the COVID-19 pandemic could adversely affect pricing, market access, and overall financial performance - The company has a limited history of profitability, incurring net losses of $291.8 million in 2022 and $287.1 million in 2021, with an accumulated deficit of $1.3 billion as of December 31, 2022[213][235] - A significant risk is the FDA's potential non-acceptance of clinical trial data conducted exclusively outside the U.S., such as the trials for toripalimab conducted in China, which could delay or prevent approval[221][224][261] - The company faces intense competition for its products. UDENYCA competes with Amgen and other biosimilar manufacturers; CIMERLI competes with Roche/Genentech; and toripalimab, if approved, will compete with established anti-PD-1/PD-L1 drugs like Keytruda® and Opdivo®[227][312][313] - Coherus is highly dependent on third parties for critical functions, including CROs for clinical trials and CMOs for manufacturing. Any failure by these partners to perform their duties could substantially harm the business[1][207][295] - Healthcare reforms, particularly the Inflation Reduction Act (IRA), introduce uncertainty and could negatively impact drug pricing, reimbursement, and the economic rationale for developing biosimilars[229][451] - The strategic shift to an immuno-oncology focus presents execution risks, requiring new expertise, reliance on the Junshi Biosciences partnership, and navigating different regulatory pathways compared to biosimilars[181][251][269] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable; the company has no unresolved staff comments[693] Item 2. Properties The company's principal executive offices are located in Redwood City, California, under a lease expiring in September 2024. Its analytical and process development laboratory is in Camarillo, California, with a lease expiring in May 2027. Management believes these facilities are adequate for current needs - The company's headquarters are leased in Redwood City, CA (expiring Sept. 2024), and its laboratory facilities are leased in Camarillo, CA (expiring May 2027)[720] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements - The information for this item is incorporated by reference to Note 8, "Commitments and Contingencies," in the financial statements[694] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[694] PART II Encompasses market information for common equity, management's discussion and analysis of financial performance, market risk disclosures, and financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Coherus's common stock is listed on The Nasdaq Global Market under the symbol "CHRS". As of February 28, 2023, there were approximately 26 stockholders of record. The company has never paid cash dividends and does not anticipate doing so in the foreseeable future. During the fourth quarter of 2022, no equity securities were repurchased by the company, although some shares were surrendered to satisfy tax obligations related to stock-based awards - The company's common stock trades on The Nasdaq Global Market under the ticker symbol "CHRS"[695] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[696] - No shares were repurchased by the company in Q4 2022. However, 15,364 shares were surrendered by employees to cover tax withholding obligations from stock awards[726] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Coherus reported net revenue of $211.0 million, a decrease from $326.6 million in 2021, primarily due to lower UDENYCA® sales and pricing pressure, partially offset by the launch of CIMERLI®. The company incurred a net loss of $291.8 million. Research and development expenses decreased significantly to $199.4 million from $363.1 million in 2021, mainly due to a large one-time licensing payment in the prior year. Selling, general, and administrative expenses increased to $198.5 million. The company ended the year with $191.7 million in cash, cash equivalents, and marketable securities, and believes it has sufficient capital to fund operations for at least the next twelve months Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 (USD thousands) | 2021 (USD thousands) | Change (USD thousands) | | :--- | :--- | :--- | :--- | | Net Revenue | $211,042 | $326,551 | $(115,509) | | Cost of Goods Sold | $70,083 | $57,591 | $12,492 | | R&D Expense | $199,358 | $363,105 | $(163,747) | | SG&A Expense | $198,481 | $169,713 | $28,768 | | Net Loss | $(291,754) | $(287,100) | $(4,654) | - The decrease in net revenue was primarily driven by a lower number of UDENYCA® units sold and a reduction in net selling price due to competition. This was partially offset by $6.9 million in net revenue from the CIMERLI® launch in October 2022[796] - The significant decrease in R&D expense was mainly due to a $145.0 million upfront payment to Junshi Biosciences in 2021, compared to a smaller $35.0 million option exercise payment in 2022[782] - Cost of goods sold increased, and gross margin decreased from 82% in 2021 to 67% in 2022, largely due to a $26.0 million inventory write-down for UDENYCA® inventory at risk of expiration[781][798] - As of December 31, 2022, the company had $191.7 million in cash, cash equivalents, and marketable securities, and total debt obligations of $471.1 million[804] Liquidity and Capital Resources Discusses the company's financial position, cash flow, debt, and ability to fund future operations - The company believes its existing cash, cash equivalents, marketable securities, and projected cash from product sales and its ATM offering will be sufficient to fund operations for at least the next 12 months[826] Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (USD thousands) | 2021 (USD thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(241,124) | $(37,432) | | Net cash used in investing activities | $(166,850) | $(138,410) | | Net cash provided by financing activities | $54,326 | $51,879 | - In 2022, the company secured a senior secured term loan facility of up to $300.0 million, drawing down $250.0 million across three tranches (A, B, and D)[733][808] - The company established an At-The-Market (ATM) offering to sell up to $150.0 million of common stock. As of Dec 31, 2022, it had raised net proceeds of $6.5 million from this facility[757][805] - As of December 31, 2022, the company had non-cancelable purchase commitments of $68.8 million[837] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, credit risk, and foreign currency risk. Interest rate risk primarily affects its variable rate debt; a hypothetical 100 basis point increase could raise annual interest expense by up to $2.5 million. Credit risk is managed through a diverse investment policy and monitoring customer creditworthiness. Foreign currency risk is mainly from Euro-denominated purchases of CIMERLI® inventory and royalty payments - The company is exposed to interest rate risk on its $250.0 million in variable rate 2027 Term Loans. A hypothetical 100 basis point (1%) increase in interest rates would increase annual interest expense by up to $2.5 million[876] - Credit risk is concentrated in cash, investments, and trade receivables. This risk is mitigated by investing in a diverse range of high-quality securities and monitoring customer credit[849][875] - Foreign currency exchange risk exists due to Euro-denominated purchases and royalty payments for CIMERLI® from its partner Bioeq[877] Item 8. Financial Statements and Supplementary Data The audited consolidated financial statements for the year ended December 31, 2022, show total assets of $480.8 million, total liabilities of $618.3 million, and a total stockholders' deficit of $137.4 million. The company reported a net loss of $291.8 million for the year. Key notes detail revenue recognition policies, collaboration agreements with partners like Junshi Biosciences and Bioeq, debt obligations including term loans and convertible notes, and commitments for future manufacturing purchases Consolidated Balance Sheet Summary (as of Dec 31, 2022) | Account | Amount (USD thousands) | | :--- | :--- | | Assets | | | Cash, cash equivalents, and marketable securities | $191,681 | | Total Current Assets | $381,234 | | Total Assets | $480,847 | | Liabilities & Equity | | | Total Current Liabilities | $138,694 | | Term loans & Convertible notes | $471,058 | | Total Liabilities | $618,265 | | Total Stockholders' Deficit | $(137,418) | Consolidated Statement of Operations Summary (Year ended Dec 31, 2022) | Account | Amount (USD thousands) | | :--- | :--- | | Net Revenue | $211,042 | | Total Costs and Expenses | $467,922 | | Loss from Operations | $(256,880) | | Net Loss | $(291,754) | | Net Loss Per Share (Basic & Diluted) | $(3.76) | Item 9A. Controls and Procedures Based on an evaluation as of December 31, 2022, the company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective. Management's annual report on internal control over financial reporting also concluded that these controls were effective. The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[532] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[1190] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion, stating that the company maintained effective internal control over financial reporting as of December 31, 2022[534] PART III Incorporates information on directors, executive compensation, security ownership, and related party transactions by reference to the proxy statement Items 10, 11, 12, 13, and 14 The information required for Items 10 through 14, which cover Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accounting Fees and Services, is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year-end - Information for Part III (Items 10-14) is incorporated by reference from the company's definitive proxy statement, which will be filed with the SEC within 120 days after the fiscal year ended December 31, 2022[540][1172] PART IV Contains the list of exhibits and financial statement schedules filed with the annual report Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements filed under Item 8 and includes an index of all exhibits filed with or incorporated by reference into the Form 10-K. Key exhibits include corporate governance documents, material contracts such as license and loan agreements, and certifications by the CEO and CFO - This section contains the list of financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K[566]