erus BioSciences(US:CHRS)2023-05-07 16:00PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Coherus BioSciences, Inc. for the quarterly period ended March 31, 2023, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, accompanied by detailed notes on accounting policies, revenue, debt, and collaborations Condensed Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $402,426 | $480,847 | | Total Current Assets | $315,926 | $381,234 | | Total Liabilities | $598,933 | $618,265 | | Total Current Liabilities | $123,407 | $138,694 | | Term Loans | $245,718 | $245,483 | | Convertible Notes | $225,900 | $225,575 | | Total Stockholders' Deficit | ($196,507) | ($137,418) | Condensed Consolidated Statement of Operations (in thousands) | Income Statement Items | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Revenue | $32,436 | $60,115 | | Total Costs and Expenses | $100,181 | $141,040 | | Loss from Operations | ($67,745) | ($80,925) | | Net Loss | ($75,729) | ($96,084) | | Net Loss Per Share (Basic & Diluted) | ($0.96) | ($1.24) | Condensed Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activities | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($68,732) | ($54,045) | | Net cash provided by (used in) investing activities | $17,526 | ($35,615) | | Net cash provided by (used in) financing activities | $3,804 | ($1,855) | | Net decrease in cash, cash equivalents and restricted cash | ($47,402) | ($91,515) | Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results for the quarter ended March 31, 2023, detailing strategy, business updates, product pipeline, financial performance analysis, liquidity, capital resources, and critical accounting estimates Overview Coherus outlines its strategy as a commercial-stage biopharmaceutical company focused on building a leading immuno-oncology franchise, funded by its diversified portfolio of three FDA-approved biosimilars, and discusses the status of its Biologics License Application (BLA) for toripalimab - The company's core strategy is to build a leading immuno-oncology franchise funded by net sales from its portfolio of FDA-approved biosimilars89226 - The commercial portfolio includes three FDA-approved biosimilars: UDENYCA® (pegfilgrastim-cbqv), CIMERLI® (ranibizumab-eqrn), and YUSIMRY™ (adalimumab-aqvh), which is planned for a U.S. launch on or after July 1, 202389254 - The BLA for toripalimab remains under review by the FDA. An on-site inspection of the manufacturing facility in China, required for approval, was scheduled for May 2023 after being delayed due to COVID-19 travel restrictions227 Business Update This section highlights significant corporate events from early 2023, including a workforce reduction in March, an agreement with Klinge Biopharma for exclusive U.S. commercialization rights to a biosimilar candidate for Eylea® in January, and the utilization of its At-The-Market (ATM) offering to raise net proceeds of $7.2 million in the first quarter - On March 3, 2023, the company committed to a workforce reduction impacting approximately 50 employees to focus resources on strategic priorities, resulting in restructuring charges of $3.9 million in cash expenses and $1.0 million net non-cash stock-based compensation expense258 - Entered into a term sheet with Klinge Biopharma for exclusive U.S. commercialization rights to FYB203, a biosimilar candidate to Eylea®, with an expected upfront payment of approximately €30 million in cash and stock140232 - During Q1 2023, the company sold 1,131,450 shares of common stock under its ATM Offering, receiving net proceeds of $7.2 million9235 Products and Product Candidates The company details its product portfolio across three main therapeutic areas: Oncology, focusing on the UDENYCA® franchise and toripalimab development; Immunology, with the planned U.S. launch of YUSIMRY™ in July 2023; and Ophthalmology, with CIMERLI® launched in October 2022, also noting the discontinuation of certain development programs - Oncology: The FDA approved the UDENYCA autoinjector (AI) on March 3, 2023, with a commercial launch planned for Q2 2023. The BLA for toripalimab remains under review231236292 - Immunology: The company plans to launch YUSIMRY™, its Humira biosimilar, in the U.S. on or after July 1, 2023239265 - Ophthalmology: CIMERLI®, a biosimilar interchangeable with Lucentis, was commercially launched in the U.S. on October 3, 2022240266 - Discontinued Programs: Development was discontinued for the bevacizumab (Avastin) biosimilar candidate (May 2022) and the preclinical immuno-oncology program CHS-3318 (October 2022)242299 Results of Operations This section provides a comparative analysis of the company's financial performance for the three months ended March 31, 2023, versus the same period in 2022, highlighting decreased net revenue due to lower UDENYCA® sales, increased cost of goods sold, and a substantial decrease in research and development expenses Financial Performance Comparison (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $32,436 | $60,115 | $(27,679) | | Cost of Goods Sold | $16,874 | $9,370 | $7,504 | | Gross Margin | 48% | 84% | - | | R&D Expense | $34,154 | $82,917 | $(48,763) | | SG&A Expense | $49,153 | $48,753 | $400 | | Interest Expense | $9,712 | $8,969 | $743 | - The decrease in net revenue was primarily driven by a reduction in UDENYCA® units sold and a lower average net selling price due to competition. This was partially offset by $6.2 million in net revenue from the CIMERLI® launch340 - R&D expense decreased by $48.8 million, primarily because Q1 2022 included a $35.0 million upfront payment to license CHS-006 and higher co-development costs for toripalimab288289343 Liquidity and Capital Resources As of March 31, 2023, Coherus had $128.1 million in cash, cash equivalents, and marketable securities, with total debt obligations of $471.6 million, and management believes existing capital resources will be sufficient to fund operations for at least the next twelve months Liquidity and Debt Summary (as of March 31, 2023, in thousands) | Item | Amount | | :--- | :--- | | Total Cash, cash equivalents and marketable securities | $128,089 | | Total debt obligations | $471,618 | | 2027 Term Loans (Net Carrying Value) | $245,718 | | 2026 Convertible Notes (Net Carrying Value) | $225,900 | - The company believes its available capital resources will be sufficient to fund planned expenditures and meet obligations for at least the next twelve months from the financial statement issuance date347 - Net cash used in operating activities was $68.7 million for Q1 2023, primarily due to a net loss of $75.7 million, adjusted for non-cash items and changes in operating assets and liabilities20359 Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate risk from its variable-rate 2027 Term Loans and foreign currency exchange rate risk from Euro-denominated purchases and royalty payments, which the company hedges using derivative contracts - Interest Rate Risk: The company has $250.0 million in principal outstanding on its variable-rate 2027 Term Loans. A hypothetical 100 basis point increase in the interest rate could result in up to a $2.5 million increase in annual interest expense24 - Foreign Currency Risk: The company is exposed to fluctuations in the U.S. Dollar to Euro exchange rate due to CIMERLI inventory purchases and royalty payments denominated in Euros. The company uses foreign exchange option contracts to economically hedge this exposure25121 - The fair value of the company's fixed-rate 2026 Convertible Notes is also subject to fluctuation with changes in interest rates and the company's stock price364378 Controls and Procedures This section confirms that an evaluation of the company's disclosure controls and procedures was conducted under the supervision of the CEO and CFO, concluding their effectiveness as of March 31, 2023, with no material changes to internal control over financial reporting during the first quarter of 2023 - Based on an evaluation as of March 31, 2023, the President and Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures were effective336 - There were no changes in internal control over financial reporting during the first quarter of 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting39 PART II – OTHER INFORMATION Legal Proceedings This section refers to Note 8 of the financial statements for information on legal proceedings, specifically detailing a demand letter received in April 2022 from Zinc Health Services, LLC, asserting a claim of approximately $14.0 million related to UDENYCA sales, for which the company has an accrual of $6.4 million as of March 31, 2023 - In April 2022, the company received a demand letter from Zinc Health Services, LLC, claiming approximately $14.0 million related to UDENYCA sales from October 2020 through December 2021243 - As of March 31, 2023, the company had an accrual of $6.4 million related to legal matters, which includes its estimated liability to resolve the Zinc demand187216 Risk Factors This section provides a comprehensive overview of the principal risks and uncertainties that could materially and adversely affect the company's business, financial condition, and results of operations, categorized into financial condition, product launch and commercialization, competition, reliance on third parties, intellectual property, product development, compliance, and general business risks - The company has a limited history of profitability and has incurred significant net losses, including a net loss of $75.7 million for the quarter ended March 31, 2023, and had an accumulated deficit of $1.4 billion46388389 - The commercial success of products like UDENYCA, CIMERLI, and the planned launch of YUSIMRY faces significant competition, pricing pressure, and depends on market acceptance by physicians and payers43369 - The company relies heavily on third-party collaborators, such as Junshi Biosciences for toripalimab, and contract manufacturers, making it vulnerable to delays, regulatory issues, or performance failures by these partners383431 - Regulatory approval for product candidates like toripalimab is uncertain and subject to delays, particularly due to the FDA's need to conduct foreign inspections of manufacturing facilities in China29370 Risks Related to Our Financial Condition and Capital Requirements This subsection details financial risks, including a limited history of profitability with significant net losses and an accumulated deficit of $1.4 billion, the uncertainty of achieving future profitability, the need for additional funding, and potential limitations on the ability to use net operating loss (NOL) carryforwards - The company has a limited history of profitability, incurring a net loss of $75.7 million in Q1 2023 and having an accumulated deficit of $1.4 billion as of March 31, 202346388389 - The company anticipates needing additional capital to fund planned operations. Failure to obtain necessary funding may force delays, limitations, or termination of product development and commercialization efforts797800 - The ability to use net operating loss (NOL) carryforwards and other tax attributes may be limited by Section 382 "ownership change" rules, potentially affecting future cash flows801833 Risks Related to Launch and Commercialization of our Products and our Product Candidates This subsection outlines the risks associated with commercializing the company's products, including the uncertainty of generating meaningful revenue, critical but not guaranteed market acceptance, challenges related to pricing, coverage, and reimbursement due to healthcare reform measures, and ongoing regulatory scrutiny post-approval - The commercial success of existing and future products depends on market acceptance by physicians, patients, and third-party payers, which is uncertain369839 - The strategic shift to building an immuno-oncology franchise, funded by the biosimilar business, involves significant execution risk, including managing new regulatory pathways and relying on partners like Junshi Biosciences403842 - Healthcare reform measures, particularly the Inflation Reduction Act of 2022 (IRA), may increase costs, affect pricing, and create significant uncertainty for the business596628 - Approved products remain subject to extensive ongoing regulatory scrutiny for manufacturing, labeling, and marketing, and failure to comply can result in significant penalties or withdrawal of approval30815846 Risks Related to Competitive Activity This subsection details the intense competition Coherus faces, with its biosimilar products competing against reference products and other biosimilars, toripalimab entering a crowded immuno-oncology market if approved, the potential for competitors to develop more effective or less costly therapies, and the risk of significant price competition for products like YUSIMRY - The company's biosimilar products (UDENYCA, CIMERLI, YUSIMRY) and product candidates face significant competition from both the reference products and other biosimilars, which could limit market penetration43417 - Toripalimab, if approved, will compete in a crowded U.S. market with several established anti-PD-1/PD-L1 antibody drugs from major pharmaceutical companies like Merck, BMS, and Genentech449 - Competitors may develop more advanced or effective therapies, and originator companies may develop improved versions of their products, which could render Coherus's products obsolete or less competitive400423 - The large number of potential competitors for YUSIMRY (adalimumab biosimilar) is expected to result in intense price competition upon its planned launch in July 2023398 Risks Related to Reliance on Third Parties This subsection highlights the company's significant dependence on third parties, including contract research organizations (CROs) for clinical studies and third-party manufacturers for product supply, creating risks related to regulatory compliance, quality assurance, supply disruptions, and the potential for harm if partners like Junshi Biosciences and Bioeq fail to perform - The company relies on third-party CROs for clinical studies and is responsible for ensuring their compliance with regulations like GCP; failure by CROs could lead to unreliable data and regulatory delays431462 - Coherus depends on third-party manufacturers, often single-source, for clinical and commercial supply, creating risks of supply disruption, regulatory non-compliance (cGMP), and delays if a manufacturer needs to be replaced433435464 - The company is dependent on partners like Junshi Biosciences (for toripalimab) and Bioeq (for CIMERLI) for drug supply and commercialization, and any failure or dispute with these partners could adversely affect business outcomes436438 Risks Related to Intellectual Property This subsection covers the complex intellectual property risks faced by the company, including potential infringement of third-party patents leading to costly litigation or delayed commercialization, the complexity of the BPCIA patent dispute resolution process, risks related to protecting its own intellectual property and trade secrets, and potential claims of wrongful use of confidential information from former employees - The company's commercial success depends on avoiding infringement of third-party patents, and it faces risk of litigation that could be costly and delay or block product commercialization486518 - The Biologics Price Competition and Innovation Act (BPCIA) patent dispute resolution mechanism is complex and could significantly delay or prevent the launch of biosimilar products in the U.S502538 - The company may be subject to claims that its employees have wrongfully used or disclosed trade secrets from former employers, such as Amgen, which could result in litigation and damages530 - Failure to comply with obligations under in-license agreements (e.g., with AbbVie, Genentech) could result in the loss of critical rights to commercialize products like YUSIMRY and CIMERLI564 Risks Related to the Discovery and Development of Our Product Candidates This subsection details the inherent risks in the drug development process, including the company's heavy dependence on the clinical and regulatory success of its product candidates, the lengthy and unpredictable approval process, potential non-acceptance of foreign clinical data by the FDA, challenges in demonstrating biosimilarity, and the high failure rate of candidates in clinical trials - The company is heavily dependent on the successful development, regulatory approval, and commercialization of its product candidates, but there is no assurance any will receive approval124539 - The regulatory approval process is lengthy and unpredictable. The BLA for toripalimab received a CRL and remains under review, with approval contingent on a successful FDA inspection in China542546 - The FDA may not accept clinical data generated outside the U.S., particularly from a single country like China, which is a key risk for toripalimab whose supporting trials were conducted there29792803 - Demonstrating biosimilarity to reference products is a significant challenge, and failure to do so to the satisfaction of regulatory authorities would prevent approval and commercialization579 General Risk Factors This subsection covers a broad range of other risks, including operational risks from international business, reputational and cost risks from increasing investor focus on ESG factors, business disruption risks from natural disasters, geopolitical events, high costs of operating as a public company, cybersecurity threats, and compliance challenges with evolving data privacy laws - The company's international operations, particularly its collaboration in China, expose it to risks including changing regulations, political instability, and difficulties in managing foreign operations655681 - Increasing focus on Environmental, Social, and Governance (ESG) factors by investors imposes additional costs and reputational risks656684 - Information technology systems are vulnerable to cyberattacks, which could lead to data breaches, disruption of development programs, and significant liabilities. The risk is heightened by geopolitical tensions712744 - The company is subject to complex and evolving global data protection laws (e.g., GDPR, CCPA), and failure to comply could result in significant fines and reputational harm748765 Unregistered Sales of Equity Securities and Use of Proceeds This section reports that Coherus did not repurchase any of its equity securities during the first quarter ended March 31, 2023, but notes that 289,944 shares were surrendered to satisfy minimum tax withholding obligations from employee stock-based awards - During Q1 2023, 289,944 shares were surrendered to Coherus to satisfy minimum tax withholding obligations in connection with the vesting or exercise of stock-based awards756 Defaults Upon Senior Securities The company reports that this item is not applicable for the period - Not applicable757 Mine Safety Disclosures The company reports that this item is not applicable for the period - Not applicable757 Other Information The company reports that this item is not applicable for the period - Not applicable757 Exhibits This section provides an index of the exhibits filed as part of the Quarterly Report on Form 10-Q, including an amendment to a loan agreement, an executive severance plan, and required officer certifications - Lists the exhibits filed with the Form 10-Q, including amendments to agreements, compensatory plans, and officer certifications757758