erus BioSciences(CHRS) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements Unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2021 and 2020, including detailed notes Condensed Consolidated Balance Sheets Total assets decreased from $841.6 million to $741.7 million, driven by reduced cash, while liabilities increased and equity decreased Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $360,540 | $541,158 | | Total current assets | $673,039 | $767,479 | | Total assets | $741,726 | $841,649 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $320,348 | $145,653 | | Total liabilities | $610,966 | $560,675 | | Total stockholders' equity | $130,760 | $280,974 | | Total liabilities and stockholders' equity | $741,726 | $841,649 | Condensed Consolidated Statements of Operations Net loss of $38.5 million for Q3 2021 and $241.4 million for nine months, driven by lower revenue and increased R&D expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $82,503 | $113,551 | $253,180 | $365,405 | | Research and development | $54,085 | $38,851 | $312,343 | $98,131 | | Selling, general and administrative | $39,925 | $31,984 | $119,661 | $101,386 | | (Loss) income from operations | $(32,787) | $33,716 | $(224,311) | $139,894 | | Net (loss) income | $(38,528) | $27,933 | $(241,375) | $122,536 | | Diluted net (loss) income per share | $(0.49) | $0.33 | $(3.22) | $1.52 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $14.9 million, investing used $245.9 million (license fee), and financing provided less cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,890 | $121,021 | | Net cash used in investing activities | $(245,900) | $(224,457) | | Net cash provided by financing activities | $50,392 | $218,433 | | Net (decrease) increase in cash | $(180,618) | $114,997 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, collaboration agreements, and debt obligations - The company is a commercial-stage biotherapeutics company focused on biosimilars and immuno-oncology. Its commercial product is UDENYCA®, and its pipeline includes biosimilars for Humira, Lucentis, and Avastin, as well as the anti-PD-1 antibody toripalimab[42][43] - In February 2021, the company entered into a collaboration with Junshi Biosciences for toripalimab, paying $150.0 million upfront. This was accounted for as an asset acquisition, with $145.0 million recognized as R&D expense in Q1 2021[79][82] - The company has two series of convertible notes outstanding: $100.0 million of 8.2% notes due in 2022 and $230.0 million of 1.5% notes due in 2026. It also has a $75.0 million term loan[89][101][111] - Three customers, McKesson, AmeriSourceBergen, and Cardinal Health, accounted for 40%, 40%, and 19% of revenue, respectively, for the three months ended September 30, 2021[76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers financial results, business strategy, UDENYCA® performance, pipeline, liquidity, and debt Overview Coherus builds an immuno-oncology franchise funded by its biosimilar business, featuring UDENYCA® and key pipeline candidates - The company's strategy is to build a leading immuno-oncology franchise funded by cash from its commercial biosimilar business[137] - The FDA has granted Priority Review for the toripalimab BLA for nasopharyngeal carcinoma (NPC), with a PDUFA target action date of April 2022[139][143] - A BLA for the adalimumab (Humira) biosimilar candidate (CHS-1420) was accepted for review by the FDA in February 2021, with a user fee goal date in December 2021. A potential launch is anticipated on or after July 1, 2023[148] - The BLA for the ranibizumab (Lucentis) biosimilar candidate (CHS-201), licensed from Bioeq, was accepted for review by the FDA with an August 2022 target action date[150] Results of Operations Detailed comparison of Q3 and nine-month financial results, analyzing revenue, COGS, R&D, and SG&A, noting lower UDENYCA® sales and increased R&D Net Product Revenue Comparison (in thousands) | Period | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $82,503 | $113,551 | $(31,048) | | Nine Months Ended Sep 30 | $253,180 | $365,405 | $(112,225) | - The decrease in net product revenue was primarily due to a decrease in the number of units of UDENYCA® sold[178] - R&D expenses for the nine months ended Sep 30, 2021, increased by $214.2 million to $312.3 million, primarily due to a $145.0 million license fee for toripalimab and $38.2 million in related co-development costs[188] - Gross margin decreased from 92% to 74% for the third quarter and from 93% to 82% for the nine-month period, year-over-year. This was due to the full recognition of manufacturing costs in COGS (as pre-approval inventory was depleted by March 31, 2021) and a $5.2 million inventory write-off in Q3 2021[183] Liquidity and Capital Resources As of September 30, 2021, the company had $360.5 million cash and $108.2 million marketable securities, sufficient for 12 months, with debt and cash flow analysis - As of September 30, 2021, the company had $360.5 million in cash and cash equivalents and $108.2 million in investments in marketable securities[199] - Management believes current cash, investments, and revenue will be sufficient to fund planned expenditures for at least the next 12 months[199] - Net cash provided by operating activities for the first nine months of 2021 was $14.9 million, a significant decrease from $121.0 million in the same period of 2020[214][215] - Net cash used in investing activities was $245.9 million, primarily due to a $145.0 million upfront license fee paid to Junshi Biosciences and purchases of marketable securities[223] Quantitative and Qualitative Disclosures About Market Risk Market risk exposure, primarily interest rate risk on cash and marketable securities, is deemed not significant due to short-term investments - The company's primary market risk exposure is to interest rate fluctuations on its cash, cash equivalents, and marketable securities, which totaled $468.7 million as of September 30, 2021[230] - Due to the short-term duration of its investments, management believes the exposure to interest rate risk is not significant and that a 1% movement in market interest rates would not have a significant impact on the portfolio's value[230] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control - The company's management, including the CEO and CFO, evaluated and concluded that the disclosure controls and procedures were effective as of September 30, 2021[231] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[234] PART II OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings as of the report date - As of the report date, Coherus is not a party to any material legal proceedings[238] Risk Factors This section outlines key risks affecting the company's business, including COVID-19, UDENYCA® success, collaborator reliance, regulatory hurdles, competition, manufacturing, IP, and financial risks - The COVID-19 pandemic could harm the business by decreasing sales of UDENYCA®, delaying clinical trials, and disrupting supply chains[240][255] - The company faces significant competition for its products from reference product manufacturers (e.g., Amgen, AbbVie) and other biosimilar developers (e.g., Sandoz, Pfizer, Mylan)[244][311][312] - The business is subject to a multitude of manufacturing risks and relies on third-party manufacturers, including single suppliers for critical services, which could lead to supply disruptions[249][354][358] - The company is heavily dependent on the development and success of its product candidates and may be prevented or delayed from commercialization by third-party intellectual property claims and litigation[251][252][383] - The company relies on collaborators like Junshi Biosciences, Bioeq, and Innovent for the development, manufacturing, and regulatory data for its in-licensed product candidates[241][349] Unregistered Sales of Equity Securities and Use of Proceeds This item is reported as not applicable - Not applicable[560] Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and iXBRL financial statements - Exhibits filed with the report include certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2, 32.1)[563] - The report includes financial data formatted in inline eXtensible Business Reporting Language (iXBRL)[564]