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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-36721

Coherus BioSciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

 

27-3615821

(State or Other Jurisdiction of
Incorporation or Organization)

333 Twin Dolphin Drive, Suite 600

Redwood City, California

(Address of Principal Executive Office)

 

(I.R.S. Employer Identification No.)

94065

(Zip Code)

(650) 649-3530

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

CHRS

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of April 30, 2023, 80,553,730 shares of the registrant’s common stock were outstanding.

Table of Contents

COHERUS BIOSCIENCES, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023

TABLE OF CONTENTS

    

Page

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

3

PART I

FINANCIAL INFORMATION

5

ITEM 1

Unaudited Condensed Consolidated Financial Statements

5

 

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations

6

Condensed Consolidated Statements of Comprehensive Loss

7

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

8

Condensed Consolidated Statements of Cash Flows

9

Notes to Condensed Consolidated Financial Statements

10

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

ITEM 3

Quantitative and Qualitative Disclosure About Market Risk

42

ITEM 4

Controls and Procedures

43

PART II

OTHER INFORMATION

44

ITEM 1.

Legal Proceedings

44

ITEM 1A.

Risk Factors

44

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

103

ITEM 3

Defaults Upon Senior Securities

103

ITEM 4

Mine Safety Disclosures

103

ITEM 5

Other Information

103

ITEM 6.

Exhibits

103

Exhibit Index

104

Signatures

106

UDENYCA®, YUSIMRY™ and CIMERLI®, whether or not appearing in large print or with the trademark symbol, are trademarks of Coherus, its affiliates, related companies or its licensors or joint venture partners, unless otherwise noted. Trademarks and trade names of other companies appearing in this Quarterly Report on Form 10-Q are, to the knowledge of Coherus, the property of their respective owners.

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained herein that are not statements of historical facts contained in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by words such as “aim,” “anticipate,” “assume,” “attempt,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “seek,” “should,” “strive,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

whether we will be able to continue to maintain or increase sales for our products;

our expectations regarding our ability to develop and commercialize toripalimab, CHS-006 and our other product candidates in the United States and Canada, including whether the trial results, data package or biologics license application (“BLA”) for toripalimab will be sufficient to support regulatory approval;

our ability to address comments raised in the complete response letter for the original BLA for toripalimab and timing of the review for the original BLA resubmission for toripalimab;

our ability to receive marketing authorization for the on-body injector presentation of UDENYCA®, including the timing of receiving such marketing authorization, if approved;

our ability to maintain regulatory approval for our products and our ability to obtain and maintain regulatory approval of our product candidates, if and when approved;

our expectations regarding government and third-party payer coverage and reimbursement;

our ability to manufacture our product candidates in conformity with regulatory requirements and to scale up manufacturing capacity of these products for commercial supply;

our reliance on third-party contract manufacturers to supply our products and product candidates for us;

our expectations regarding the potential market size and the size of the patient populations for our products and product candidates, if approved for commercial use;

our expectations about making required future interest and principal payments as they become due in connection with our debt obligations;

our financial performance, including, but not limited to, projected future performance of our gross margins, research and development expenses and selling and general administrative expenses;

the implementation of strategic plans for our business, products and product candidates;

the initiation, timing, progress and results of future preclinical and clinical studies and our research and development programs;

the scope of protection we are able to establish and maintain for intellectual property rights covering our products and product candidates;

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our ability to finalize the Definitive Agreements or close on the transactions contemplated by them;

our expectations regarding the scope or enforceability of third-party intellectual property rights, or the applicability of such rights to our products and product candidates;

the cost, timing and outcomes of litigation involving our products and product candidates;

our reliance on third-party contract research organizations to conduct clinical trials of our product candidates;

the benefits of the use of our products and product candidates;

the rate and degree of market acceptance of our current or any future products and product candidates;

our ability to compete with companies currently producing competitor products, including Neulasta, Humira and Lucentis and other biosimilar products made by other companies;

developments and projections relating to our competitors, our market opportunity and our industry; and

the potential impact of COVID-19 and the continuation of the war in Ukraine on our business and prospects.

We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those identified in Part II, Item 1A Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”), we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

This Quarterly Report on Form 10-Q also contains estimates, projections, market opportunity estimates and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, publicly filed reports and similar sources.

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PART I. FINANCIAL INFORMATION

ITEM 1.              Unaudited Condensed Consolidated Financial Statements

Coherus BioSciences, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

March 31, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

16,145

$

63,547

Investments in marketable securities

111,944

128,134

Trade receivables, net

 

101,458

 

109,964

Inventory

 

49,406

 

38,791

Prepaid manufacturing

 

16,019

 

17,880

Other prepaids and current assets

 

20,954

 

22,918

Total current assets

 

315,926

 

381,234

Property and equipment, net

 

7,724

 

8,754

Inventory, non-current

 

65,081

 

76,260

Goodwill and intangible assets

 

5,870

 

5,931

Other assets, non-current

 

7,825

 

8,668

Total assets

$

402,426

$

480,847

Liabilities and Stockholders’ Deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

23,231

$

11,526

Accrued rebates, fees and reserves

 

55,697

 

54,461

Accrued compensation

 

12,422

 

22,610

Accrued and other current liabilities

 

32,057

 

50,097

Total current liabilities

 

123,407

 

138,694

Term loans

245,718

245,483

Convertible notes

225,900

225,575

Lease liabilities, non-current

 

3,806

 

5,046

Other liabilities, non-current

 

102

 

3,467

Total liabilities

 

598,933

 

618,265

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

Common stock ($0.0001 par value; shares authorized: 300,000,000; shares issued and outstanding: 80,488,296 and 78,851,516 at March 31, 2023 and December 31, 2022, respectively)

 

8

 

8

Additional paid-in capital

 

1,221,100

 

1,204,431

Accumulated other comprehensive loss

 

(278)

 

(249)

Accumulated deficit

 

(1,417,337)

 

(1,341,608)

Total stockholders' deficit

 

(196,507)

 

(137,418)

Total liabilities and stockholders’ deficit

$

402,426

$

480,847

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

Net revenue

$

32,436

$

60,115

Costs and expenses:

 

 

Cost of goods sold

 

16,874

 

9,370

Research and development

 

34,154

 

82,917

Selling, general and administrative

 

49,153

 

48,753

Total costs and expenses

 

100,181

 

141,040

Loss from operations

 

(67,745)

 

(80,925)

Interest expense

 

(9,712)

 

(8,969)

Loss on debt extinguishment

(6,222)

Other income (expense), net

 

1,728

 

32

Loss before income taxes

 

(75,729)

 

(96,084)

Income tax provision

 

 

Net loss

$

(75,729)

$

(96,084)

 

  

 

  

Basic and diluted net loss per share

$

(0.96)

$

(1.24)

Weighted-average number of shares used in computing basic and diluted net loss per share

 

79,268,853

 

77,253,699

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

Net loss

$

(75,729)

$

(96,084)

Other comprehensive loss:

 

 

Unrealized loss on available-for-sale securities, net of tax

(29)

Foreign currency translation adjustments, net of tax

 

 

(2)

Comprehensive loss

$

(75,758)

$

(96,086)

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

(unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Deficit

Balances at December 31, 2022

 

78,851,516

$

8

$

1,204,431

$

(249)

$

(1,341,608)

$

(137,418)

Net loss

 

 

 

 

(75,729)

 

(75,729)

Issuance of common stock upon exercise of stock options

24,107

 

 

103

 

 

 

103

Issuance of common stock upon vesting of restricted stock units ("RSUs")

771,167

 

 

 

 

 

Issuance of common stock under ATM Offering, net of issuance costs

1,131,450

7,059

7,059

Taxes paid related to net share settlement of RSUs

(289,944)

(2,781)

(2,781)

Stock-based compensation expense

 

 

12,288

 

 

 

12,288

Other comprehensive loss, net of tax

 

 

 

 

(29)

 

 

(29)

Balances at March 31, 2023

 

80,488,296

$

8

$

1,221,100

$

(278)

$

(1,417,337)

$

(196,507)

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at December 31, 2021

 

76,930,096

$

7

$

1,147,843

$

(270)

$

(1,049,854)

$

97,726

Net loss

 

 

 

 

 

(96,084)

 

(96,084)

Issuance of common stock upon exercise of stock options

 

102,632

 

 

544

 

 

 

544

Issuance of common stock upon vesting of RSUs

 

491,087

 

 

 

 

 

Taxes paid related to net share settlement of RSUs

(185,644)

(2,658)

(2,658)

Stock-based compensation expense

 

 

 

13,037

 

 

 

13,037

Other comprehensive loss, net of tax

 

 

 

 

(2)

 

 

(2)

Balances at March 31, 2022

 

77,338,171

$

7

$

1,158,766

$

(272)

$

(1,145,938)

$

12,563

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

Operating activities

 

 

  

Net loss

$

(75,729)

$

(96,084)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

949

 

767

Stock-based compensation expense

 

12,282

 

12,879

Inventory write-offs, net

3,241

Non-cash accretion of discount on marketable securities

 

(1,339)

 

Non-cash interest expense from amortization of debt discount & issuance costs

 

656

 

3,696

Option payment to Shanghai Junshi Biosciences Ltd. ("Junshi Biosciences")

 

 

35,000

Loss on debt extinguishment

6,222

Other non-cash adjustments, net

554

592

Changes in operating assets and liabilities:

 

 

Trade receivables, net

 

8,529

 

5,991

Inventory

 

(2,671)

 

(2,962)

Prepaid manufacturing

 

1,861

 

248

Other prepaid, current and non-current assets

 

2,057

 

(7,632)

Accounts payable

 

11,739

 

4,757

Accrued rebates, fees and reserves

 

1,236

 

(7,133)

Accrued compensation

 

(10,188)

 

(7,144)

Accrued and other current and non-current liabilities

 

(21,909)

 

(3,242)

Net cash used in operating activities

 

(68,732)

 

(54,045)

Investing activities

 

  

 

  

Purchases of property and equipment

 

(152)

 

(615)

Proceeds from disposal of property and equipment

178

Proceeds from maturities of investments in marketable securities

 

17,500

 

Option payment to Junshi Biosciences

(35,000)

Net cash provided by (used in) investing activities

 

17,526

 

(35,615)

Financing activities

 

  

 

  

Proceeds from 2027 Term Loans, net of debt discount & issuance costs

191,190

Proceeds from issuance of common stock under ATM Offering, net of issuance costs

6,835

Proceeds from issuance of common stock upon exercise of stock options

 

103

544

Taxes paid related to net share settlement of RSUs

 

(2,781)

(2,658)

Repayment of 2022 Convertible Notes and premiums

(109,000)

Repayment of 2025 Term Loan, premiums and exit fees

(81,750)

Other financing activities

(353)

(181)

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)

Cash, cash equivalents and restricted cash at beginning of period

 

63,987

 

417,635

Cash, cash equivalents and restricted cash at end of period

$

16,585

$

326,120

See accompanying notes.

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Coherus BioSciences, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.       Organization and Summary of Significant Accounting Policies

Organization

Coherus BioSciences, Inc. (the “Company” or “Coherus”) is a commercial-stage biopharmaceutical company focused on the research, development and commercialization of innovative cancer treatments and commercialization of its portfolio of United States Food and Drug Administration (“FDA”)-approved biosimilars. The Company’s strategy is to build a leading immuno-oncology franchise funded with cash generated through net sales of its diversified portfolio of FDA-approved therapeutics. The Company’s headquarters and laboratories are located in Redwood City, California and in Camarillo, California, respectively. The Company sells UDENYCA® (pegfilgrastim-cbqv), a biosimilar to Neulasta, a long-acting granulocyte-colony stimulating factor, in the United States. The FDA approved YUSIMRY™ (adalimumab-aqvh), a biosimilar to Humira, in December 2021, which the Company plans to launch in the United States on or after July 1, 2023, pursuant to the terms of an agreement with Humira’s manufacturer, AbbVie Inc. (“AbbVie”). On August 2, 2022, the FDA approved CIMERLI® (ranibizumab-eqrn), a biosimilar to Lucentis, and commercial launch commenced on October 3, 2022 in the United States.

The Company’s product pipeline comprises the following three product candidates: toripalimab, an anti-PD-1 antibody being developed in collaboration with Shanghai Junshi Biosciences Co., Ltd. (“Junshi Biosciences”); CHS-006, an antibody targeting TIGIT being developed in collaboration with Junshi Biosciences; and one wholly-owned preclinical immuno-oncology program, CHS-1000, an antibody targeting ILT4. In May 2022, the Company discontinued development of its bevacizumab (Avastin) biosimilar product candidate in-licensed from Innovent Biologics (Suzhou) Co., Ltd. (“Innovent”). In October 2022, the Company discontinued development of its preclinical immuno-oncology program, CHS-3318, an antibody targeting CCR8. On January 9, 2023, the Company announced that it entered into a binding term sheet (the “Term Sheet”) with Klinge Biopharma GmbH (“Klinge Biopharma”) for the exclusive commercialization rights to FYB203, a biosimilar candidate to Eylea® (aflibercept), in the United States. The parties to the Term Sheet expect to execute the definitive agreements contemplated by the Term Sheet (the “Definitive Agreements”) and complete the transaction in mid-2023.

Basis of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Coherus and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring accruals, that the Company believes are necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the SEC.

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Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information. Accounting estimates and judgements are inherently uncertain and therefore actual results could differ from these estimates.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets, which, in aggregate, represent the amount reported in the condensed consolidated statements of cash flows:

(in thousands)

January 1,

At beginning of period:

    

2023

    

2022

Cash and cash equivalents

$

63,547

$

417,195

Restricted cash

440

440

Total cash, cash equivalents and restricted cash

$

63,987

$

417,635

March 31, 

At end of period:

2023

    

2022

Cash and cash equivalents

$

16,145

$

325,680

Restricted cash

 

440

 

440

Total cash, cash equivalents and restricted cash

$

16,585

$

326,120

Restricted cash consists of deposits for letters of credit that the Company has provided to secure its obligations under certain leases and is included in other assets, non-current on the condensed consolidated balance sheets.

Trade Receivables

Trade receivables are recorded net of allowances for chargebacks, cash discounts for prompt payment and credit losses. The Company estimates an allowance for expected credit losses by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The corresponding expense for the credit loss allowance is reflected in selling, general and administrative expenses. The credit loss allowance was immaterial as of March 31, 2023 and December 31, 2022.

Derivative Instruments

In January 2023, the Company commenced using derivative contracts (foreign exchange option contracts) for the purpose of economically hedging exposure to changes in currency fluctuations between the U.S. Dollar and the Euro. The Company recognizes all derivatives at fair value in the condensed consolidated balance sheets, and corresponding gains and losses are recognized in other income (expense), net in the condensed consolidated statements of operations. The estimated fair value of derivative financial instruments represents the amount required to enter into similar contracts with similar remaining maturities based on quoted market prices. During the periods presented, the Company did not apply hedge accounting to these instruments (see Note 9).

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Recent Accounting Pronouncements

The Company has reviewed recent accounting pronouncements and concluded they are either not applicable to the business or that no material effect is expected on the condensed consolidated financial statements as a result of future adoption.

2.        Revenue

The Company initiated sales in the United States of CIMERLI on October 3, 2022. The Company’s net revenue was as follows:

Three Months Ended

March 31, 

(in thousands)

    

2023

2022

Products

UDENYCA

$

26,179

$

60,069

CIMERLI

6,174

Total net product revenue

32,353

60,069

Other

 

83

 

46

Total net revenue

$

32,436

$

60,115

Gross product revenues by significant customer as a percentage of total gross product revenues were as follows:

    

Three Months Ended

March 31, 

2023

 

2022

McKesson Corporation

 

35

%

39

%

AmeriSource-Bergen Corporation

 

43

%

43

%

Cardinal Health, Inc.

 

21

%

17

%

Product Sales Discounts and Allowances

The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows:

Three Months Ended March 31, 2023

    

Chargebacks

    

    

Other Fees,

    

and Discounts

Co-pay

for Prompt

Assistance

(in thousands)

Payment

Rebates

and Returns

Total

Balances at December 31, 2022

$

42,677

$

38,713

$

19,113

$

100,503

Provision related to sales made in:

 

Current period

93,906

13,000

14,603

121,509

Prior period

(738)

(701)

1,829

390

Payments and customer credits issued

 

(101,108)

(14,243)

(16,617)

(131,968)

Balances at March 31, 2023

$

34,737

$

36,769

$

18,928

$

90,434

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Three Months Ended March 31, 2022

    

Chargebacks

    

    

Other Fees,

    

and Discounts

Co-pay

for Prompt

Assistance

(in thousands)

Payment

Rebates

and Returns

Total

Balances at December 31, 2021

$

29,665

$

54,004

$

26,054

$

109,723

Provision related to sales made in:

Current period

 

105,737

20,269

20,288

146,294

Prior period

(1,081)

(1,721)

(344)

(3,146)

Payments and customer credits issued

 

(107,625)

 

(24,216)

 

(22,440)

 

(154,281)

Balances at March 31, 2022

$

26,696

$

48,336

$

23,558

$

98,590

Chargebacks and discounts for prompt payment are recorded as a reduction in trade receivables, and the remaining reserve balances are classified as current liabilities in the accompanying unaudited condensed consolidated balance sheets.

3.       Fair Value Measurements

The fair values of financial instruments are classified into one of the following categories based upon the lowest level of input that is significant to the fair value measurement:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.

Unrealized gains and losses on available-for-sale debt securities are reported as a component of accumulated comprehensive income (loss), with the exception of unrealized losses believed to be related to credit losses, if any, which are recognized in earnings in the period the impairment occurs. Impairment assessments are made at the individual security level each reporting period. When the fair value of an available-for-sale debt investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is related to a credit loss and, if it is, the portion of the impairment relating to credit loss is recorded as an allowance through net income. Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net, in the condensed consolidated statements of operations based on the specific identification method.

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Financial assets and liabilities measured at fair value on a recurring basis are summarized as follows:

Fair Value Measurements

March 31, 2023

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial Assets:

 

 

  

 

  

 

  

Money market funds

$

11,712

$

$

$

11,712

Marketable debt securities:

 

 

 

 

U.S. government agency securities

15,120

15,120

U.S. treasury securities

50,036

50,036

Commercial paper and corporate notes

46,788

46,788

Currency contracts

44

44

Total

$

76,868

$

46,832

$

$

123,700

Financial Liabilities:

 

 

  

 

  

 

  

Currency contracts

$

$

167

$

$

167

Fair Value Measurements

December 31, 2022

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial Assets:

 

 

  

 

  

 

  

Money market funds

$

55,060

$

$

$

55,060

Marketable debt securities:

 

 

 

 

U.S. government agency securities

19,964

19,964

U.S. treasury securities

68,418

68,418

Commercial paper and corporate notes

48,203

48,203

Total

$

143,442

$

48,203

$

$

191,645

The cost, unrealized gains or losses, and fair value by investment type are summarized as follows:

March 31, 2023

(in thousands)

    

Cost

    

Unrealized Gain

    

Unrealized (Loss)

    

Fair Value

Money market funds

$

11,712

$

$

$

11,712

U.S. government agency securities

15,109

 

13

(2)

15,120

U.S. treasury securities

50,042

3

(9)

50,036

Commercial paper and corporate notes

46,800

(12)

46,788

Total

$

123,663

 

$

16

$

(23)

$

123,656

December 31, 2022

(in thousands)

    

Cost

    

Unrealized Gain

    

Unrealized (Loss)

    

Fair Value

Money market funds

$

55,060

$

$

$

55,060

U.S. government agency securities

19,929

 

35

19,964

U.S. treasury securities

68,431

8

(21)

68,418

Commercial paper and corporate notes

48,203

48,203

Total

$

191,623

 

$

43

$

(21)

$

191,645

The Company held 11 positions that were in unrealized loss positions as of March 31, 2023, and aggregated gross unrealized losses on available-for-sale debt securities were not material. No impairment was recognized in the first quarter of 2023. As of March 31, 2023, the remaining contractual maturities of available-for-sale securities were less than one year, and the average maturity of investments upon acquisition was approximately 8 months. The accrued

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interest receivable on available-for-sale marketable securities was immaterial at March 31, 2023 and December 31, 2022, and is included in other prepaid and current assets.

There were no investments in marketable securities as of March 31, 2022; thus, no unrealized gain (loss) was recognized as of March 31, 2022.

4.           Inventory

Inventory consisted of the following:

    

March 31, 

December 31, 

(in thousands)

2023

2022

Raw materials

$

13,008

$

10,262

Work in process

 

82,206

 

86,712

Finished goods

 

19,273

 

18,077

Total

$

114,487

$

115,051

Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method. The determination of excess or obsolete inventory requires judgment including consideration of many factors, such as estimates of future product demand, current and future market conditions, product expiration information, and potential product obsolescence, among others.

The Company began capitalizing YUSIMRY inventory in the second quarter of 2022 and had $25.1 million and $23.7 million of such inventory as of March 31, 2023 and December 31, 2022, respectively. Inventory expected to be sold more than twelve months from the balance sheet date is classified as inventory, non-current on the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the non-current portion of inventory consisted of raw materials, work in process and a portion of finished goods. The following table presents the inventory balance sheet classifications:

    

March 31, 

December 31, 

(in thousands)

2023

2022

Inventory

$

49,406

$

38,791

Inventory, non-current

 

65,081

 

76,260

Total

$

114,487

$

115,051

Prepaid manufacturing of $16.0 million as of March 31, 2023 includes prepayments of $11.6 million to contract manufacturing organizations (“CMOs”) for manufacturing services for our products, which the Company expects to be converted into inventory within the next twelve months; and prepayments of $4.4 million to various CMOs for research and development pipeline programs. Prepaid manufacturing of $17.9 million as of December 31, 2022 included prepayments of $13.0 million to CMOs for manufacturing services of the Company’s products, which the Company expects to be converted into inventory during 2023; and prepayments of $4.9 million to various CMOs for research and development pipeline programs.

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5.       Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consisted of the following:

    

March 31, 

December 31, 

(in thousands)

2023

2022

Machinery and equipment

$

13,031

$

12,944

Computer equipment and software

 

3,127

 

3,183

Furniture and fixtures

 

1,258

 

1,258

Leasehold improvements

 

6,234

 

6,198

Finance lease right of use assets

4,070

4,632

Construction in progress

 

524

 

696

Total property and equipment

 

28,244

 

28,911

Accumulated depreciation and amortization

 

(20,520)

 

(20,157)

Property and equipment, net

$

7,724

$

8,754

Depreciation and amortization expense related to property and equipment, net was $0.9 million and $0.8 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, the net book value of software implementation costs related to hosting arrangements was $3.2 million and $3.5 million, respectively, and the amortization expense was immaterial for all periods presented.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:

    

March 31, 

    

December 31, 

(in thousands)

2023

2022

Accrued commercial and research and development manufacturing

$

9,677

$

21,774

Accrued co-development costs payable to Junshi Biosciences

3,480

8,356

Lease liabilities, current

4,436

4,318

Accrued other

 

14,464