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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 September 30, 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 October 31, 2023, 111,364,152 shares of the registrant’s common stock were outstanding.

Table of Contents

COHERUS BIOSCIENCES, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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

10

Notes to Condensed Consolidated Financial Statements

11

ITEM 2

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

37

ITEM 3

Quantitative and Qualitative Disclosure About Market Risk

55

ITEM 4

Controls and Procedures

56

PART II

OTHER INFORMATION

57

ITEM 1.

Legal Proceedings

57

ITEM 1A.

Risk Factors

57

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities

115

ITEM 3

Defaults Upon Senior Securities

115

ITEM 4

Mine Safety Disclosures

116

ITEM 5

Other Information

116

ITEM 6.

Exhibits

116

Exhibit Index

117

Signatures

119

UDENYCA®, YUSIMRY™, CIMERLI® and LOQTORZI™, 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 CHS-006, casdozokitug, CHS-114 and our other product candidates in the United States and Canada;

our ability and the timing in which we may be able to receive marketing authorization for the on-body injector presentation of UDENYCA® following a complete response letter for the PAS that we received on September 21, 2023 and our resubmission of the PAS to the FDA that we announced on October 5, 2023;

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 realize the anticipated benefits from the acquisition (the “Surface Acquisition”) of Surface Oncology, Inc. (“Surface”);

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, projected future cash reserves, 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;

3

Table of Contents

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

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 other viral pandemics and the continuation of the war in Ukraine and the war between Israel and Hamas 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make or enter into, except for the acquisition of Surface to the extent described herein.

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)

September 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

80,259

$

63,547

Investments in marketable securities

50,818

128,134

Trade receivables, net

 

216,511

 

109,964

Inventory

 

66,783

 

38,791

Prepaid manufacturing

 

13,772

 

17,880

Other prepaids and current assets

 

16,222

 

22,918

Total current assets

 

444,365

 

381,234

Property and equipment, net

 

6,069

 

8,754

Inventory, non-current

 

79,002

 

76,260

Goodwill and intangible assets, net

 

46,524

 

5,931

Other assets, non-current

 

7,823

 

8,668

Total assets

$

583,783

$

480,847

Liabilities and Stockholders’ Deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

37,092

$

11,526

Accrued rebates, fees and reserves

 

117,369

 

54,461

Accrued compensation

 

18,084

 

22,610

Accrued and other current liabilities

 

67,114

 

50,097

Total current liabilities

 

239,659

 

138,694

Term loans

246,217

245,483

Convertible notes

226,557

225,575

Lease liabilities, non-current

 

1,436

 

5,046

Other liabilities, non-current

 

3,513

 

3,467

Total liabilities

 

717,382

 

618,265

Commitments and contingencies (Note 9)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

Common stock ($0.0001 par value; shares authorized: 300,000,000; shares issued and outstanding: 109,113,046 and 78,851,516 at September 30, 2023 and December 31, 2022, respectively)

 

11

 

8

Additional paid-in capital

 

1,366,502

 

1,204,431

Accumulated other comprehensive loss

 

(265)

 

(249)

Accumulated deficit

 

(1,499,847)

 

(1,341,608)

Total stockholders' deficit

 

(133,599)

 

(137,418)

Total liabilities and stockholders’ deficit

$

583,783

$

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

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net revenue

$

74,568

$

45,424

$

165,720

$

165,690

Costs and expenses:

 

 

 

 

Cost of goods sold

 

32,703

 

35,234

 

74,425

 

55,881

Research and development

 

25,647

 

45,808

 

83,068

 

170,336

Selling, general and administrative

 

48,224

 

44,831

 

142,521

 

144,860

Total costs and expenses

 

106,574

 

125,873

 

300,014

 

371,077

Loss from operations

 

(32,006)

 

(80,449)

 

(134,294)

(205,387)

Interest expense

 

(10,268)

 

(7,540)

 

(29,923)

 

(23,089)

Loss on debt extinguishment

(6,222)

Other income (expense), net

 

2,253

 

1,339

 

5,598

 

1,814

Loss before income taxes

 

(40,021)

 

(86,650)

 

(158,619)

 

(232,884)

Income tax provision (benefit)

 

(380)

 

 

(380)

 

Net loss

$

(39,641)

$

(86,650)

$

(158,239)

$

(232,884)

 

  

 

  

 

  

 

  

Basic and diluted net loss per share

$

(0.41)

$

(1.11)

$

(1.79)

$

(3.00)

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

 

97,738,509

 

77,746,895

 

88,277,936

 

77,520,244

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net loss

$

(39,641)

$

(86,650)

$

(158,239)

$

(232,884)

Other comprehensive income (loss):

 

 

 

 

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

32

(15)

Foreign currency translation adjustments, net of tax

 

 

 

(1)

 

Comprehensive loss

$

(39,609)

$

(86,650)

$

(158,255)

$

(232,884)

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Stockholders’ 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)

Net loss

 

 

 

 

 

(42,869)

 

(42,869)

Issuance of common stock upon exercise of stock options

 

8,182

 

 

14

 

 

 

14

Issuance of common stock upon vesting of RSUs

142,982

 

 

 

 

 

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

13,529,411

1

53,624

53,625

Offering costs associated with ATM offering

(74)

(74)

Taxes paid related to net share settlement of RSUs

(48,529)

(305)

(305)

Issuance of common stock under the employee stock purchase plan ("ESPP")

 

321,672

 

 

1,337

 

 

 

1,337

Stock-based compensation expense

 

 

 

10,034

 

 

 

10,034

Other comprehensive loss, net of tax

(19)

(19)

Balances at June 30, 2023

 

94,442,014

9

1,285,730

(297)

(1,460,206)

(174,764)

Net loss

 

(39,641)

 

(39,641)

Issuance of common stock upon exercise of stock options

27,977

53

 

53

Issuance of common stock upon vesting of RSUs

72,918

 

Issuance of common stock in connection with Surface Acquisition:(1)

 

Issuance to Surface shareholders for acquisition

11,971,460

1

58,540

 

58,541

Accelerated vesting of equity awards

261,239

1,053

 

1,053

Taxes paid related to net share settlement of equity awards

(65,732)

(347)

(347)

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

2,428,311

1

11,436

 

11,437

Taxes paid related to net share settlement of RSUs

(25,141)

(115)

 

(115)

Stock-based compensation expense

 

10,152

 

10,152

Other comprehensive gain, net of tax

 

32

 

32

Balances at September 30, 2023

 

109,113,046

$

11

$

1,366,502

$

(265)

$

(1,499,847)

$

(133,599)

(1)See Note 6 for further discussion.

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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

    

Equity (Deficit)

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

Net loss

 

 

 

 

 

(50,150)

 

(50,150)

Issuance of common stock upon exercise of stock options

 

4,499

 

 

8

 

 

 

8

Issuance of common stock upon vesting of RSUs

173,867

 

 

 

 

 

Taxes paid related to net share settlement of RSUs

(58,771)

(642)

(642)

Issuance of common stock under the ESPP

 

244,983

 

 

1,655

 

 

 

1,655

Stock-based compensation expense

 

 

 

13,935

 

 

 

13,935

Other comprehensive gain, net of tax

2

2

Balances at June 30, 2022

 

77,702,749

7

1,173,722

(270)

(1,196,088)

(22,629)

Net loss

 

(86,650)

 

(86,650)

Issuance of common stock upon exercise of stock options

6,557

79

 

79

Issuance of common stock upon vesting of RSUs

93,606

 

Taxes paid related to net share settlement of RSUs

(32,319)

(321)

(321)

Stock-based compensation expense

 

12,388

 

12,388

Balances at September 30, 2022

 

77,770,593

$

7

$

1,185,868

$

(270)

$

(1,282,738)

$

(97,133)

See accompanying notes.

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Coherus BioSciences, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Nine Months Ended

September 30, 

    

2023

    

2022

Operating activities

 

 

  

Net loss

$

(158,239)

$

(232,884)

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

 

 

Depreciation and amortization

 

2,728

 

2,649

Stock-based compensation expense

 

32,312

 

39,011

Inventory write-offs, net

4,369

26,000

Non-cash accretion of discount on marketable securities

 

(2,835)

 

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

 

1,812

 

5,631

Non-cash operating lease expense

 

2,016

 

1,854

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

 

 

35,000

Loss on debt extinguishment

6,222

Other non-cash adjustments, net

(915)

(10)

Changes in operating assets and liabilities:

 

 

Trade receivables, net

 

(106,626)

 

31,849

Inventory

 

(34,941)

 

(37,556)

Prepaid manufacturing

 

4,108

 

(6,967)

Other prepaid, current and non-current assets

 

10,702

 

(12,509)

Accounts payable

 

24,545

 

(6,149)

Accrued rebates, fees and reserves

 

60,602

 

(25,006)

Accrued compensation

 

(8,810)

 

(623)

Accrued and other current and non-current liabilities

 

7,225

 

32,317

Net cash used in operating activities

 

(161,947)

 

(141,171)

Investing activities

 

  

 

  

Purchases of property and equipment

 

(252)

 

(1,952)

Proceeds from disposal of property and equipment

769

Purchases of investments in marketable securities

 

(19,507)

 

Proceeds from maturities of investments in marketable securities

 

108,148

 

Proceeds from sale of investments in marketable securities

13,282

Cash and cash equivalents acquired from Surface Acquisition

6,997

Option payment to Junshi Biosciences

(35,000)

Net cash provided by (used in) investing activities

 

109,437

 

(36,952)

Financing activities

 

  

 

  

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

240,679

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

18,198

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

53,625

Proceeds from issuance of common stock upon exercise of stock options

 

170

631

Proceeds from purchase under the employee stock purchase plan

 

1,337

1,655

Taxes paid related to net share settlement

 

(3,261)

(3,621)

Repayment of 2022 Convertible Notes and premiums

(109,000)

Repayment of 2025 Term Loan, premiums and exit fees

(81,750)

Other financing activities

(835)

(861)

Net cash provided by financing activities

 

69,234

 

47,733

Net increase (decrease) in cash, cash equivalents and restricted cash

 

16,724

 

(130,390)

Cash, cash equivalents and restricted cash at beginning of period

 

63,987

 

417,635

Cash, cash equivalents and restricted cash at end of period

$

80,711

$

287,245

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 immunotherapies to treat cancer. Coherus’ strategy is to build a leading immuno-oncology franchise funded with cash generated from net sales of its diversified portfolio of United States Food and Drug Administration (“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. On August 2, 2022, the FDA approved CIMERLI® (ranibizumab-eqrn), a biosimilar to Lucentis, and commercial launch commenced in October 2022 in the United States. The Company launched YUSIMRY™ (adalimumab-aqvh), a biosimilar to Humira (adalimumab), in the United States in July 2023. On October 27, 2023, the Company announced that the FDA approved LOQTORZI™ (toripalimab-tpzi) in combination with cisplatin and gemcitabine for the first-line treatment of adults with metastatic or recurrent locally advanced nasopharyngeal carcinoma (“NPC”), and as monotherapy for the treatment of adults with recurrent, unresectable, or metastatic NPC with disease progression on or after platinum-containing chemotherapy. LOQTORZI is an anti-PD-1 antibody that the Company developed in collaboration with Shanghai Junshi Biosciences Co., Ltd. (“Junshi Biosciences”). The Company expects to launch LOQTORZI in the U.S. in the first quarter of 2024.

The Company’s product pipeline comprises the following four product candidates: CHS-006, an antibody targeting TIGIT being developed in collaboration with Junshi Biosciences; CHS-1000, an antibody targeting ILT4; casdozokitug (CHS-388, formerly SRF388), an antibody targeting interleukin 27 (“IL-27”); and CHS-114 (formerly SRF114), a highly specific afucosylated immunoglobulin isotype G1 (“IgG1”) antibody targeting CCR8. In addition to the Company’s internally developed portfolio of product candidates, the Company has two product candidates, NZV930 and GSK4381562, which are exclusively licensed to Novartis Institutes for Biomedical Research, Inc. (“Novartis Institutes”) and GlaxoSmithKline Intellectual Property No. 4 Limited (“GSK”), respectively. 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 Company and Klinge Biopharma continue to conduct due diligence and discuss terms of the transaction. The material terms of the transaction with Klinge Biopharma will be included in a subsequent filing by the Company when definitive agreements are executed.

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.

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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.

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

September 30, 

At end of period:

2023

    

2022

Cash and cash equivalents

$

80,259

$

286,805

Restricted cash

 

452

 

440

Total cash, cash equivalents and restricted cash

$

80,711

$

287,245

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 September 30, 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 on 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

12

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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 10).

Business Combination Accounting & Valuation of Acquired Assets

The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. Judgment is required in assessing whether the acquired processes or activities, along with their inputs, meet the criteria to constitute a business, as defined by U.S. GAAP.

The acquisition method of accounting requires the recognition of assets acquired and liabilities assumed at their acquisition date fair values. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill, or when there is an excess of the fair values of these identifiable assets and liabilities over the fair value of purchase consideration, a bargain purchase gain is recorded in the condensed consolidated statement of operations. The estimations of fair values based on non-observable inputs that are included in valuation models. An income approach, which generally relies upon projected cash flow models, is used in estimating the fair value of the acquired intangible assets. These cash flow projections are based on management's estimates of economic and market conditions including the estimated future cash flows from revenues of acquired assets, the timing and projection of costs and expenses and the related profit margins, tax rates, and discount rate.

During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed, if based on facts and circumstances existing at the acquisition date, are recorded on a retroactive basis as of the acquisition date, with the corresponding offset to goodwill or bargain purchase gain. (See Note 6)

Intangible Assets

Acquired in-process research and development (“IPR&D”) that the Company acquires in conjunction with the acquisition of a business represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each IPR&D project, the Company will commence amortization over the useful life of the intangible asset, which will generally be determined by the period in which the substantial majority of the cash flows are expected to be generated. The Company evaluates IPR&D for impairment on an annual basis, during the fourth quarter, or more frequently if impairment indicators exist.

Definite-lived intangible assets are generally amortized on a straight-line basis over their estimated economic life and are reviewed periodically for impairment. The amortization expense related to capitalized milestone payments under license agreements is recorded as a component of cost of goods sold in the consolidated statements of operations, and amortization expense from out-licenses is recorded in cost of goods sold. The estimated life for capitalized milestone payments is ten years and fifteen years for acquired out-licenses.

Contingent Consideration

Contingent consideration relates to the potential payments to holders of Contingent Value Rights (“CVRs”) that are contingent upon the achievement of the Company and certain third-parties meeting product development or financial performance milestones. For transactions accounted for as business combinations, the Company records contingent consideration at fair value at the date of the acquisition based on the consideration expected to be transferred. Liabilities for contingent consideration are remeasured each reporting period and subsequent changes in fair value are recognized within loss from operations in the condensed consolidated statement of operations. The assumptions utilized in the calculation of the fair values include probability of success and the discount rates. Contingent

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consideration involves certain assumptions requiring significant judgment and actual results may differ from estimated amounts.

Stock-Based Compensation

The Company’s compensation programs include stock-based awards, and the related grants under these programs are accounted for at fair value. The fair values are recognized as compensation expense on a straight-line basis over the vesting period with the related costs recorded in cost of goods sold, research and development, and selling, general and administrative expense, as appropriate. The Company accounts for forfeitures as they occur. The Company accounts for stock issued in connection with business combinations based on the fair value of the Company’s common stock on the date of issuance.

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 launched YUSIMRY in the United States in July 2023 and initiated sales of CIMERLI in October 2022. All net product revenue was generated in the United States, and the Company’s net revenue was as follows:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

    

2023

2022

2023

    

2022

Products