Coherus BioSciences Inc

Comparison of Three Months Ended March 31, 2024 and 2023

Revenue

The increase in net revenue for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to increase in CIMERLI net revenue of $22.0 million following its launch in October 2022, and an increase in UDENYCA net revenue of $16.5 million due to additional presentations launched since the first quarter of 2023 and overall higher demand, partially offset by a decline in the average net selling price per unit. Additionally, our launches of YUSIMRY in July 2023 and LOQTORZI in December 2023 contributed $3.9 million and $2.0 million of net revenue, respectively. Our net revenue and market penetration may continue to be adversely impacted by pricing trends and competitive dynamics in the overall pegfilgrastim market.

We expect our net revenue in the remainder of 2024 to be lower than in 2023, as a result of our divestiture of CIMERLI on March 1, 2024. However, we expect the decline in net revenue to be partially offset by the anticipated market share growth of UDENYCA, considering its multiple presentations, as well as the launch of LOQTORZI in the United States and continued YUSIMRY sales following its launch in July 2023.

Cost of Goods Sold

The increase in cost of goods sold for the three months ended March 31, 2024 compared to the same period in the prior year was primarily due to $13.1 million increase in product costs driven primarily by the mix of products sold and the launch of new products and a $10.2 million increase in royalty costs. The increase was partially offset by the sale of certain UDENYCA units having no carrying value following our third quarter of 2022 write-down and a total original cost of $2.6 million, as well as $3.0 million in contract modification fees in the first quarter of 2023 with one of our manufacturers for reducing the number of UDENYCA batches to be produced.

We expect our gross margin to increase during 2024 primarily because 2023 results included a $47.0 million charge for the write-down of slow moving YUSIMRY inventory and the related partial recognition of certain firm purchase commitments. In addition, sales generated from our other products after the Sale Transaction are expected to have a higher average gross margin in 2024. The mid-single digit royalty on UDENYCA net product revenue expires on June 30, 2024.

Research and Development Expense

The decrease in research and development expense was primarily due to the following:

The decrease was partially offset by the following:

We expect our research and development expense in 2024 to be lower than 2023 due to the estimated impacts resulting from our cost containment initiatives and the termination of the TIGIT Program with Junshi Biosciences in January 2024. We expect the decrease to be partially offset by clinical progression on our Surface molecules.

Selling, General and Administrative Expense

The increase in selling, general and administrative expense was primarily due to the $6.8 million net impairment charge relating to the write-off of the net carrying value of the intangible asset of $10.6 million and the final remeasurement of the CVR liability of $3.8 million to its fair value of zero and an increase of $5.6 million in professional service fees. These increases were partially offset by a $3.0 million decrease in employee and consultant costs and $1.8 million decrease in stock-based compensation due to a lower average headcount.

Excluding the potential impact of any acquisitions or business development transactions that have not been consummated, we expect our selling, general and administrative expense for 2024 to be lower than 2023 primarily as a result of the Sale Transaction, reduced headcount and decreased commercial costs.

Interest Expense

The increase in interest expense in the three months ended March 31, 2024 was primarily due to an increase in the interest rate and our debt modification on March 1, 2024 in connection with the Sale Transaction. Our 2027 Term Loans have a variable interest rate component that resets at the beginning of every quarter. The interest rate on the 2027 Term Loans increased from 13.03% in the first quarter of 2023 to 13.84% for the first quarter of 2024.

As a result of the April 1, 2024 prepayment of $175.0 million of the total principal balance of $250.0 million under the 2027 Term Loans following the Sale Transaction, we expect interest expense to decrease for 2024 compared to 2023.

Gain on Sale Transaction, net

The $153.6 million gain on Sale Transaction relates to the sale of our CIMERLI ophthalmology franchise through the sale of our subsidiary, Coherus Ophthalmology, to Sandoz on March 1, 2024, which includes the cash receipts of $187.8 million less assets transferred to Sandoz, assets derecognized, transaction costs of $7.2 million, and other related employee transition expenses.

Other Income (Expense), Net

Other income (expense), net in the three months ended March 31, 2024 changed favorably compared to the same period in the prior year primarily due to the unrealized gains from foreign exchange mainly from timing of our foreign currency payments.

Liquidity and Capital Resources

Certain relevant measures of our liquidity and capital resources are summarized as follows:

On April 1, 2024, $175.0 million of the cash and cash equivalents was used to repay $175.0 million of the total principal balance of $250.0 million of the 2027 Term Loans, as further described below.

In the three months ended March 31, 2024, we generated net income primarily due to the Sale Transaction. In addition, we were profitable in 2020 and 2019. Due to our research and development expenditures and decline in revenue beginning in 2021, we have generated significant operating losses in all other years since our inception, including in 2021 through 2023. We have funded our operations primarily through sales of our common stock, issuance and incurrence of convertible and term debt and sales of our products.

On January 19, 2024, we entered into the Purchase Agreement by and between us and Sandoz. Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, on March 1, 2024, we completed the Sale Transaction for our CIMERLI ophthalmology franchise through the sale of our subsidiary, Coherus Ophthalmology, to Sandoz for upfront, all-cash consideration of $170.0 million plus an additional $17.8 million for CIMERLI product inventory and prepaid manufacturing assets.

On February 5, 2024, we entered into the Consent and Amendment, that among other things: (1) provided consent to consummation of the transactions contemplated by the Purchase Agreement, and released certain of our subsidiary from our obligation and certain assets subject to the transactions contemplated thereby, (2) required us to make a partial prepayment of $175.0 million of the principal of the 2027 Term Loans outstanding upon consummation of the transactions contemplated by the Purchase Agreement, subject to certain conditions and (3) adjusted the minimum net sales covenant level under the 2027 Term Loans. Upon the closing of the Sale Transaction, we became obligated to repay $175.0 million of the total principal balance of $250.0 million of the loans outstanding as well as $6.8 million in prepayment premium and make-whole payments under the 2027 Term Loans, of which we paid on April 1, 2024.

On September 8, 2023, we obtained $28.8 million of cash, cash equivalents and marketable securities as part of the Surface Acquisition.

On May 16, 2023, we entered into the Underwriting Agreement with the Underwriters, pursuant to which we sold an aggregate of 11,764,706 Firm Shares to the Underwriters. Additionally, under the terms of the Underwriting Agreement, we granted the Underwriters an option, for 30 days from the date of the Underwriting Agreement, to purchase up to an additional 1,764,705 Option Shares, which the Underwriters elected to exercise in full. The price to the public in the Public Offering was $4.25 per share. The Underwriters agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $3.995 per share.

On May 18, 2023, we completed the sale and issuance of an aggregate of 13,529,411 Shares in the Public Offering, including the exercise in full of the Underwriters’ option to purchase the Option Shares. We received net

proceeds of approximately $53.6 million, after deducting the Underwriters’ discounts and commissions and offering expenses payable by us.

On November 8, 2022, we entered into the Sales Agreement related to the ATM Offering pursuant to which we may issue and sell from time to time up to $150.0 million of our common stock. On May 15, 2023, pursuant to an Amendment No. 1 to Sales Agreement and in connection with the Public Offering, we reduced the amount of shares that could be issued and sold pursuant to its ATM Offering with TD Cowen by $86.2 million, lowering the aggregate offering price under the Agreement from $150.0 million to $63.8 million. On September 11, 2023, pursuant to an Amendment No. 2 to Sales Agreement, we increased the amount of shares that could be issued and sold pursuant to its ATM Offering with TD Cowen by $28.7 million, increasing the aggregate offering price under the Sales Agreement from $63.8 million to $92.5 million. During the three months ended March 31, 2024, we sold 650,005 shares of common stock pursuant to the ATM Offering, at a weighted-average price per share of $2.44 for gross proceeds of $1.6 million and received net proceeds of $1.5 million, net of $0.1 million of commissions and fees. For the ATM Offering program to date as of March 31, 2024, we sold 5,126,650 shares of common stock at a weighted-average price per share of $5.39 for gross proceeds of $27.6 million and received net proceeds of $26.9 million, net of $0.7 million of commissions and fees. As of March 31, 2024, we had approximately $64.9 million of our common stock remaining available for sales under the ATM Offering. The ability to elect to sell shares of our common stock in the ATM Offering from time to time adds to our financial flexibility.

As of March 31, 2024, we had an accumulated deficit of $1.5 billion and cash and cash equivalents of $259.8 million. We believe that our available cash and cash equivalents, cash collected from product sales, ATM Offering and Public Offering proceeds received to date will be sufficient to fund our planned expenditures and meet our obligations for at least the twelve months following our financial statement issuance date.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional agreements with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated research and development activities, and on-going and future licensing and collaboration obligations. We may need to raise additional funds in the future; however, there can be no assurance that such efforts will be successful or that, if they are successful, the terms and conditions of such financing will be favorable. Our future funding requirements will depend on many factors, including the following:

For further discussion of risks related to our financial condition and capital requirements, please see “Risk Factors— Risks Related to Our Financial Condition and Capital Requirements.”

Financing arrangements

2027 Term Loans

As of March 31, 2024, the carrying amount of our $250.0 million aggregate principal 2027 Term Loans was $247.5 million. During the second quarter of 2024, we fully repaid and terminated all commitments under the 2027 Term Loans. Proceeds from the divestiture of our CIMERLI ophthalmology franchise received in March 2024 were used to pay down $175.0 million of outstanding principal, and we also paid the prepayment premium and make-whole amount of $6.8 million on April 1, 2024 to the Lenders pursuant to the Consent and Amendment dated February 5, 2024. On May 8, 2024, we repaid the remaining $75.0 million principal balance outstanding on the 2027 Term Loans and the prepayment premium and make-whole amount of $3.5 million to the Lenders in connection with the entry into the 2029 Loan Agreement.

2029 Term Loan

Concurrent with the payoff of the 2027 Term Loans, on May 8, 2024, we entered into the 2029 Term Loan providing for a secured loan facility in the principal amount of $38.7 million, with proceeds of $37.5 million after application of the original issue discount. The 2029 Term Loan will mature on May 8, 2029, accrues interest at a per annum rate equal to 8.00% per annum, plus a three-month SOFR rate and provides for interest-only payments on a quarterly basis until maturity.

The 2029 Term Loan is secured by a lien on substantially all of our assets, including intellectual property, subject to customary exclusions and exceptions. The 2029 Loan Agreement contains customary representations and warranties, covenants and events of default, including a financial covenant commencing on the 2029 Term Loan Effective Date, which requires us to maintain certain levels of cash and cash equivalents. The 2029 Loan Agreement also contains other customary provisions, such as expense reimbursement, as well as indemnification rights for the benefit of the Agent and the 2029 Lenders. For further details, see Note 13. Subsequent Events in the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Revenue Participation Right Purchase and Sale Agreement

On May 8, 2024, we entered into the Revenue Purchase and Sale Agreement. Under the terms of the Revenue Purchase and Sale Agreement, in exchange for the Purchaser’s payment to us of $37.5 million, we sold the right to receive the Revenue Payment with payments made each calendar quarter commencing on the effective date of the Revenue Purchase and Sale Agreement. The Purchaser’s right to receive the Revenue Payment terminates and we no longer have the obligation to pay the Purchaser Revenue Payments once the Purchaser receives the amount equal to 2.25 times the Purchase Price. We may also buy-out the Purchaser’s rights to receive the Revenue Payments by paying Purchaser such multiple on the Purchaser Price.

The Revenue Purchase and Sale Agreement contains various representations and warranties, including with respect to organization, authorization, and certain other matters, certain covenants with respect to payment, reporting, intellectual property, in-licenses, out-licenses, and certain other actions, indemnification obligations and other provisions customary for transactions of this nature.

2026 Convertible Notes

As of March 31, 2024, the carrying amount of our $230.0 million aggregate principal amount convertible senior subordinated notes due 2026 was $227.2 million. The 2026 Convertible Notes accrue interest at a rate of 1.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, and will mature on April 15, 2026, unless earlier repurchased or converted at the option of holders. Since inception, the conversion price has been 51.9224 shares of common stock per $1,000 principal amount of the 2026 Convertible Notes, which represents a conversion price of approximately $19.26 per share of common stock. The initial conversion price represents a premium of approximately 30.0% over the last reported sale of $14.82 per share of our common stock on the Nasdaq Global Market on April 14, 2020, the date the 2026 Convertible Notes were issued. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. The 2026 Convertible Notes are not redeemable at our election before maturity. If the 2026 Convertible Notes were converted on March 31, 2024, the holders of the 2026 Convertible Notes would have received common shares with an aggregate value of $28.5 million based on our closing stock price of $2.39.

In connection with the pricing of the 2026 Convertible Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers of the 2026 Convertible Notes and other financial institutions. Since inception, the cap price has been $25.93 per share, which represents a premium of approximately 75.0% over the last reported sale price of our common stock of $14.82 per share on April 14, 2020, and is subject to certain adjustments under the terms of the capped call transactions.

Contingent Milestones

We have obligations to make future payments to third parties that become due and payable upon the achievement of certain development, regulatory and commercial milestones (such as clinical trial achievements, the filing of a BLA, approval by the FDA or product launch). These milestone payments and other similar fees are contingent upon future events and therefore are only recorded when it becomes probable that a milestone will be achieved or other applicable criteria will be met. Because the achievement of these milestones had not reached the threshold for recognition as of March 31, 2024, such contingencies were not recorded in our financial statements.

The following presents a summary of our active partnerships and collaborations that have contingent regulatory and sales milestones as of March 31, 2024:

Contingent Value Rights

We have recorded a contingent consideration liability for the fair value of the potential payments under the CVR Agreement in connection with the Surface Acquisition. These potential payments during the 10-year period following September 8, 2023 are only due if wefirst receive milestone- or royalty-based payments under certain license agreements or upfront payments pursuant to ex-U.S. licensing agreements. Payments can be in the form of cash, stock

or a combination of cash and stock. The exclusive license of NZV930 to Novartis Institutes was terminated by Novartis Institutes with an effective date of October 2, 2024. As a result, we recognized a net impairment charge of $6.8 million in selling, general and administrative expenses in the condensed consolidated statements of operations relating to the write-off of the net carrying value of the Novartis Institutes out-license intangible asset of $10.6 million and the final remeasurement of the CVR liability of $3.8 million to its fair value of zero as of March 31, 2024. The remaining CVR liability associated with GSK and contingent consideration are recorded in other liabilities, non-current on the condensed consolidated balance sheets at March 31, 2024. For further details, see Note 6. Acquisition and Disposition in the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other Commitments

We enter into contracts in the normal course of business with CROs for preclinical research studies and clinical trials, research supplies and other services and products for operating purposes. We have also entered into agreements with several CMOs for the manufacture and clinical drug supply of our commercial and product candidates. Our non-cancelable purchase commitments as of March 31, 2024 were $64.0 million, as outlined in Note 9. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no significant changes to our leases during the three months ended March 31, 2024, as compared to the discussion in the 2023 Form 10-K.

Summary Statement of Cash Flows

The following table summarizes our cash flows for the periods presented**:**

Net cash used in operating activities

Cash used in operating activities of $46.8 million for the three months ended March 31, 2024 was primarily due to net income of $102.9 million adjusted for non-cash items including stock-based compensation expense of $7.3 million, impairment of out-license asset net of CVR liability remeasurement of $6.8 million, and other non-cash adjustments of $1.3 million, partially offset by the net gain on Sale Transaction of $153.6 million and the changes in our operating assets and liabilities of $11.4 million.

Cash used in operating activities of $68.7 million for the three months ended March 31, 2023 was primarily due to the net loss of $75.7 million adjusted for non-cash items including stock-based compensation expense of $12.3 million and other non-cash adjustments of $4.1 million, partially offset by the changes in our operating assets and liabilities of $9.4 million. Accounts receivable, net as of March 31, 2023 included invoices totaling $17.6 million with due dates falling after the first quarter of 2023 due to extended payment terms offered to certain customers primarily related to the launch of CIMERLI.

Net cash provided by investing activities

Cash provided by investing activities of $202.8 million for the three months ended March 31, 2024 was primarily due to cash proceeds of $187.8 million from the Sale Transaction, proceeds from sale of investments in marketable

securities of $8.7 million, and proceeds from maturities of investments in marketable securities of $6.2 million.

Cash provided by investing activities of $17.5 million for the three months ended March 31, 2023 was primarily due to proceeds from maturities of investments in marketable securities of $17.5 million.

Net cash provided by financing activities

Cash provided by financing activities of $0.9 million for the three months ended March 31, 2024 was primarily due to $1.5 million proceeds from the ATM Offering, net of issuance costs, partially offset by $0.7 million in tax payments related to net share settlement of RSUs.

Cash provided by financing activities of $3.8 million for the three months ended March 31, 2023 was primarily due to proceeds of $6.8 million from the ATM Offering, net of issuance costs, partially offset by $2.8 million in tax payments related to net share settlement of RSUs.

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated and expense incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2024, as compared to the critical accounting estimates described in our 2023 Form 10-K. We believe that the critical accounting estimates discussed in the 2023 Form 10-K are meaningful to understanding our historical and future performance, as these estimates relate to the more significant areas involving management’s judgments and assumptions.

Recent Accounting Pronouncements

For a description of the impact of recent accounting pronouncements, see Note 1. Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.