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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 June 30, 2022

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)

 

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

333 Twin Dolphin Drive, Suite 600

Redwood City, California 94065

(650) 649-3530

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

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).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 July 31, 2022, 77,724,589 shares of the registrant’s common stock were outstanding.

COHERUS BIOSCIENCES, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022

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

26

ITEM 3

Quantitative and Qualitative Disclosure About Market Risk

41

ITEM 4

Controls and Procedures

42

PART II

OTHER INFORMATION

43

ITEM 1.

Legal Proceedings

43

ITEM 1A.

Risk Factors

43

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

101

ITEM 3

Defaults Upon Senior Securities

101

ITEM 4

Mine Safety Disclosures

101

ITEM 5

Other Information

101

ITEM 6.

Exhibits

101

Exhibit Index

101

Signatures

103

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

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 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 in the United States;

our expectations regarding our ability to develop and commercialize toripalimab and 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;

whether we or our CIMERLI partner, Bioeq AG (“Bioeq”), can overcome import restrictions that could affect the timing of the launch of CIMERLI in the United States;

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 product candidates for us;

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

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, product 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 product candidates;

3

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

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

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

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 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.

4

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)

June 30, 

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

275,484

$

417,195

Trade receivables, net

 

115,711

 

123,022

Inventory

 

31,744

 

37,642

Prepaid manufacturing

 

7,176

 

13,666

Other prepaid and other assets

 

16,669

 

10,798

Total current assets

 

446,784

 

602,323

Property and equipment, net

 

9,553

 

7,813

Inventory, non-current

 

75,954

 

55,610

Goodwill and intangible assets

 

3,563

 

3,563

Other assets, non-current

 

10,149

 

10,025

Total assets

$

546,003

$

679,334

Liabilities and Stockholders’ Equity (Deficit)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

17,486

$

16,159

Accrued rebates, fees and reserves

 

64,547

 

79,027

Accrued compensation

 

16,928

 

22,014

Accrued and other current liabilities

 

41,793

 

48,127

Total current liabilities

 

140,754

 

165,327

Term loans

196,037

75,513

Convertible notes

224,928

332,767

Lease liabilities, non-current

 

6,811

 

7,251

Other liabilities, non-current

 

102

 

750

Total liabilities

 

568,632

 

581,608

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ equity (deficit):

 

  

 

  

Common stock ($0.0001 par value; shares authorized: 300,000,000; shares issued and outstanding: 77,702,749 and 76,930,096 at June 30, 2022 and December 31, 2021, respectively)

 

7

 

7

Additional paid-in capital

 

1,173,722

 

1,147,843

Accumulated other comprehensive loss

 

(270)

 

(270)

Accumulated deficit

 

(1,196,088)

 

(1,049,854)

Total stockholders' equity (deficit)

 

(22,629)

 

97,726

Total liabilities and stockholders’ equity (deficit)

$

546,003

$

679,334

See accompanying notes.

5

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Net revenue

$

60,151

$

87,643

$

120,266

$

170,677

Costs and expenses:

 

 

  

 

 

  

Cost of goods sold

 

11,277

 

16,696

 

20,647

 

24,207

Research and development

 

41,611

 

54,766

 

124,528

 

258,258

Selling, general and administrative

 

51,276

 

40,345

 

100,029

 

79,736

Total costs and expenses

 

104,164

 

111,807

 

245,204

 

362,201

Loss from operations

 

(44,013)

 

(24,164)

 

(124,938)

(191,524)

Interest expense

 

(6,580)

 

(5,747)

 

(15,549)

 

(11,395)

Loss on debt extinguishment

(6,222)

Other income, net

 

443

 

11

 

475

 

72

Loss before income taxes

 

(50,150)

 

(29,900)

 

(146,234)

 

(202,847)

Income tax provision

 

 

 

 

Net loss

$

(50,150)

$

(29,900)

$

(146,234)

$

(202,847)

 

  

 

  

 

  

 

  

Basic and diluted net loss per share

$

(0.65)

$

(0.40)

$

(1.89)

$

(2.73)

 

  

 

  

 

  

 

  

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

 

77,554,717

 

75,559,697

 

77,405,040

 

74,203,858

See accompanying notes.

6

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Net loss

$

(50,150)

$

(29,900)

$

(146,234)

$

(202,847)

Other comprehensive loss:

 

 

 

 

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

40

3

Foreign currency translation adjustments, net of tax

 

2

 

 

 

Comprehensive loss

$

(50,148)

$

(29,860)

$

(146,234)

$

(202,844)

See accompanying notes.

7

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 restricted stock units ("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 employee stock purchase plan ("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)

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at December 31, 2020

 

72,513,348

$

7

$

1,043,991

$

(270)

$

(762,754)

$

280,974

Net loss

 

 

 

 

 

(172,947)

 

(172,947)

Issuance of common stock upon exercise of stock options

 

451,883

 

 

4,429

 

 

 

4,429

Issuance of common stock upon vesting of RSUs

 

252,846

 

 

 

 

 

Taxes paid related to net share settlement of RSUs

(95,169)

(1,730)

(1,730)

Stock-based compensation expense

 

 

 

16,982

 

 

 

16,982

Other comprehensive loss, net of tax

 

 

 

 

(37)

 

 

(37)

Balances at March 31, 2021

 

73,122,908

7

1,063,672

(307)

(935,701)

127,671

Net loss

 

 

 

 

 

(29,900)

 

(29,900)

Issuance of common stock upon exercise of stock options

 

686,145

 

 

4,009

 

 

 

4,009

Issuance of common stock upon vesting of RSUs

 

9,334

 

 

 

 

 

Issuance of common stock to Shanghai Junshi Biosciences Ltd. ("Junshi Biosciences"), net of issuance costs

2,491,988

40,903

40,903

Issuance of common stock under the ESPP

 

154,325

 

 

1,985

 

 

 

1,985

Stock-based compensation expense

 

 

 

11,512

 

 

 

11,512

Other comprehensive gain, net of tax

 

 

40

40

Balances at June 30, 2021

 

76,464,700

$

7

$

1,122,081

$

(267)

$

(965,601)

$

156,220

See accompanying notes.

8

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended

June 30, 

    

2022

    

2021

Operating activities

 

 

  

Net loss

$

(146,234)

$

(202,847)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

Depreciation and amortization

 

1,654

 

1,726

Stock-based compensation expense

 

26,729

 

28,479

Write-off of prepaid manufacturing services related to the termination of CHS-2020

3,210

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

 

4,677

 

2,064

Upfront and option payments to Junshi Biosciences

 

35,000

 

136,000

Loss on debt extinguishment

6,222

Other non-cash adjustments, net

1,208

1,896

Changes in operating assets and liabilities:

 

 

Trade receivables, net

 

7,327

 

15,243

Inventory

 

(14,203)

 

(3,860)

Prepaid manufacturing

 

6,490

 

2,335

Other prepaid, current and non-current assets

 

(6,223)

 

(3,556)

Accounts payable

 

1,423

 

(773)

Accrued rebates, fees and reserves

 

(14,480)

 

2,229

Accrued compensation

 

(5,086)

 

(7,428)

Accrued and other current and non-current liabilities

 

(8,586)

 

26,461

Net cash (used in) provided by operating activities

 

(104,082)

 

1,179

Investing activities

 

  

 

  

Purchases of property and equipment

 

(1,495)

 

(560)

Purchases of investments in marketable securities

 

 

(140,330)

Proceeds from maturities of investments in marketable securities

 

 

15,000

Upfront and option payments to Junshi Biosciences

 

(35,000)

 

(136,000)

Net cash used in investing activities

 

(36,495)

 

(261,890)

Financing activities

 

  

 

  

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

191,190

Proceeds from issuance of common stock to Junshi Biosciences, net of issuance costs

 

40,903

Proceeds from issuance of common stock upon exercise of stock options

 

552

8,446

Proceeds from purchase under the employee stock purchase plan

 

1,655

1,985

Taxes paid related to net share settlement of RSUs

 

(3,300)

(1,730)

Repayment of 2022 Convertible Notes and premiums

(109,000)

Repayment of 2025 Term Loan, premiums and exit fees

(81,750)

Other financing activities

(481)

(313)

Net cash (used in) provided by financing activities

 

(1,134)

 

49,291

Net decrease in cash, cash equivalents and restricted cash

 

(141,711)

 

(211,420)

Cash, cash equivalents and restricted cash at beginning of period

 

417,635

 

541,598

Cash, cash equivalents and restricted cash at end of period

$

275,924

$

330,178

See accompanying notes.

9

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 develop and commercialize innovative cancer treatments 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) in December 2021, which the Company plans to launch in the United States on or after July 1, 2023, per the terms of an agreement with Humira manufacturer, AbbVie Inc. (“AbbVie”). On August 2, 2022, the FDA approved CIMERLI (ranibizumab-eqrn), a Lucentis biosimilar, and commercial launch is planned for October 2022 in the United States.

The Company’s product pipeline comprises the following four product candidates: toripalimab, an anti-PD-1 antibody being developed in collaboration with Junshi Biosciences; CHS-006, an antibody targeting TIGIT being developed in collaboration with Junshi Biosciences; and two wholly-owned preclinical immuno-oncology programs, CHS-1000, an antibody targeting ILT4, and CHS-3318, an antibody targeting CCR8. In May 2022, the Company discontinued development of its bevacizumab (Avastin) biosimilar product candidate from Innovent Biologics (Suzhou) Co., Ltd. (“Innovent”).

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, 2021 (the “2021 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

10

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 for the six months ended June 30, 2022 and 2021:

(in thousands)

At January 1,

At beginning of period:

    

2022

    

2021

Cash and cash equivalents

$

417,195

$

541,158

Restricted cash

440

440

Total cash, cash equivalents and restricted cash

$

417,635

$

541,598

At June 30,

At end of period:

2022

2021

Cash and cash equivalents

$

275,484

$

329,738

Restricted cash

 

440

 

440

Total cash, cash equivalents and restricted cash

$

275,924

$

330,178

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.

Investments in Marketable Securities

Investments in marketable securities primarily consist of corporate debt obligations and commercial paper. Management determines the appropriate classification of investments in marketable securities at the time of purchase based upon management’s intent with regards to such investment and reevaluates such designation as of each balance sheet date. The Company’s investment policy requires that it only invests in highly rated securities and limit its exposure to any single issuer. All investments in debt marketable securities are held as “available-for-sale” and are carried at the estimated fair value as determined based upon quoted market prices or pricing models for similar securities.

The Company classifies investments in marketable securities as short-term when they have remaining contractual maturities of one year or less from the balance sheet date. Unrealized gains and losses on available-for-sale 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 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 on available-for-sale securities are included in other income, net, based on the specific identification method.

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 June 30, 2022 and December 31, 2021.

11

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 recorded net revenue of $60.2 million and $120.3 million during the three and six months ended June 30, 2022, respectively, and $87.6 million and $170.7 million during the three and six months ended June 30, 2021, respectively.

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

    

Three Months Ended

Six Months Ended

 

June 30, 2022

 

June 30, 2021

June 30, 2022

 

June 30, 2021

 

McKesson Corporation

 

36

%

39

%

37

%

39

%

AmeriSource-Bergen Corporation

 

46

%

38

%

45

%

38

%

Cardinal Health, Inc.

 

17

%

22

%

17

%

21

%

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:

Six Months Ended June 30, 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

220,178

38,075

39,353

297,606

Prior period

(2,147)

(3,165)

(556)

(5,868)

Payments and customer credits issued

 

(216,130)

(44,816)

(44,402)

(305,348)

Balances at June 30, 2022

$

31,566

$

44,098

$

20,449

$

96,113

Six Months Ended June 30, 2021

    

Chargebacks

    

    

Other Fees,

    

and Discounts

Co-pay

for Prompt

Assistance

(in thousands)

Payment

Rebates

and Returns

Total

Balances at December 31, 2020

$

40,580

$

54,058

$

28,760

$

123,398

Provision related to sales made in:

Current period

 

237,745

61,190

50,039

348,974

Prior period

(2,850)

(1,890)

(2,818)

(7,558)

Payments and customer credits issued

 

(247,641)

 

(52,213)

 

(50,726)

 

(350,580)

Balances at June 30, 2021

$

27,834

$

61,145

$

25,255

$

114,234

12

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:

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.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash and cash equivalents, and restricted cash.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:

Fair Value Measurements

June 30, 2022

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial Assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents (money market funds)

$

275,484

$

$

$

275,484

Restricted cash (money market funds)

 

440

 

 

 

440

Total financial assets

$

275,924

$

$

$

275,924

    

Fair Value Measurements

December 31, 2021

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial Assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents (money market funds)

$

417,165

$

$

$

417,165

Restricted cash (money market funds)

 

440

 

 

 

440

Total financial assets

$

417,605

$

$

$

417,605

13

4.           Inventory

Inventory consisted of the following:

    

June 30, 

December 31, 

(in thousands)

2022

2021

Raw materials

$

7,685

$

4,870

Work in process

 

69,593

 

65,117

Finished goods

 

30,420

 

23,265

Total

$

107,698

$

93,252

The Company began capitalizing YUSIMRY inventory in the second quarter of 2022 and had $1.9 million of such inventory recognized on the balance sheet at June 30, 2022. 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 June 30, 2022 and December 31, 2021, the non-current portion of inventory consisted of raw materials, work in process and a portion of finished goods. The following tables presents the inventory balance sheet classifications:

    

June 30, 

December 31, 

(in thousands)

2022

2021

Inventory

$

31,744

$

37,642

Inventory, non-current

 

75,954

 

55,610

Total

$

107,698

$

93,252

Prepaid manufacturing of $7.2 million as of June 30, 2022 includes prepayments of $3.5 million to a contract manufacturing organization (“CMO”) for manufacturing services for UDENYCA, which the Company expects to be converted into inventory within the next twelve months; and prepayments of $3.7 million to various CMOs for research and development pipeline programs. Prepaid manufacturing of $13.7 million as of December 31, 2021 included prepayments of $8.3 million to a CMO for manufacturing services for UDENYCA; and prepayments of $5.4 million to various CMOs for research and development pipeline programs.

In February 2021, the Company announced the discontinuation of the development of CHS-2020, a biosimilar of Eylea® as part of a realignment of research and development resources toward other development programs. As a result, during the quarter ended March 31, 2021, the Company recognized $