What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-15 compared with 2023-03-06 · 547 added, 303 removed, 844 unchanged (50% of the section changed)

Quantitative and Qualitative Disclosures about Market Risk

As of December 31, 2022, we had cash and cash equivalents and marketable securities of $191.7 million, consisting of cash, investments in money market funds and investments in marketable securities.

A portion of our cash equivalents and investments in marketable securities may be subject to interest rate risk and could fall in value if market interest rates increase.

However, because our cash equivalents are primarily short-term in duration, we believe that our exposure to interest rate risk on these investments is not significant and a 1% movement in market interest rates would not have a material impact to our financial results.

We are exposed to market risk related to changes in interest rates.

As of December 31, 2023, we had cash and cash equivalents and marketable securities of $117.7 million, primarily invested in U.S.

treasuries and government agency securities, commercial paper, corporate bonds and money market funds.

Our primary exposure to market risk is interest rate sensitivity.

Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase.

Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we believe that our exposure to interest rate risk on these investments is not significant and a 1% movement in market interest rates would not have a material impact to our financial results.

We do not enter into investments for trading or speculative purposes.

8 unchanged sentences

We are exposed to interest rate risk with respect to variable rate debt.

As of December 31, 2022, we had $250.0 million principal outstanding on our 2027 Term Loans that accrue interest from inception through March 31, 2023 at 8.25% plus three-month LIBOR per annum with a LIBOR floor of 1.0%;

and, starting April 1, 2023, accrue interest at 8.25% plus the Adjusted Term SOFR, with a floor on Adjusted Term SOFR of 1.0%.

As of December 31, 2023, we had $250.0 million principal outstanding on our 2027 Term Loans that starting April 1, 2023, accrue interest at 8.25% plus the Adjusted Term SOFR, with a floor on Adjusted Term SOFR of 1.0%.

We currently do not hedge our variable interest rate debt.

The interest rate for our variable rate debt during the quarter ended December 31, 2022 was 12.00%, and the interest rate during the first quarter of 2023 will be 13.03% based on the 3-month LIBOR on January 1, 2023.

The interest rate for our variable rate debt during the quarter ended December 31, 2023 was 13.91%, and the interest rate during the first quarter of 2024 will be 13.84%.

A hypothetical 100 basis point increase in the interest rate on our variable rate debt could result in up to a $2.5 million increase in the annual interest expense as of December 31, 2023.

5 unchanged sentences

Substantially all of our sales are denominated in U.S.

We have exposure to the exchange rate between the U.S.

Dollar and the Euro because we make purchases of CIMERLI inventory from and pay royalties to our partner Bioeq that are denominated in Euros and we are therefore subject to fluctuations due to changes in foreign currency exchange rates.

We had exposure to the exchange rate between the U.S.

Dollar and the Euro because we made purchases of CIMERLI inventory from and paid royalties to our partner Bioeq that were denominated in Euros, and we were therefore subject to fluctuations due to changes in foreign currency exchange rates.

Accordingly, fluctuations in the exchange rate between the U.S.

Dollar and the Euro may impact our consolidated statements of operations.

Dollar and the Euro may have impacted our consolidated statements of operations.

In the first quarter of 2023, we started utilizing euro currency contracts to manage euro currency risk in purchasing inventory and future settlement of euro denominated assets and liabilities.

The volume of our foreign currency contract activity is limited by the amount of transaction exposure in each foreign currency and our election whether to hedge the transactions.

There are no derivative instruments entered into for speculative or trading purposes.

Since our derivatives all matured and settled by December 31, 2023, there were no derivative assets or derivative liabilities as of December 31, 2023.

Consolidated Financial Statements and Supplementary Data

6 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’ Equity (Deficit)

4 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Coherus BioSciences, Inc., (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Coherus BioSciences, Inc., (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

14 unchanged sentences

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments.

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimate of Reserves for Chargebacks and Rebates

………………………………………………………………………………

Description of the Matter

18 unchanged sentences

Auditing management's estimates for excess inventory involved subjective auditor judgment because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control.

In particular, the excess inventory calculations are sensitive to significant assumptions, including the expected demand for the Company’s product, the effect on demand of competitive products and the Company's purchase commitments.

In particular, the excess inventory calculations are sensitive to significant assumptions, including the expected demand for the Company’s products, the effect on demand of competitive products and the Company's purchase commitments.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory reserve process including management’s review of the significant assumptions described above and controls over the completeness and accuracy of the information used to develop the estimate.

Our substantive audit procedures included, among others, evaluating methodologies used and data utilized in the analysis for inventory expected to be at risk for expiration or excess.

We evaluated purchase commitments or alternative uses, compared forecasted demand to historical trends, compared actual inventory levels to forecasted demand requirements, and evaluated the sensitivity of sales forecast assumptions on the amount of inventory reserves recorded.

Our substantive audit procedures included, among others, evaluating methodologies used and data utilized in the analysis for inventory expected to be at risk for expiration or excess, or has a cost basis in excess of its expected net realizable value.

We evaluated purchase commitments or alternative uses, compared forecasted demand and expected net realizable value to historical trends, compared actual inventory levels to forecasted demand requirements and expected net realizable value, and evaluated the sensitivity of sales forecast assumptions on the amount of inventory reserves recorded.

Business Combination

Description of the Matter

During the year ended December 31, 2023, the Company completed its acquisition of Surface Oncology, Inc.

(“Surface”) for consideration of $64.6 million in net assets, as disclosed in Note 6 to the consolidated financial statements.

The transaction was accounted for as a business combination.

Auditing the Company’s accounting for its acquisition of Surface was complex due to the significant estimation required by management to determine the fair value of certain identified finite and indefinite-lived intangible assets, principally consisting of out-license intangible assets of $13.5 million and in-process research and development intangible assets of $26.2 million, respectively.

The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The significant assumptions used to estimate the fair value of these intangible assets included certain assumptions including estimated future cash flows from revenues of acquired assets, the timing and projection of costs and expenses and the related profit margins, and discount rates.

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the acquisition.

This included testing controls over the estimation process supporting the recognition and measurement of the out-license assets and in-process research and development, including the valuation models and underlying assumptions used to develop such estimates.

To test the estimated fair value of the in-process research and development and out-license assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, we compared the significant assumptions to current industry, market and economic trends and to the Company's forecasts.

We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates.

Our valuation specialists’ procedures included, among others, developing a range of independent estimates for the discount rates used in the valuation models and comparing those to the discount rates selected by management.

/s/ Ernst & Young LLP

14 unchanged sentences

Inventory, non-current

Goodwill and intangible assets

Intangible assets, net

Other assets, non-current

Liabilities and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Deficit

Current liabilities:

9 unchanged sentences

Commitments and contingencies (Note 9)

Stockholders’ equity (deficit):

Stockholders’ deficit:

Preferred stock ( $ 0.0001 par value;

shares authorized:

shares issued and outstanding :

0 at December 31, 2023 and 2022)

Common stock ( $ 0.0001 par value;

8 unchanged sentences

( 1,341,608 )

Total stockholders' equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Total stockholders' deficit

Total liabilities and stockholders’ deficit

See accompanying notes.

8 unchanged sentences

Total costs and expenses

(Loss) income from operations

Loss from operations

Interest expense

1 unchanged sentence

Other income (expense), net

(Loss) income before income taxes

Income tax provision

Net (loss) income

Net (loss) income per share:

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

Loss before income taxes

Income tax provision (benefit)

Basic and diluted net loss per share

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

See accompanying notes.

Coherus BioSciences, Inc.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

Net (loss) income

Other comprehensive (loss) income:

Other comprehensive income (loss):

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

Foreign currency translation adjustments, net of tax

Comprehensive (loss) income

Comprehensive loss

See accompanying notes.

7 unchanged sentences

Issuance of common stock upon exercise of stock options

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

Issuance of common stock upon vesting of RSUs

Issuance of common stock under the ESPP

Issuance of common stock upon 2019 bonus payout in RSUs

Taxes paid related to net share settlement of bonus payout in RSUs

Purchase of capped call options related to convertible notes due 2026

Issuance of common stock to Junshi Biosciences, net of issuance costs

Taxes paid related to net share settlement of RSUs

Stock-based compensation expense

Cumulative translation adjustment

Balances at December 31, 2021

( 1,049,854 )

Issuance of common stock upon exercise of stock options

1 unchanged sentence

Issuance of common stock under the ESPP

Issuance of common stock to Junshi Biosciences, net of issuance costs

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

Taxes paid related to net share settlement of RSUs

Stock-based compensation expense

Other comprehensive gain, net of tax

Balances at December 31, 2022

3 unchanged sentences

Issuance of common stock under the ESPP

Issuance of common stock in connection with Surface Acquisition:

Issuance to Surface shareholders for acquisition

Accelerated vesting of equity awards

Taxes paid related to net share settlement of equity awards

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

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

Issuance of common stock under Optional Stock Purchase Agreement

Taxes paid related to net share settlement of RSUs

3 unchanged sentences

( 1,579,500 )

(1) See Note 6 for further discussion.

See accompanying notes.

4 unchanged sentences

Operating activities

Net (loss) income

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

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

Depreciation and amortization

1 unchanged sentence

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

Inventory write-offs, net

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

Inventory write-downs, net

Non-cash amortization of premium (accretion of discount) on marketable securities, net

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

Non-cash operating lease expense

Upfront and option payments to Junshi Biosciences

Other upfront and milestone based license fee payments

Loss on debt extinguishment

8 unchanged sentences

Accrued and other current and non-current liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing activities

4 unchanged sentences

Proceeds from sale of investments in marketable securities

Cash and cash equivalents acquired from Surface Acquisition

Upfront and option payments to Junshi Biosciences

Other upfront and milestone based license fee payments

Net cash used in investing activities

Milestone based license fee payments

Net cash provided by (used in) investing activities

Financing activities

Proceeds from issuance of 2026 Convertible Notes, net of issuance costs

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

1 unchanged sentence

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

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

Proceeds from issuance of common stock upon exercise of stock options

Proceeds from purchase under the employee stock purchase plan

Purchase of capped call options related to 2026 Convertible Notes

Taxes paid related to net share settlement of RSUs

Taxes paid related to net share settlement

Repayment of 2022 Convertible Notes and premiums

2 unchanged sentences

Net cash provided by financing activities

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

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

Cash, cash equivalents and restricted cash at beginning of period

2 unchanged sentences

Cash paid for interest

Cash paid for income taxes

Supplemental disclosures of non-cash investing and financing activities

Purchase of property and equipment in accounts payable and accrued liabilities

Non-cash employee bonuses settled in common stock

Income taxes paid (refunded), net

See accompanying notes.

4 unchanged sentences

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 FDA-approved biosimilars.

The Company’s strategy is to build a leading immuno-oncology franchise funded with cash generated through net sales of its diversified portfolio of FDA-approved therapeutics.

(the “Company” or “Coherus”) is a commercial-stage biopharmaceutical company focused on the research, development and commercialization of its portfolio of FDA-approved oncology products, including LOQTORZI.

The Company’s strategy is to build a leading immuno-oncology business funded with cash generated from its diversified portfolio of FDA-approved therapeutics.

The Company’s headquarters and laboratories are located in Redwood City, California and in Camarillo, California, respectively.

The Company sells UDENYCA (pegfilgrastim-cbqv) , a biosimilar to Neulasta, a long-acting granulocyte-colony stimulating factor, in the United States.

The FDA approved YUSIMRY (adalimumab-aqvh), a biosimilar to Humira, in December 2021, which the Company plans to launch in the United States on or after July 1, 2023, pursuant to the terms of an agreement with Humira’s manufacturer, AbbVie.

On August 2, 2022, the FDA approved CIMERLI (ranibizumab-eqrn) , a biosimilar to Lucentis, and commercial launch commenced on October 3, 2022 in the United States.

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 LOQTORZI™ (toripalimab-tpzi) was approved by the FDA in combination with cisplatin and gemcitabine for the first-line treatment of adults with metastatic or recurrent locally advanced 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 a novel PD-1 inhibitor that the Company developed in collaboration with Junshi Biosciences.

The Company announced the launch of LOQTORZI in the U.S.

on January 2, 2024.

On January 19, 2024, the Company entered into the Purchase Agreement by and between the Company and Sandoz.

Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, on March 1, 2024, the Company completed the Sale Transaction for its CIMERLI ophthalmology franchise through the sale of its subsidiary, Coherus Ophthalmology LLC, 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.

Such consideration is subject to certain adjustments that will be finalized following the closing pursuant to the Purchase Agreement.

The Company’s product pipeline comprises the following three 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 one wholly-owned preclinical immuno-oncology program, CHS-1000, an antibody targeting ILT4.

In May 2022, the Company discontinued development of its bevacizumab (Avastin) biosimilar product candidate in-licensed from Innovent.

In October 2022, the Company discontinued development of its preclinical immuno-oncology program, CHS-3318, an antibody targeting CCR8.

On January 9, 2023, the Company announced that it entered into the Term Sheet with Klinge Biopharma for the exclusive commercialization rights to FYB203, a biosimilar candidate to Eylea® (aflibercept), in the United States.

The parties to the Term Sheet expect to execute the Definitive Agreements contemplated by the Term Sheet and complete the transaction in the first half of 2023.

CHS-1000, an antibody targeting ILT4;

casdozokitug (CHS-388, formerly SRF388), an antibody targeting IL-27;

and CHS-114 (formerly SRF114), a highly specific afucosylated 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 and GSK, respectively.

Basis of Consolidation

1 unchanged sentence

GAAP and include the accounts of Coherus and its wholly-owned subsidiaries.

The Company does not have any significant interests in variable interest entities.

The Company does not have any significant interest in variable interest entities.

All material intercompany transactions and balances have been eliminated upon consolidation.

4 unchanged sentences

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, such as the economic considerations related to the impact that COVID-19 outbreaks could have on the Company’s significant accounting estimates.

Accounting estimates and judgements are inherently uncertain, and the actual results could differ from these estimates.

17 unchanged sentences

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 in the consolidated balance sheets.

The Company classifies the up-front and milestone payments related to licensing arrangements as cash flows from investing activities in its consolidated statements of cash flows.

The Company classifies the up-front and milestone payments related to licensing arrangements as cash flows used in investing activities in its consolidated statements of cash flows.

Trade Receivables

Trade receivables are recorded net of allowances for chargebacks, chargeback prepayments, 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 and was not material during the periods presented.

The Company believes that its allowance for expected credit losses was adequate and immaterial as of December 31, 2023 and 2022.

Investments in Marketable Securities

Investments in marketable securities primarily consist of U.S.

Treasury securities, commercial paper, corporate debt obligations and short-term money market instruments.

Treasury securities, government agency securities, commercial paper, corporate bonds and market money funds.

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.

8 unchanged sentences

There were no impairments related to credit losses during any of the periods presented.

Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net, in the consolidated statements of operations based on the specific identification method.

Realized gains and losses, if any, on available-for-sale securities

are included in other income (expense), net, in the consolidated statements of operations based on the specific identification method.

During 2023, 2022 and 2021, interest income from marketable securities was $ 2.8 million, $ 1.9 million and $ 1.4 million, respectively, and is included in other income (expense), net, in the consolidated statements of operations.

Trade Receivables

Trade receivables are recorded net of allowances for chargebacks, chargeback prepayments, cash discounts for prompt payment and credit losses.

The corresponding expense for the credit loss allowance is reflected in selling, general and administrative expenses and was not material during the periods presented.

The Company believes that its allowance for expected credit losses was adequate and immaterial as of December 31, 2022 and 2021.

Concentrations of Risk

5 unchanged sentences

Substantially all of the Company’s revenues are in the United States to three wholesalers.

UDENYCA and CIMERLI were the only products sold by the Company during 2022.

UDENYCA was the only product sold and accounted for all of the Company’s revenues in 2021 and 2020.

During 2023, the products sold by the Company were UDENYCA, CIMERLI, YUSIMRY and LOQTORZI.

During 2022, UDENYCA and CIMERLI were the only products sold by the Company, and in 2021 UDENYCA accounted for all of the Company’s revenues.

The Company enters into a strategic commercial supply agreement for each of its products.

1 unchanged sentence

If any of the Company’s current vendors are not able to manufacture the supply needed in the quantities and timeframe required, the Company may not be able to supply the product in a timely manner.

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 consolidated balance sheets, and corresponding gains and losses are recognized in other income (expense), net in the consolidated statements of operations.

The estimated fair value of derivative financial instruments represents the amount required to enter into similar contracts with similar remaining maturities based on quoted market prices.

During the periods presented, the Company did not apply hedge accounting to these instruments.

There are no derivative instruments entered into for speculative or trading purposes.

Since the Company's foreign exchange derivatives all matured and settled by December 31, 2023, there were no derivative assets or derivative liabilities as of December 31, 2023.

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.

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 consolidated statements 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.

Surface Acquisition).

Foreign Currency

Assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates for monetary assets and liabilities.

Monetary assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates.

Non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates.

Translation gains and losses are included in accumulated other comprehensive loss in stockholders’ equity (deficit).

Translation gains and losses are included in

accumulated other comprehensive loss in stockholders’ equity (deficit).

Revenue and expense accounts are translated to U.S.

dollars at average exchange rates in effect during the period with resulting transaction gains and losses recognized in other income (expense), net in the consolidated statements of operations.

The Company has not had material foreign currency impacts for all years presented.

The Company has not experienced material foreign currency transaction gains and losses for any of the years presented.

Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method.

2 unchanged sentences

The determination of excess or obsolete inventory requires judgment including consideration of many factors, such as estimates of future product demand, current and future market conditions, product expiration information, and potential product obsolescence, among others.

During the third quarter of 2022, the Company recorded a $ 26.0 million write-down of inventory in cost of goods sold in the consolidated statements of operations due to the competitive environment and lower demand for UDENYCA resulting in certain inventory becoming at risk of expiration.

For 2022, this increased the net loss by $ 26.0 million and basic and diluted net loss per share by $ 0.33 .

Although the Company believes the assumptions used in estimating potential inventory write-downs are reasonable, if actual market conditions are less favorable than projected by management, write-downs of inventory, charges related to firm purchase commitments, or both may be required which would be recorded as cost of goods sold in the consolidated statement of operations.

During 2023 and 2022, the Company recorded $ 52.6 million and $ 26.0 million in inventory write-downs, respectively, within cost of goods sold in the consolidated statements of operations.

The 2023 charge was primarily for the write-down of slow moving YUSIMRY inventory and the related partial recognition of certain firm purchase commitments.

The 2022 charge was due to the competitive environment and lower demand for UDENYCA resulting in certain inventory becoming at risk of expiration.

Adverse developments affecting the Company’s assumptions of the level and timing of demand for its products include those that are outside of the Company’s control such as the actions taken by competitors and customers, the direct or indirect effects of the COVID-19 pandemic, and other factors.

Prior to the regulatory approval of product candidates, the Company incurred expenses for the manufacture of drug product that could potentially be available to support the commercial launch of the products.

Prior to the regulatory approval of product candidates, the Company incurs expenses for the manufacture of drug products that could potentially be available to support the commercial launch of the products.

I nventory costs are capitalized when future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment.

A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, viability of commercialization and marketplace trends.

Inventory in the consolidated balance sheets as of December 31, 2022 was related to UDENYCA, YUSIMRY and CIMERLI.

The Company began to capitalize inventory costs associated with UDENYCA and CIMERLI after receiving final regulatory approval in November 2018 and August 2022, respectively, and capitalization of YUSIMRY inventory costs began in the second quarter of 2022 when sales were deemed probable.

Inventory in the consolidated balance sheets as of December 31, 2023 was related to UDENYCA, YUSIMRY, CIMERLI and LOQTORZI.

The Company began to capitalize inventory costs associated with UDENYCA, CIMERLI and LOQTORZI after receiving final regulatory approval in November 2018, August 2022, and October 2023, respectively, and capitalization of YUSIMRY inventory costs began in the second quarter of 2022 when sales were deemed probable.

Property and Equipment

13 unchanged sentences

Goodwill is not amortized but is evaluated for impairment on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company’s single reporting unit below its carrying amount.

The Company’s goodwill balance was $ 0.9 million as of December 31, 2022 and 2021, and no goodwill impairment charges were recognized in 2022, 2021 or 2020.

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 make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization.

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.

The Company’s IPR&D balance was $ 2.6 million as of December 31, 2022 and 2021, and no IPR&D impairment charges were recognized in 2022, 2021 or 2020.

As of December 31, 2022, the Company had a $ 2.4 million definite-lived intangible asset, net related to a 2022 capitalized milestone payment under a license agreement.

This is amortized on a straight-line basis over its estimated economic life of ten years and is reviewed periodically for impairment.

Amortization expense is recorded as a component of cost of goods sold in the consolidated statements of operations and was immaterial in 2022.

Finite-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 and the amortization expense from out-licenses are recorded as a component of cost of goods sold in the consolidated statements of operations.

The estimated life for capitalized milestone payments is ten years , and the life for acquired out-licenses is fifteen years .

Impairment of Long-Lived Assets

2 unchanged sentences

If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.

There were no material impairments recorded during the years ended December 31, 2022, 2021 and 2020.

Accrued Research and Development Expense

2 unchanged sentences

The Company determines the actual costs through monitoring patient enrollment, discussions with internal personnel and external service providers regarding the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

Contingent Consideration

Contingent consideration relates to the potential payments to holders of the 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 consolidated statements of operations.

The assumptions utilized in the calculation of the fair values include probability of success and the discount rates.

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

The Company sells to wholesalers and distributors, (collectively, “Customers”).

6 unchanged sentences

Product Sales Discounts and Allowances

Revenue from product sales is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established and that result from chargebacks, rebates, co-pay assistance, prompt-payment discounts, returns and other allowances that are offered within contracts between the Company and its Customers, Healthcare Providers, payers and GPOs.

These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions in trade receivables (if the amounts are payable to a Customer) or current liabilities (if the amounts are payable to a party other than a Customer).

returns and other allowances that are offered within contracts between the Company and its Customers, Healthcare Providers, payers and GPOs.

These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions in trade receivables (if the amounts are payable to a Customer) or current and non-current liabilities (if the amounts are payable to a party other than a Customer).

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as historical experience, current contractual and statutory requirements, specifically known market events and trends, industry data and forecasted Customer buying and payment patterns.

19 unchanged sentences

Product Returns:

The Company offers its Customers a limited product return right, which is principally based upon whether the product is damaged or defective, or the product’s expiration date.

Product return allowance is estimated and recorded at the time of sale.

The Company offers its Customers limited product return rights, which are principally based upon whether the product is damaged or defective, or the product’s expiration date.

Other Allowances:

The Company pays fees to Customers and GPOs for account management, data management and other administrative services.

To the extent that the services received are distinct from the sale of products to the customer, these payments

are classified in selling, general and administrative expense in the Company’s consolidated statements of operations, otherwise they are included as a reduction in product revenue.

To the extent that the services received are distinct from the sale of products to the customer, these payments are classified in selling, general and administrative expense in the Company’s consolidated statements of operations, otherwise they are included as a reduction in product revenue.

Royalty Revenue

Royalty revenue from licensees, which is based on sales to third parties of licensed products, is recorded when the third-party sale occurs and the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Royalty revenue was insignificant for all periods presented and is included in net revenue.

Royalty revenue was immaterial for all periods presented and is included in net revenue.

Cost of Goods Sold

Cost of goods sold consists primarily of third-party manufacturing, distribution, and certain overhead costs.

Cost of goods sold consists primarily of third-party manufacturing, distribution, certain overhead costs, royalties on certain products, and charges for inventory write-downs.

Through March 31, 2021, a portion of the costs of producing UDENYCA sold was expensed as research and development before the FDA approval of UDENYCA and therefore is not reflected in cost of goods sold.

2 unchanged sentences

On May 2, 2019, the Company and Amgen settled a trade secret action brought by Amgen.

As a result, cost of goods sold reflects a mid-single digit royalty on net product revenue, which began on July 1, 2019.

As a result, cost of goods sold reflects a mid-single digit royalty on UDENYCA net product revenue, which began on July 1, 2019.

The royalty cost will continue for five years pursuant to the settlement.

Additionally, the Company shares a percentage of gross profits on sales of Bioeq Licensed Products in the United States with Bioeq in the low- to mid- fifty percent range.

In 2022, 2021 and 2020, cost of goods sold included inventory write-offs, net of $ 26.0 million, $ 5.1 million and $ 2.2 million, respectively.

The Company incurs royalties on net sales of LOQTORZI in the low- to mid- twenty percent range and on net sales of YUSIMRY in the mid-single digit range.

Pursuant to the Genentech Agreement, the Company incurred a royalty that was a low single-digit percentage of net sales of CIMERLI through the end of 2023.

In 2023, 2022 and 2021, cost of goods sold included inventory write-downs, net of $ 52.6 million, $ 26.0 million and $ 5.1 million, respectively.

Research and Development Expense

14 unchanged sentences

The Company has entered and may continue to enter into license agreements to access and utilize certain technology.

To determine whether the licensing transactions should be accounted for as a business combination or as an asset acquisition, the Company

makes certain judgments, which include assessing whether the acquired set of activities and assets would meet the definition of a business under the relevant accounting rules.

To determine whether the licensing transactions should be accounted for as a business combination or as an asset acquisition, the Company makes certain judgments, which include assessing whether the acquired set of activities and assets would meet the definition of a business under the relevant accounting rules.

If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an asset acquisition and therefore, any acquired IPR&D that does not have an alternative future use is charged to expense at the acquisition date.

8 unchanged sentences

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.

The Company utilizes the liability method of accounting for deferred income taxes.

16 unchanged sentences

The operating and finance lease right-of-use assets and the lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date.

The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company's leases generally do not provide an implicit rate.

Net (Loss) Income per Share

Basic net (loss) income per share is calculated by dividing the net (loss) income by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive common shares.

Diluted net income per share is

computed by dividing the net income by the weighted-average number of common shares outstanding for the period plus any potential dilutive common shares outstanding for the period determined using the treasury stock method for options, RSUs and ESPP and using the if-converted method for the convertible notes.

The Company uses its incremental borrowing rate based on the information available at the commencement date or the lease modification date, as applicable, in determining the lease liabilities as the Company's leases generally do not provide an implicit rate.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive common shares.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period, without consideration for any potential dilutive common share equivalents as their effect would be antidilutive (see Note 14.

Net (Loss) Income Per Share).

Comprehensive (Loss) Income

Comprehensive (loss) income is composed of two components:

net (loss) income and other comprehensive (loss) income.

Other comprehensive (loss) income refers to gains and losses that are recorded as an element of stockholders’ equity (deficit), but are excluded from net (loss) income.

The Company’s other comprehensive (loss) income includes unrealized gain (loss) on available-for-sale securities and foreign currency translation adjustments in 2022, 2021 and 2020.

Net Loss Per Share).

Comprehensive Loss

Comprehensive loss includes the following two components:

net loss and other comprehensive income (loss).

Other comprehensive income (loss) refers to gains and losses that are recorded as an element of stockholders’ equity (deficit), but are excluded from net loss.

The Company’s other comprehensive income (loss) includes unrealized gains on available-for-sale securities and foreign currency translation adjustments in 2023, 2022 and 2021.

Reclassifications

Certain prior year amounts in the consolidated balance sheets and consolidated statements of cash flows have been reclassified to conform with the current year presentation in 2022.

As a result, there was no change to total assets in the consolidated balance sheets or net cash (used in) provided by operating activities in the consolidated statements of cash flows for the prior years.

Certain amounts in prior years’ financial statements have been reclassified to conform with the current year presentation in 2023, including amounts in the consolidated statements of cash flows.

There were no changes to net cash used in operating activities in the consolidated statements of cash flows for the prior years as a result.

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 consolidated financial statements as a result of future adoption.

The Company initiated sales in the United States of CIMERLI on October 3, 2022.

The Company’s net revenue was as follows:

The following are recent accounting pronouncements that the Company has not yet adopted:

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures , which enhances the disclosures required for operating segments by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, among other expanded.

All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment.

The new standard is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted and the amendments in this update should be applied retrospectively to all periods presented.

The Company is currently evaluating the impact this ASU may have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid.

The new standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted.

The amendments in this ASU should be applied prospectively;

however, retrospective application is also permitted.

The Company is currently evaluating the impact this ASU may have on its financial statement disclosures.

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

The Company launched LOQTORZI and YUSIMRY in the United States in December and July 2023, respectively, and initiated sales of CIMERLI on October 3, 2022.

All net product revenue was generated in the United States, and the Company’s net revenue was as follows:

Year Ended December 31,

2 unchanged sentences

Total net revenue

Revenue by significant Customer was as follows:

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

Year Ended December 31,

McKesson Corporation

AmeriSource-Bergen Corporation

Cencora (previously known as AmeriSource-Bergen Corporation)

Cardinal Health, Inc.

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:

Year Ended December 31, 2022

Provisions that reduce net revenue include chargebacks and discounts for prompt payment, which are recorded as a reduction in trade receivables, and rebates, other fees, co-pay assistance and returns, which are recorded as current liabilities and other liabilities, non-current in the accompanying consolidated balance sheets.

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

and Discounts

3 unchanged sentences

Current period

Prior period - increase (decrease)

Payments and customer credits issued

Balances at December 31, 2021

Year Ended December 31, 2021

and Discounts

(in thousands)

Balances at December 31, 2020

Provision related to sales made in:

Current period

Prior period - increase (decrease)

Payments and customer credits issued

Balances at December 31, 2022

Year Ended December 31, 2020

Balances at December 31, 2019

Provision related to sales made in:

Current period

Prior period - increase (decrease)

Payments and customer credits issued

Balances at December 31, 2023

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

Fair Value Measurements

3 unchanged sentences

● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.

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

In connection with the Surface Acquisition on September 8, 2023 (see Note 6.

Surface Acquisition), the Company acquired money market funds and marketable securities and recorded a contingent consideration liability related to the CVRs.

At the end of each reporting period, the fair value of the CVR liability is determined using a financial model representing a Level 3 measurement within the fair value hierarchy.

Assumptions used in this calculation include estimated revenue, discount rate and various probability factors.

If different assumptions were used for the various inputs, the estimated fair value could be significantly higher or lower than the fair value the Company determined.

For example, increases in discount rates and the time to payment may result in lower fair value measurements.

There is no assurance that any of the conditions for payment of the CVR liability will be met.

As of December 31, 2023, the CVR liability was reduced by a fair value adjustment of $ 0.9 million which was recorded within selling, general and administrative expense in the

consolidated statements of operations.

The CVR liabilities were recorded in accrued and other current liabilities and other liabilities, non-current on the consolidated balance sheets.

Financial liabilities related to long-term debt obligations are summarized in Note 8.

Debt Obligations.

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

Fair Value Measurements

2 unchanged sentences

Financial Assets:

Money market funds

Cash equivalents (1)

Marketable debt securities:

2 unchanged sentences

Commercial paper and corporate notes

The financial assets at December 31, 2021 consisted of money market funds and were classified as Level 1.

Prepaid financial instrument in Prepaid manufacturing (2)

Financial Liabilities:

Contingent consideration

Fair Value Measurements

December 31, 2022

(in thousands)

Financial Assets:

Cash equivalents (1)

Marketable debt securities:

government agency securities

treasury securities

Commercial paper and corporate notes

(1) Cash equivalents consist of money market funds, U.S treasury securities, and commercial paper and corporate notes with original maturities of 90 days or less.

(2) Relates to Optional Stock Purchase Agreement.

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

7 unchanged sentences

Commercial paper and corporate notes

The Company held 13 positions that were in unrealized loss positions as of December 31, 2022, and aggregated gross unrealized losses on available-for-sale debt securities were not material.

No impairment was recognized in 2022.

Excluding restricted cash and as of December 31, 2022, the remaining contractual maturities of available-for-sale securities were less than one year , and the average maturity of investments upon acquisition was approximately 7 months .

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

There were no investments in marketable securities as of December 31, 2021;

thus, no unrealized gain (loss) was recognized as of December 31, 2021.

December 31, 2022

(in thousands)

Unrealized Gain

Unrealized (Loss)

Money market funds

government agency securities

treasury securities

Commercial paper and corporate notes

The Company held 9 and 13 positions that were in unrealized loss positions as of December 31, 2023 and 2022, respectively.

No impairment was recognized in 2023 or 2022.

As of December 31, 2023 and 2022, the remaining contractual maturities of available-for-sale securities were less than one year , and the average maturity of investments upon acquisition was approximately 9 and 7 months , respectively.

The accrued interest receivable on available-for-sale marketable securities was immaterial at December 31, 2023 and 2022.

Inventory consisted of the following:

3 unchanged sentences

Finished goods

The Company began capitalizing YUSIMRY inventory in the second quarter of 2022 and had $ 23.7 million of such inventory recognized in the consolidated balance sheets at December 31, 2022.

During 2023, the Company recorded a $ 47.0 million charge for the write-down of slow moving YUSIMRY inventory, inclusive of the related partial recognition of $ 20.5 million in certain firm purchase commitments in cost of goods sold in the consolidated statements of operations.

The Company has presented the partial recognition of these certain firm purchase commitments in the amounts of $ 11.5 million and $ 9.0 million in accrued and other current liabilities and other liabilities, non-current, respectively, in the consolidated balance sheets as of December 31, 2023.

Inventory expected to be sold more than twelve months from the balance sheet date is classified as inventory, non-current in the consolidated balance sheets.

3 unchanged sentences

Inventory, non-current

Prepaid manufacturing of $ 17.9 million as of December 31, 2022 includes prepayments of $ 13.0 million to CMOs for manufacturing services of the Company’s products, which the Company expects to be converted into inventory during 2023;

and prepayments of $ 4.9 million to various CMOs for research and development pipeline programs.

Prepaid manufacturing of $ 13.7 million as of December 31, 2021 includes prepayments of $ 8.3 million to a CMO for manufacturing services for UDENYCA;

and prepayments of $ 5.4 million to various CMOs for other research and development pipeline programs.

Prepaid manufacturing of $ 23.7 million as of December 31, 2023 includes prepayments of $ 12.6 million to CMOs for manufacturing services of the Company’s products, which the Company expects to be converted into inventory during 2024, and prepayments of $ 11.1 million to various CMOs for research and development pipeline programs .

Prepaid manufacturing of $ 17.9 million

as of December 31, 2022 included prepayments of $ 13.0 million to CMOs for manufacturing services of the Company’s products and prepayments of $ 4.9 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, the Company recognized $ 11.2 million within research and development expense in the consolidated statement of operations in 2021, which included an impairment charge of $ 3.2 million for the write-off of prepaid manufacturing services no longer deemed to have future benefits.

As a result, the Company recognized $ 11.2 million within research and development expense in the consolidated statements of operations in 2021, which included an impairment charge of $ 3.2 million for the write-off of prepaid manufacturing services no longer deemed to have future benefits.

No material expense relating to the discontinuation of CHS-2020 was recognized after March 31, 2021.

15 unchanged sentences

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

Intangible Assets, Net

Goodwill and intangible assets, net consisted of the following:

(in thousands)

Finite-lived assets, net of accumulated amortization of $ 639 and $ 61 , respectively

Indefinite-lived assets - IPR&D

Total Intangible assets, net

Amortization expense related to finite-lived intangible assets was immaterial in all periods presented.

As of December 31, 2023, amortization expense related to finite-lived assets for each of the five succeeding fiscal years will be approximately $ 3.8 million.

The weighted average remaining life of the finite-lived assets is 11.4 years on December 31, 2023.

No impairment charges were recognized for goodwill or intangible assets during 2023, 2022 or 2021.

During 2023, the Company’s intangible assets increased due to assets acquired in the Surface Acquisition (see Note 6.

Surface Acquisition) and capitalized milestone payments, including $ 25.0 million to Junshi Biosciences (see Note 7.

Collaborations and Other Arrangements).

Accrued and Other Current Liabilities

2 unchanged sentences

Accrued commercial and research and development manufacturing

Accrued co-development costs payable to Junshi Biosciences

Lease liabilities, current

Accrued co-development costs and milestone payments

Accrued royalties

Accrued other

Lease liabilities, current

Contingent consideration, current

Total Accrued and other current liabilities

Other Liabilities, Non-current

Other liabilities, non-current consisted of the following:

(in thousands)

Contingent consideration, non-current

Deferred tax liability

Total Other liabilities, non-current

Surface Acquisition

On September 8, 2023, in accordance with Merger Agreement by the Merger Subs, and Surface, the Company completed the Surface Acquisition.

Surface is a clinical-stage immuno-oncology company focused on using its specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment for the development of next-generation cancer therapies.

The Surface Acquisition expanded the Company’s immune-oncology pipeline with the following:

casdozokitug (CHS-388, formerly SRF388), an investigational, novel IL-27-targeted antibody currently being evaluated in a Phase 2 clinical trial in HCC, and CHS-114 (formerly SRF114), an investigational, CCR8-targeted antibody currently in a Phase 1/2 study as a monotherapy in patients with advanced solid tumors.

On the Acquisition Date, and in accordance with the Merger Agreement, the Company issued to the holders of all outstanding Surface common stock (other than treasury shares, any shares of Surface common stock held directly by the Company or the Merger Subs immediately prior to the Acquisition Date and shares of Surface common stock issued and outstanding immediately prior to the Acquisition Date and held by any holder properly demanding appraisal for such shares in accordance with Section 262 of the Delaware General Corporation Law) 0.1960 shares of Coherus common stock in exchange for each share of outstanding Surface common stock and certain outstanding Surface employee equity awards.

The exchange ratio was calculated pursuant to the terms of the Merger Agreement and was based on a $ 5.2831 per share price of Coherus common stock and a nominal total amount of cash in lieu of fractional shares.

Surface shareholders also received one CVR for each share of Surface common stock and employee equity award converted.

Each CVR entitles the holder to receive quarterly contingent payments in the form of cash, stock or a combination of cash and stock at the Company’s discretion during the ten-year period following September 8, 2023, for the sum of the following, less any permitted deductions in accordance with the CVR Agreement:

● 70 % of all milestone- and royalty-based payments actually received by the Company or its affiliates under the GSK Agreement related to the existing program (GSK4381562);

● 70 % of all milestone- and royalty-based payments actually received by the Company or its affiliates under the Novartis Agreement related to the existing program (NZV930);

● 25 % of any upfront payment actually received by the Company or its affiliates pursuant to potential ex-U.S.

licensing agreements for CHS-114;

● 50 % of any upfront payment actually received by the Company or its affiliates pursuant to potential ex-U.S.

licensing agreements for casdozokitug.

The Company has recorded a contingent consideration liability for the fair value of the potential payments under the CVR Agreement described above.

The Company is unable to estimate a range of outcomes for potential royalty and milestone payments for CHS-114 and casdozokitug.

The total consideration paid for the Surface Acquisition of $ 64.6 million consisted of the following:

(in thousands, except share and per share amounts)

As of Acquisition Date

Coherus common stock issued

Coherus common stock share price

Fair value of components of purchase price consideration at closing:

Equity of combined company owned by Surface equity holders

Contingent CVR liability

Equity of combined company owned by Surface former employees (1)

Fair value of total purchase consideration

(1) Represents 161,100 shares of Coherus common stock, net of shares withheld for taxes, issued to Surface’s former employees on the Acquisition Date.

The Company has accounted for the Surface Acquisition as a business combination which requires, among other things, that the assets acquired and liabilities assumed generally be recognized at their fair value on the Acquisition Date.

Fair value estimates are based on management’s 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.

The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.

The purchase price allocation for the Surface Acquisition is preliminary and subject to revisions as additional information about fair value of assets and liabilities becomes available.

This is primarily related to the Company’s deferred tax liabilities assumed in connection with the Surface Acquisition, as the 2023 short period tax returns have not yet been filed.

The following table below sets forth the purchase price allocation to the estimated fair value of the net assets acquired:

(in thousands)

Amounts Recognized at Acquisition Date

Assets Acquired

Cash and cash equivalents

Investments in marketable securities

Other prepaids and other assets

In-process research and development

Liabilities Assumed

Accrued and other current liabilities

Deferred tax liability

Total liabilities

Total net assets acquired

The Company believes that, even after reassessing its identification of all assets acquired and liabilities assumed, it was able to acquire Surface for a price that was completely allocable to identifiable assets acquired and liabilities assumed with no residual attributable to goodwill primarily due to Surface’s need to raise additional capital to finance its operations, the challenging biotech funding environment at the time the transaction was initially announced, and the value of the acquired net assets.

The amount allocated to identifiable intangible assets has been attributed to the following assets:

(in thousands)

Fair Value at Acquisition Date

In-process research and development - casdozokitug

In-process research and development - CHS-114

Out-license - GSK

Out-license - Novartis Institutes

Total identifiable intangible assets

Surface had two out-licensed partnership programs, with Novartis Institutes (NZV930) and GSK (GSK4381562), to advance certain next-generation cancer therapies.

The out-license intangible assets represent potential milestone and royalty-based payments to be received in the future.

Surface shareholders received CVRs for certain percentages of these milestone and royalty-based payments on existing programs with Novartis Institutes (NZV930) and GSK (GSK4381562), as further explained above.

Following the Acquisition Date, the operating results of Surface have been included in the consolidated financial statements.

For the period September 8, 2023 through December 31, 2023, there was no revenue attributable to Surface and operating losses attributable to Surface for such period were $ 5.9 million, excluding acquisition-related costs.

Unaudited Pro Forma Summary of Operations

The following table shows the unaudited pro forma summary of operations for the years ended December 31, 2023 and 2022, as if the Surface Acquisition had occurred on January 1, 2022.

This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of January 1, 2022, and it is not indicative of what such results would be expected for any future period:

Year Ended December 31,

(in thousands)

Total revenues

The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and Surface.

In order to reflect the Surface Acquisition as if it had occurred on January 1, 2022, the summary pro forma financial information includes adjustments to reflect Surface’s severance expense, the early termination and related amortization expense of Surface’s corporate headquarters operating lease, the loss on debt extinguishment and historical interest expense related to the cash settlement of Surface’s convertible note as if it had occurred on January 1, 2022, and amortization expense on the acquired finite-lived intangible assets.

The unaudited pro forma summary of operations does not reflect the income tax effects, if any, of the pro forma adjustments, given the combined entity incurred significant losses during the historical periods presented.

Acquisition-related costs of $ 5.1 million were recorded in selling, general and administrative expense in the consolidated statements of operations during the year ended December 31, 2023.

Collaborations and Other Arrangements

In-Licensing Agreements

Junshi Biosciences

On February 1, 2021, the Company entered into the Collaboration Agreement with Junshi Biosciences for the co-development and commercialization of toripalimab, Junshi Biosciences’ anti-PD-1 antibody, in the United States and Canada.

Under the terms of the Collaboration Agreement, the Company paid $ 150.0 million upfront for exclusive rights to toripalimab in the United States and Canada, an option in these territories to Junshi Biosciences’ anti-TIGIT antibody CHS-006, an option in these territories to a next-generation engineered IL-2 cytokine, and certain negotiation rights to two undisclosed preclinical immuno-oncology drug candidates.

The Company will have the right to conduct all commercial activities of toripalimab in the United States and Canada.

The Company will be obligated to pay Junshi Biosciences a 20 % royalty on net sales of toripalimab and up to an aggregate $ 380.0 million in one-time payments for the achievement of various regulatory and sales milestones.

On February 1, 2021, the Company entered into the Collaboration Agreement with Junshi Biosciences for the co-development and commercialization of LOQTORZI, Junshi Biosciences’ anti-PD-1 antibody, in the United States and Canada.

Under the terms of the Collaboration Agreement, the Company paid $ 150.0 million upfront for exclusive rights to LOQTORZI in the United States and Canada, an option in these territories to Junshi Biosciences’ anti-TIGIT antibody CHS-006, an option in these territories to a next-generation engineered IL-2 cytokine, and certain negotiation rights to two undisclosed preclinical immuno-oncology drug candidates.

The Company will have the right to conduct all commercial activities of LOQTORZI in the United States and Canada.

Company will be obligated to pay Junshi Biosciences up to a 20 % royalty on net sales of LOQTORZI and up to an aggregate $ 380.0 million in one-time payments for the achievement of various regulatory and sales milestones.

In March 2022, the Company paid $ 35.0 million for the exercise of its option to license CHS-006.

Junshi Biosciences and the Company are jointly developing CHS-006 with each party responsible for the associated development costs as set forth in the Collaboration Agreement.

If the Company exercises its remaining option for the IL-2 cytokine, it will be obligated to pay an additional option exercise fee of $ 35.0 million.

Additionally, for each exercised option, the Company will be obligated to pay Junshi Biosciences an 18 % royalty on net sales, up to $ 85.0 million for the achievement of certain regulatory approvals, and up to $ 170.0 million for the attainment of certain sales thresholds.

Under the Collaboration Agreement, the Company retains the right to collaborate in the development of toripalimab and the other licensed compounds, including CHS-006, and will pay for a portion of these co-development activities up to a maximum of $ 25.0 million per licensed compound per year.

Additionally, the Company is responsible for certain associated regulatory and technology transfer costs for toripalimab and other licensed compounds and will reimburse Junshi Biosciences for such costs.

Junshi Biosciences and the Company were jointly developing CHS-006 with each party responsible for the associated development costs as set forth in the Collaboration Agreement, however on January 10, 2024, the Company announced that it had delivered a notice of termination of the TIGIT Program (as defined in the Collaboration Agreement) to Junshi Biosciences pursuant to the Collaboration Agreement.

The Company plans to continue to wind down work with Junshi Biosciences on the TIGIT Program pursuant to the termination.

If the Company exercises its remaining option for the IL-2 cytokine, it will be obligated to pay Junshi Biosciences an additional option exercise fee of $ 35.0 million and an 18 % royalty on net sales, up to $ 85.0 million for the achievement of certain regulatory approvals, and up to $ 170.0 million for the attainment of certain sales thresholds.

Under the Collaboration Agreement, the Company retains the right to collaborate in the development of LOQTORZI and the other licensed compounds and will pay for a portion of these co-development activities up to a maximum of $ 25.0 million per licensed compound per year.

Additionally, the Company is responsible for certain associated regulatory and technology transfer costs for LOQTORZI and other licensed compounds and will reimburse Junshi Biosciences for such costs.

The licensing transaction and the exercise of the option were accounted for as asset acquisitions under the relevant accounting rules.

Research and development expenses recognized for obligations to Junshi Biosciences were $ 68.5 million in 2022, inclusive of the $ 35.0 million option fee, $ 175.4 million in 2021, and $ 5.0 million in 2020 representing the right of first negotiation fee which was fully credited against the total upfront license fee obligation under the Collaboration Agreement.

The first quarter of 2021 included $ 145.0 million for the upfront payment for the exclusive rights to toripalimab and the second quarter of 2021 included a credit of $ 9.0 million for the DLOM, discussed below.

Accrued and other current liabilities in the consolidated balance sheets as of December 31, 2022 and 2021 included $ 8.4 million and $ 1.9 million, respectively, related to the co-development, regulatory and technology transfer costs related to these programs.

A $ 25.0 million milestone payment will be due upon the regulatory approval of toripalimab.

Junshi Biosciences and the Company have not received an action letter from the FDA regarding the BLA for toripalimab in combination with chemotherapy as treatment for recurrent or metastatic nasopharyngeal carcinoma by the Prescription Drug User Fee Action date of December 23, 2022.

The FDA previously communicated that on-site inspections, including Junshi Biosciences’ manufacturing facility for toripalimab, are required before the FDA can approve the original BLA;

however, they were unable to conduct the inspection by December 23, 2022 due to the impact of COVID-19 related restrictions on travel in China.

The BLA for toripalimab remains under review, and Junshi Biosciences and the Company are engaged in ongoing discussions with the FDA about the pre-approval inspection plans.

The Company plans to launch toripalimab in the United States in the third quarter of 2023, if approved by July 1, 2023.

As of December 31, 2022, the Company did not have any outstanding milestone or royalty payment obligations to Junshi Biosciences.

The additional milestone payments, option fee for the IL-2 cytokine and

royalties are contingent upon future events and, therefore, will be recorded if and when it becomes probable that a milestone will be achieved, or when an option fee or royalties are incurred.

In connection with the Collaboration Agreement, the Company entered into the Stock Purchase Agreement with Junshi Biosciences agreeing, subject to customary conditions, to acquire certain equity interests in the Company.

Research and development expenses recognized for obligations to Junshi Biosciences were $ 8.0 million, $ 68.5 million (inclusive of the $ 35.0 million option fee) and $ 175.4 million (inclusive of the upfront fee) in 2023, 2022, and 2021 respectively.

In the consolidated balance sheets as of December 31, 2023 and 2022, the Company classified $ 26.3 million and $ 8.4 million, respectively, in accrued and other current liabilities and $ 6.3 million and $ 0 in accounts payable, respectively, related to the co-development, regulatory and technology transfer costs related to these programs.

On October 27, 2023, LOQTORZI was approved by the FDA in combination with cisplatin and gemcitabine for the first-line treatment of adults with metastatic or recurrent locally advanced NPC, and as monotherapy for the treatment of adults with recurrent, unresectable, or metastatic NPC with disease progression on or after platinum-containing chemotherapy.

As of December 31, 2023, the Company has accrued a $ 25.0 million milestone payment to Junshi Biosciences, of which it expects to pay $ 12.5 million in the second quarter of 2024 and $ 12.5 million in the first quarter of 2025.

This amount is a non-cash transaction which the Company has recognized in intangible assets, net and accrued and other current liabilities as of December 31, 2023 .

The accrued royalty obligation to Junshi Biosciences is immaterial as of December 31, 2023.

The additional milestone payments, option fee for the IL-2 cytokine and royalties are contingent upon future events and, therefore, will be recorded if and when it becomes probable that a milestone will be achieved, or when an option fee or royalties are incurred.

In connection with the Collaboration Agreement, the Company entered into a stock purchase agreement dated February 1, 2021 (the “Stock Purchase Agreement”) with Junshi Biosciences agreeing, subject to customary conditions, to acquire certain equity interests in the Company.

Pursuant to the Stock Purchase Agreement, on April 16, 2021, the Company issued 2,491,988 unregistered shares of its common stock to Junshi Biosciences, at a price per share of $ 20.06 , for an aggregate amount of approximately $ 50.0 million in cash.

Under the terms of the Stock Purchase Agreement, Junshi Biosciences is not permitted to sell, transfer, make any short sale of, or grant any option for the sale of the common stock for the two-year period following its effective date.

Under the terms of the Stock Purchase Agreement, Junshi Biosciences was not permitted to sell, transfer, make any short sale of, or grant any option for the sale of the common stock for the two-year period following its effective date.

The Collaboration Agreement and the Stock Purchase Agreement were negotiated concurrently and were therefore evaluated as a single agreement.

The Company used the “Finnerty” and “Asian put” valuation models and determined the fair value for the discount for lack of marketability was $ 9.0 million at the date the shares were issued.

The fair value of the DLOM was attributable to the Collaboration Agreement and was included as an offset against the research and development expense in the consolidated statement of operations for the year ended December 31, 2021.

Innovent Biologics (Suzhou) Co., Ltd.

On January 13, 2020, the Company entered into a license agreement with Innovent for the development and commercialization of the bevacizumab Licensed Product in the United States and Canada.

Under the Innovent Agreement, the Company paid Innovent $ 5.0 million upfront and committed to pay an aggregate of up to $ 40.0 million in milestone payments in connection with the achievement of certain development, regulatory and sales milestones with respect to the bevacizumab Licensed Product.

The Company accounted for the licensing transaction as an asset acquisition under the relevant accounting rules.

The Company recorded research and development expense of $ 7.5 million during the year ended December 31, 2020 related to the upfront payment and a milestone payment for the bevacizumab Licensed Product.

During the year ended December 31, 2021, the Company recognized research and development expense of $ 1.1 million related to bevacizumab Licensed Product development activities directly with Innovent, and during 2022 this research and development expense was immaterial.

As of December 31, 2022, the Company did not have any outstanding milestone or royalty payment obligations to Innovent.

On May 3, 2022, the Company provided notice of termination of the Innovent Agreement to Innovent because regulatory approval of the licensed product could not be reasonably obtained within the agreed time period.

In connection therewith, the Company has discontinued development of the bevacizumab Licensed Product.

The Company used the “Finnerty” and “Asian put” valuation models and determined the fair value for the discount for lack of marketability (“DLOM”) was $ 9.0 million at the date the shares were issued.

The fair value of the DLOM was attributable to the Collaboration Agreement and was included as an offset against the research and development expense in the consolidated statements of operations for the year ended December 31, 2021.

On November 4, 2019, the Company entered into the Bioeq Agreement with Bioeq for the commercialization of a biosimilar version of ranibizumab (Lucentis) in certain dosage forms in both a vial and pre-filled syringe presentation.

3 unchanged sentences

Bioeq will manufacture and supply the Bioeq Licensed Products to the Company in accordance with terms and conditions specified in the Bioeq Agreement and the Bioeq Manufacturing Agreement and will remain in force until the first to occur of the following:

(1) the termination of the Bioeq Agreement;

termination of the Bioeq Agreement;

(2) the exercise of a right to termination by the Company or Bioeq for a material breach of the other party that is not cured in accordance with the Bioeq Manufacturing Agreement;

and (3) the exercise of a right to termination by Bioeq if invoices are not paid in full in accordance with the Bioeq Manufacturing Agreement.

Under the agreement, Bioeq must use commercially reasonable efforts to develop and obtain regulatory approval of the Bioeq Licensed Products in the United States in accordance with a development and manufacturing plan, and the Company must use commercially reasonable efforts to commercialize the Bioeq Licensed Products in accordance with a commercialization plan.

Additionally, the Company must commit certain pre-launch and post-launch resources to the commercialization of the Bioeq Licensed Products for a limited time as specified in the agreement.

Under the agreement, Bioeq was required to use commercially reasonable efforts to develop and obtain regulatory approval of the Bioeq Licensed Products in the United States in accordance with a development and manufacturing plan, and the Company was required to use commercially reasonable efforts to commercialize the Bioeq Licensed Products in accordance with a commercialization plan.

Additionally, the Company was required to commit certain pre-launch and post-launch resources to the commercialization of the Bioeq Licensed Products for a limited time as specified in the agreement.

The Company accounted for the licensing transaction as an asset acquisition under the relevant accounting rules.

The Company paid Bioeq an upfront and a milestone payment aggregating to € 10 million ($ 11.1 million), which was recorded as research and development expense in the Company’s consolidated statement of operations in 2019.

The terms of the Bioeq Agreement include an aggregate of up to € 12.5 million in additional milestone payments in connection with the achievement of certain development and regulatory milestones with respect to the Bioeq Licensed Products in the United States including a € 2.5 million milestone related to the FDA approval of the CIMERLI Section 351(k) BLA that was paid in 2022.

This was recorded as an intangible asset and is being amortized over ten years .

The Company shares a percentage of gross profits on sales of Bioeq Licensed Products in the United States with Bioeq in the low- to mid- fifty percent range.

Royalties due to Bioeq were $ 2.9 million as of December 31, 2022.

Royalties due to Bioeq were $ 38.4 million and $ 2.9 million as of December 31, 2023 and 2022, respectively.

The remaining milestone payments are contingent upon future events and, therefore, will be recorded when it becomes probable that a milestone will be achieved.

Adimab Development and Option Agreement

In October 2018, Surface and Adimab entered into the A&R Adimab Agreement, which amended and restated the Original Adimab Agreement, for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates.

Under the A&R Adimab Agreement, the Company will select biological targets against which Adimab will use its proprietary platform technology to research and develop antibody proteins using a mutually agreed upon research plan.

The A&R Adimab Agreement, among other things, extended the discovery term of the Original Adimab Agreement, provided access to additional antibodies, and expanded the Company’s right to evaluate and use antibodies that were modified or derived using Adimab technology for diagnostic purposes.

Upon the Company’s selection of a target, the Company and Adimab will initiate a research plan and the discovery term begins.

During the discovery term, Adimab will grant the Company a non-exclusive, non-sublicensable license under its technology with respect to the target, to research, design and preclinically develop and use antibodies that were modified or derived using Adimab technology, solely to evaluate such antibodies, perform the Company’s responsibilities under the research plan, and use such antibodies for certain diagnostic purposes.

The Company also will grant to Adimab a non-exclusive, nontransferable license with respect to the target under the Company’s technology that covers or relates to such target, solely to perform its responsibilities under the research plan during the discovery period.

The Company is required to pay Adimab at an agreed upon rate for its full-time employees during the discovery period while Adimab performs research on each target under the applicable research plan.

Adimab granted the Company the Research Option.

In addition, Adimab granted the Company the Commercialization Option.

Upon the exercise of a Commercialization Option, and payment of the applicable option fee to Adimab, Adimab will assign the Company the patents that cover the antibodies selected by such Commercialization Option.

The Company will be required to use commercially reasonable efforts to develop, seek market approval of, and commercialize at least one antibody against the target covered by the Commercialization Option in specified markets upon the exercise of a Commercialization Option.

Under the A&R Adimab Agreement, the Company is obligated to make milestone payments and to pay specified fees upon the exercise of the Research Option or Commercialization Option.

During the discovery term, the Company may be obligated to pay Adimab up to $ 0.3 million for technical milestones achieved against each biological target.

Upon exercise of a Research Option, the Company is obligated to pay a nominal research maintenance fee on each of the next four anniversaries of the exercise.

Upon the exercise of each Commercialization Option, the Company will be required to pay an option exercise fee of a low seven-digit dollar amount, and the Company may be responsible for milestone payments of up to an aggregate of $ 13.0 million for each licensed product that receives marketing approval.

For any licensed product that is commercialized, the Company is obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product.

The Company may also partially exercise a Commercialization Option with respect to ten antibodies against a biological target by paying 65 % of the option fee and later either (i) paying the balance and choosing additional antibodies for commercialization, up to the maximum number under the Commercialization Option, or (ii) foregoing the Commercialization Option entirely.

For any Adimab diagnostic product that is used with or in connection with any compound or product other than a licensed antibody or licensed product, the Company is obligated to pay Adimab up to a low seven digits in regulatory milestone payments and low

single-digit royalties on net sales.

No additional payment is due with respect to any companion diagnostic or any diagnostic product that does not contain any licensed antibody.

Any payments payable to Adimab as a result of any product candidates being developed pursuant to the GSK Agreement, will be payable to Adimab directly by GSK.

The A&R Adimab Agreement will remain in effect until (a) the earlier of (i) the expiration of the Research and Commercialization Options (if they expire without exercise) and (ii) 12 months from the effective date without the Company providing materials that pass Adimab’s quality control;

or (b) if a Research Option is exercised but the Commercialization Option is not, then upon the expiration of the last to expire research license term;

or (c) upon commercialization of a product, until the end of the royalty term, which will vary on a product-by-product and country-by-country basis, ending on the later of (y) the expiration of the last valid claim covering the licensed product in such country as the product is manufactured or sold, or (z) ten years after the first commercial sale of the licensed product in such country.

Either party may terminate the A&R Adimab Agreement for material breach if such breach remains uncured for a specified period of time, however, if a Research Option or Commercialization Option has been exercised and the breach only applies to the applicable target of such Research Option or Commercialization Option, then the termination right will only apply to such target.

The Company may also terminate the A&R Adimab Agreement for any reason with prior notice to Adimab.

If Adimab is bankrupt, the Company will be entitled to a complete duplicate of, or complete access to, all rights and licenses granted under or pursuant to the A&R Adimab Agreement.

Vaccinex License Agreement

On March 23, 2021, Surface and Vaccinex entered into the Vaccinex License Agreement which provides the Company a worldwide, exclusive, sublicensable license to make, have made, use, sell, offer to sell, have sold, import, and otherwise exploit Vaccinex Licensed Products, including the antibody CHS-114 targeting CCR8.

Under the Vaccinex License Agreement, the Company is obligated to use commercially reasonable efforts to develop, clinically test, achieve regulatory approval, manufacture, market and commercialize at least one Vaccinex Licensed Product.

The Company is responsible for all costs and expenses of such development, manufacturing and commercialization.

Vaccinex is eligible to receive up to an aggregate of $ 3.5 million based on achievement of certain clinical milestones, up to an aggregate of $ 11.5 million based on achievement of certain regulatory milestones per Vaccinex Licensed Product, and low single-digit royalties on global net sales of any approved licensed products.

The Company may terminate the Vaccinex License Agreement for convenience upon the notice period specified in the Vaccinex License Agreement.

Either party may terminate the agreement for an uncured material breach by the other party.

Vaccinex may terminate the Vaccinex License Agreement if we default on any payments owed to Vaccinex under the agreement, if the Company is in material breach of, and fails to cure, its development obligations, or institute certain actions related to the licensed patents.

In the event of termination, all rights in the licensed intellectual property would revert to Vaccinex.

Out-Licensing Agreements Acquired as part of the Surface Acquisition

On September 8, 2023, at the closing of the Surface Acquisition, all the assets, liabilities, rights and obligations of Surface were assumed by the Company’s direct, wholly-owned subsidiary, Surface Oncology, LLC.

See further details in Note 6.

Surface Acquisition above.

Novartis Institutes

In January 2016, Surface entered into the Novartis Agreement.

Pursuant to the Novartis Agreement, Surface granted Novartis Institutes a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target cluster of differentiation 73 (“CD73”).

Under the Novartis Agreement, the Company is currently entitled to potential development milestones of $ 325.0 million and sales milestones of $ 200.0 million, as well as tiered royalties on annual net sales by Novartis Institutes ranging from high single-digit to mid-teens percentages upon the successful commercialization of NZV930.

Due to the uncertainty of pharmaceutical development and the historical failure rates generally associated with drug development, the Company may not receive any milestone payments or any royalty payments under the Novartis Agreement.

The Company did not recognize any revenue relating to the Novartis Agreement from September 8, 2023 through December 31, 2023.

Unless terminated earlier, the Novartis Agreement will continue in effect until neither the Company nor Novartis Institutes is researching, developing, manufacturing or commercializing NZV930.

Novartis Institutes may terminate the Novartis Agreement for any or

no reason upon prior notice to the Company within a specified time period.

Either party may terminate the Novartis Agreement in full if an undisputed material breach is not cured within a certain period of time or upon notice of insolvency of the other party.

To the extent Novartis Institutes terminates for convenience, or the Company terminates for Novartis Institutes’ uncured material breach, Novartis Institutes will grant the Company, on mutually agreeable financial terms, an exclusive, worldwide, irrevocable, perpetual and royalty-bearing license with respect to intellectual property controlled by Novartis Institutes that is reasonably necessary to research, develop, manufacture or commercialize NZV930.

GSK Agreement

In December 2020, Surface entered into the GSK Agreement.

Pursuant to the GSK Agreement, Surface granted GSK a worldwide exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies.

GSK is responsible for the development, manufacturing and commercialization of the Licensed Antibodies and a joint development committee was formed to facilitate information sharing.

GSK is responsible for all costs and expenses of such development, manufacturing and commercialization and is obligated to provide the Company with updates on its development, manufacturing and commercialization activities through the joint development committee.

In March 2022, Surface earned a $ 30.0 million milestone payment from GSK upon the dosing of the first patient in the Phase 1 trial of GSK4381562.

The Company is eligible to receive up to $ 60.0 million in additional clinical milestones and $ 155.0 million in regulatory milestones.

In addition, the Company may receive up to $ 485.0 million in sales milestone payments.

The Company is also eligible to receive royalties on global net sales of any approved products based on the Licensed Antibodies, ranging in percentages from high single digits to mid-teens.

The Company did not recognize license-related revenue under the GSK Agreement from September 8, 2023 through December 31, 2023.

Unless terminated earlier, the GSK Agreement expires on a licensed product-by-licensed product and country-by-country basis on the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim or regulatory exclusivity covering such licensed product in such country.

Either party may terminate the GSK Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party.

GSK may terminate the GSK Agreement for its convenience.

The Company may terminate the GSK Agreement if GSK institutes certain actions related to the licensed patents or if GSK ceases development activities, other than for certain specified technical or safety reasons.

In the event of termination, the Company would regain worldwide rights to the terminated program.

Debt Obligations

A summary of the Company’s debt obligations, including level within the fair value hierarchy (see Note 3), is as follows:

A summary of the Company’s debt obligations, including level within the fair value hierarchy (see Note 3.

Fair Value Measurements), is as follows:

At December 31, 2023

7 unchanged sentences

(in thousands)

Unamortized Exit Fee, Debt Discount and Debt Issuance Costs

Unamortized Debt Discount and Debt Issuance Costs

Carrying Value

Financial Liabilities:

2026 Convertible Notes

2027 Term Loans

2026 Convertible Notes

2025 Term Loan

The principal amounts outstanding are subject to variable interest rates, which are based on three-month LIBOR plus fixed percentages through March 31, 2023.

The principal amounts outstanding are subject to variable interest rates, which are based on three-month SOFR starting April 1, 2023 plus fixed percentages.

Through March 31, 2023, the variable component was based on the three-month LIBOR.

Therefore, the Company believes the carrying amount of these obligations approximates fair value.

1 unchanged sentence

Since the market for trading of the 2026 Convertible Notes is not considered to be an active market, the estimated fair value is based on Level 2 inputs.

The fair value was based on an income approach using a single factor binomial lattice model which incorporates the terms and conditions of the convertible notes and market-based risk measurement that are indirectly observable, such as credit risk, and therefore were Level 3 inputs.

The lattice model produced an estimated fair value based on changes in the price of the underlying common shares price over successive periods of time.

An estimated yield based on market data was used to discount straight debt cash flows.

2027 Term Loans

7 unchanged sentences

or (ii) October 15, 2025, if the outstanding aggregate principal amount of the Company’s 2026 Convertible Notes is greater than $ 50.0 million on October 1, 2025.

The 2027 Term Loans accrue interest from inception through March 31, 2023 at 8.25 % plus three-month LIBOR per annum with a LIBOR floor of 1.0 %;

The 2027 Term Loans accrued interest from inception through March 31, 2023 at 8.25 % plus three-month LIBOR per annum with a LIBOR floor of 1.0 %;

and starting April 1, 2023, accrue interest at 8.25 % plus the Adjusted Term SOFR which is the sum of three-month SOFR and 0.26161 % per annum, with a floor on Adjusted Term SOFR of 1.0 %.

The interest rate for the fourth quarter of 2023 was 13.91 %.

is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.

Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.

Repayment of outstanding principal of the 2027 Term Loans will be made in five equal quarterly payments of principal commencing March 31, 2026.

2 unchanged sentences

The obligations under the Loan Agreement are secured pursuant to customary security documentation, including a guaranty and security agreement among the Credit Parties and the Collateral Agent which provides for a lien on substantially all of the Company’s tangible and intangible assets and property, including intellectual property.

Pursuant to the Loan Agreement, and subject to certain restrictions, proceeds of the 2027 Term Loans were and will be used to fund the Company’s general corporate and working capital requirements except for the following:

Pursuant to the Loan Agreement, and subject to certain restrictions, proceeds of the 2027 Term Loans were used to fund the Company’s general corporate and working capital requirements except for the following:

in January 2022, proceeds of the Tranche A Loan were used to repay in full all amounts outstanding under the 2025 Term Loan, as well as all associated costs and expenses pursuant to which a payoff amount of $ 81.9 million was outstanding;

1 unchanged sentence

The Loan Agreement contains certain customary representations and warranties.

In addition, the Loan Agreement includes covenants, such as the requirement to maintain minimum trailing twelve-month net sales in an amount that begins at $ 200.0 million for the quarter ending March 31, 2022, increases to $ 210.0 million for the quarter ended March 31, 2024, increases to $ 230.0 million for the quarter ending June 30, 2024, increases to $ 270.0 million for the quarter ending September 30, 2024, and increases to $ 300.0 million for the quarter ended December 31, 2024 and thereafter.

In addition, the Loan Agreement includes covenants, such as the requirement to maintain minimum trailing twelve-month net sales in an amount that began at $ 200.0 million for the quarter ending March 31, 2022 and increases to $ 210.0 million for the quarter ended March 31, 2024.

As a result of the Consent and Amendment entered into on February 5, 2024, beginning in the second quarter of 2024 and continuing through the quarter ended December 31, 2026, the requirement is to maintain minimum trailing twelve-month net sales of $ 125.0 million.

In addition, there is a requirement to maintain a minimum trailing twelve-month net sales for LOQTORZI tested quarterly at the end of each quarter commencing with the quarter ended December 31, 2024.

Further, the Loan Agreement includes certain other affirmative covenants and negative covenants, including, covenants and restrictions that among other things, restrict the Company’s ability to incur liens, incur additional indebtedness, make investments, engage in certain mergers and acquisitions or asset sales, and declare dividends or redeem or repurchase capital stock.

2 unchanged sentences

A change of control of the Company triggers a mandatory prepayment of the 2027 Term Loans within ten business days.

Subsequent Events for further information regarding the Consent and Amendment to the 2027 Term Loans.

As of December 31, 2023, the Company was in full compliance with these covenants and there were no events of default under the 2027 Term Loans.

In connection with the closing of Tranche A, the Company incurred $ 7.8 million in debt discounts and issuance costs of which $ 6.8 million related to all the tranches of the 2027 Term Loans and was thus allocated pro rata between the tranches.

The unamortized debt discount and issuance costs allocated to funded tranches are presented as deductions to the 2027 Term Loan balance and are amortized into interest expense using the effective interest method.

The unamortized debt

discount and issuance costs allocated to funded tranches are presented as deductions to the 2027 Term Loan balance and are amortized into interest expense using the effective interest method.

The $ 2.3 million allocated to Tranche B was fully amortized over the commitment period prior to funding and recognized as interest expense in the first quarter of 2022.

Until unfunded tranches are drawn, the associated debt discounts and issuance costs are deferred as assets and amortized into interest expense using the straight-line method over the commitment period of the respective tranches.

The associated debt discounts and issuance costs of unfunded tranches were deferred as assets and amortized into interest expense using the straight-line method over the commitment period of the respective tranches.

At the closing dates of Tranche B on March 31, 2022 and Tranche D on September 14, 2022, the Company incurred an additional $ 1.0 million and $ 0.5 million, respectively, in debt issuance costs.

As of December 31, 2023, the total remaining unamortized debt discount and debt offering costs related to Tranches A, B and D of $ 3.5 million will be amortized using the effective interest rate over the remaining term of 3.0 years.

The following table represents the components of interest expense related to the 2027 Term Loans:

The following table presents the components of interest expense related to the 2027 Term Loans:

Year Ended December 31,

(in thousands)

Stated coupon interest

Contractual interest

Amortization of debt discount and debt issuance costs

Total interest expense

Future payments on the 2027 Term Loans as of December 31, 2022 are as follows:

Assuming the fourth quarter of 2023 interest rate of 13.91 %, future payments on the 2027 Term Loans as of December 31, 2023, are as follows:

Year ending December 31, (in thousands)

1 unchanged sentence

2025 - interest only

2026 - principal and interest

3 unchanged sentences

2027 Term Loans, gross

Less unamortized debt discount and debt issuance costs, net

Less unamortized debt discount and debt issuance costs

Net carrying amount of 2027 Term Loans

The table above does not reflect any adjustment for transactions contemplated by the Consent and Amendment entered into on February 5, 2024, including any prepayments to the 2027 Term Loans.

1.5 % Convertible Senior Subordinated Notes due 2026

9 unchanged sentences

The 2026 Convertible Notes are not redeemable at the Company’s election before maturity.

If a “fundamental change” (as defined in the indenture for the 2026 Convertible Notes) occurs, then, subject to a limited exception, noteholders may require the Company to repurchase their 2026 Convertible Notes for cash.

If a “fundamental change” (as defined in the indenture for the 2026 Convertible Notes) occurs, then, subject to a limited exception,

noteholders may require the Company to repurchase their 2026 Convertible Notes for cash.

The repurchase price will be equal to the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date.

5 unchanged sentences

Capped Call Transactions

In connection with the pricing of the 2026 Convertible Notes, the Company also paid $ 18.2 million to enter into privately

negotiated capped call transactions with one or a combination of the initial purchasers, their respective affiliates and other financial institutions.

In connection with the pricing of the 2026 Convertible Notes, the Company paid $ 18.2 million to enter into privately negotiated capped call transactions with one or a combination of the initial purchasers, their respective affiliates and other financial institutions.

The capped call transactions are generally expected to reduce the potential dilution upon conversion of the 2026 Convertible Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the 2026 Convertible Notes, and is subject to anti-dilution adjustments generally similar to those applicable to the conversion rate of the 2026 Convertible Notes.

The cap price of the capped call transactions will initially be $ 25.93 per share, which represents a premium of approximately 75.0 % over the last reported sale price of the Company’s 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.

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 the Company’s 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.

The capped call transactions are accounted for as separate transactions from the 2026 Convertible Notes and classified as equity instruments.

Therefore, the total $ 18.2 million capped call premium paid was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

Therefore, the total $ 18.2 million capped call premium paid was recorded as a reduction to additional paid-in capital in the consolidated balance sheets in 2020.

The capped calls will not be subsequently re-measured as long as the conditions for equity classification continue to be met.

8 unchanged sentences

Total interest expense

The remaining unamortized debt discount and debt offering costs related to the Company’s 2026 Convertible Notes of $ 4.4 million as of December 31, 2022, will be amortized using the effective interest rate over the remaining term of the 2026 Convertible Notes of 3.3 years.

The remaining unamortized debt discount and debt offering costs related to the Company’s 2026 Convertible Notes of $ 3.1 million as of December 31, 2023, will be amortized using the effective interest rate over the remaining term of the 2026 Convertible Notes.

The annual effective interest rate is 2.1 % for the 2026 Convertible Notes.

3 unchanged sentences

2025 - interest only

2026 - principal and interest

Total minimum payments

4 unchanged sentences

8.2 % Convertible Notes due 2022

On February 29, 2016, the Company issued and sold $ 100.0 million aggregate principal amount, which excluded a 9.0 % premium due at maturity or redemption, of its 2022 Convertible Notes and received total net proceeds of approximately $ 99.2 million, after deducting issuance costs of $ 0.8 million .

The 2022 Convertible Notes constituted general, senior unsubordinated obligations of the Company and were guaranteed by certain subsidiaries of the Company.

The 2022 Convertible Notes bore interest at a fixed coupon rate of 8.2 % per annum payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, since March 31, 2016 ,

and matured on March 31, 2022 .

The 2022 Convertible Notes also had a premium of 9.0 % of the principal amount which was payable when the 2022 Convertible Notes matured or were repurchased or redeemed by the Company.

The 2022 Convertible Notes were issued to Healthcare Royalty Partners III, L.P., for $ 75.0 million in aggregate principal amount, and to three related party investors, KKR Biosimilar L.P., MX II Associates LLC, and KMG Capital Partners, LLC, for $ 20.0 million, $ 4.0 million, and $ 1.0 million, respectively, in aggregate principal amount.

At any time before the close of business on the business day immediately preceding March 31, 2022, the 2022 Convertible Note noteholders could have converted their 2022 Convertible Notes at their option into shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate.

The initial conversion rate was 44.7387 shares of common stock per $ 1,000 principal amount of the 2022 Convertible Notes, which represented an initial conversion price of approximately $ 22.35 per share of common stock.

The initial conversion price represented a 60 % premium over the average last reported sale price of the Company’s common stock over the 15 trading days preceding the date the 2022 Convertible Notes were issued.

The conversion rate and conversion price were subject to customary adjustments upon the occurrence of certain events.

The 2022 Convertible Notes were redeemable in whole, and not in part, at the Company’s option with effect from March 31, 2020, if the last reported sale price per share of common stock exceeded 160 % of the conversion price on 20 or more trading days during the 30 consecutive trading days preceding the date on which the Company sent notice of such redemption to the holders of the 2022 Convertible Notes.

At maturity or redemption, if not earlier converted, the Company would pay 109 % of the principal amount of the 2022 Convertible Notes maturing or being redeemed, together with accrued and unpaid interest, in cash.

In March 2022, the Company fully repaid the 2022 Convertible Notes, and a s a result had no continuing obligations associated with them thereafter .

On February 29, 2016, the Company issued and sold $ 100.0 million aggregate principal amount of its 8.2 % Convertible Senior Notes due 2022.

The 2022 Convertible Notes constituted general, senior unsubordinated obligations of the Company and were guaranteed by certain subsidiaries of the Company, bore interest at a fixed coupon rate of 8.2% per annum payable quarterly and matured on March 31, 2022 .

In March 2022, the Company fully repaid the 2022 Convertible Notes, and as a result had no continuing obligations associated with them thereafter.

The payoff amount of $ 111.1 million included the repayment of the entire outstanding principal amount, the 9.0 % premium of the outstanding principal amount and accrued and unpaid interest.

The following table presents the components of interest expense of the 2022 Convertible Notes:

5 unchanged sentences

2025 Term Loan

On January 7, 2019 (the “2025 Term Loan Closing Date”), the Company entered into the 2025 Term Loan with affiliates of Healthcare Royalty Partners (together, the “Lender”).

On January 7, 2019, the Company entered into the 2025 Term Loan with affiliates of Healthcare Royalty Partners (together, the “Lender”).

The 2025 Term Loan consisted of a six-year term loan facility for an aggregate principal amount of $ 75.0 million (the “Borrowings”).

The obligations of the Company under the loan documents were guaranteed by the Company’s material domestic United States subsidiaries and were secured by a lien on substantially all of the Company’s tangible and intangible property, including intellectual property.

Starting January 1, 2020, the Borrowings under the 2025 Term Loan bore interest at 6.75 % per annum plus three month LIBOR.

Interest was payable quarterly in arrears.

Under the prospective method to account for future cash payments adopted by the Company, the effective interest rate was not constant, and any change in the expected cash flows was recognized prospectively as an adjustment to the effective yield.

If all or any of the Borrowings were prepaid or required to be prepaid under the 2025 Term Loan, then the Company was required to pay, in addition to such prepayment, a prepayment premium equal to (i) with respect to any prepayment paid or required to be paid on or prior to the three year anniversary of the Credit Agreement Closing Date, 5.00 % of the Borrowings prepaid or required to be prepaid, plus all required interest payments that would have been due on the Borrowings prepaid or required to be prepaid through and including the three year anniversary of the 2025 Term Loan Closing Date , (ii) with respect to any prepayment paid or required to be paid after the three year anniversary of the 2025 Term Loan Closing Date but on or prior to the four year anniversary of the 2025 Term Loan Closing Date, 5.00 % of the Borrowings prepaid or required to be prepaid , (iii) with respect to any prepayment paid or required to be paid after the four year anniversary of the 2025 Term Loan Closing Date but on or prior to the five year anniversary of the 2025 Term Loan Closing Date, 2.50 % of the Borrowings prepaid or required to be prepaid , and (iv) with respect to any prepayment paid or required to be prepaid thereafter, 1.25 % of the Borrowings prepaid or required to be prepaid .

In connection with the 2025 Term Loan, the Company paid a fee to the Lender of approximately $ 1.1 million at closing in the form of an original issue discount.

Upon the prepayment or maturity of the Borrowings, the Company was required to pay an additional exit fee in an amount equal to 4.0 % of the total principal amount of the Borrowings.

Pursuant to the terms of the 2025 Term Loan, the Company was required to begin paying principal on the Borrowings in equal quarterly installments beginning on the third anniversary of the 2025 Term Loan Closing Date, with the outstanding balance to be repaid on January 7, 2025, the maturity date.

Pursuant to the terms of the 2025 Term Loan, the Company was required to begin paying principal on the Borrowings in equal quarterly installments beginning on January 7, 2022, with the outstanding balance to be repaid on January 7, 2025, the maturity date.

In January 2022, pursuant to the Company entering into the 2027 Term Loans, the Company voluntarily prepaid all amounts outstanding under the 2025 Term Loan.

The payoff amount of $ 81.9 million included principal repayment in full, accrued interest, a 5.0 % prepayment premium fee of the Borrowings principal amount, and an exit fee of 4.0 % of the Borrowings principal amount.

The prepayment premium fee and unamortized exit fee, debt discount and debt issuance costs, net from the 2025 Term Loan totaled $ 6.2 million and was recorded in loss on debt extinguishment in the consolidated statement of operations for 2022.

As of December 31, 2022, the Company had no continuing obligations associated with the 2025 Term Loan.

The following table presents the components of interest expense of the 2025 Term Loan:

10 unchanged sentences

Total obligations

As of December 31, 2023, total obligations excludes certain purchase commitments that were assumed by Sandoz upon their acquisition of the Company’s CIMERLI ophthalmology franchise (see Note 17.

Subsequent Events).

The Company enters into contracts in the normal course of business with contract research organizations for preclinical studies and clinical trials and CMOs for the manufacture of clinical trial materials.

14 unchanged sentences

however, if no estimate in the range is better than any other, then the minimum amount in the range is accrued.

If its determined that a material loss is reasonably possible and the loss or range of loss can be estimated, the possible loss is disclosed.

If it’s determined that a material loss is reasonably possible and the loss or range of loss can be estimated, the possible loss is disclosed.

Sometimes it is not possible to determine the outcome of these matters or, unless otherwise noted, the outcome (including in excess of any accrual) is not expected to be material, and the maximum potential exposure or the range of possible loss cannot be reasonably estimated.

The Company did not have a material accrual for such matters as of December 31, 2021 and established an accrual of approximately $ 4.7 million as of December 31, 2022 that was included in accrued rebates, fees and reserves in the consolidated balance sheets.

As of December 31, 2023 and 2022, the Company had an accrual of $ 6.4 million and $ 4.7 million, respectively, related to such matters that was included in accrued rebates, fees and reserves in the consolidated balance sheets.

In late April of 2022, the Company received a demand letter from Zinc Health Services, LLC (“Zinc”) asserting that Zinc was entitled to approximately $ 14.0 million from the Company for claims related to certain sales of UDENYCA from October 2020 through December 2021.

7 unchanged sentences

Other than the matter in connection with the demand letter described in this Note 9, there are no pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party, or that any of the Company or its subsidiaries' property is subject.

The Company leases approximately 47,789 square feet of office space for its corporate headquarters in Redwood City, California.

This lease terminates in September 2024 and contains a one -time option to extend the lease term for five years .

Through December 31, 2023, the Company leased approximately 47,789 square feet of office space for its corporate headquarters in Redwood City, California (the “Lease Agreement”).

Prior to an amendment to the Lease Agreement entered into on October 24, 2023 (the “Sixth Amendment”), the Lease Agreement was set to expire in September 2024 and contained a one -time option to extend the lease term for five years .

Under the terms of the Sixth Amendment, the Company extended the lease term through September 30, 2027 and reduced the amount of office space leased to 27,532 square feet.

The remaining 20,257 square feet of office space expired on December 31, 2023, according to the terms of the Sixth Amendment.

The Company also leases approximately 25,017 square feet for its laboratory facilities in Camarillo, California which commenced in January 2020.

2 unchanged sentences

The Company determined that the above facility leases were operating leases.

The options to extend the lease terms for these leases were not included as part of the right-of-use asset or lease liability as it was not reasonably certain the Company would exercise those options.

In 2019, the Company entered into the Vehicle Lease Agreement, pursuant to which the Company currently leases approximately 100 vehicles.

Delivery of the vehicles commenced during the first quarter of 2020.

The options to extend the lease terms, if any, for these leases were not included as part of the right-of-use asset or lease liability as it was not reasonably certain the Company would exercise those options.

In 2019, the Company entered into the Vehicle Lease Agreement, pursuant to which the Company leased approximately 50 vehicles as of December 31, 2023.

The term of each leased vehicle is 36 months and commences upon the delivery of the vehicle.

The vehicles leased under this arrangement were classified as finance leases.

For the leases that commenced prior to January 1, 2019 (adoption date of ASC 842, Leases ), the Company determined the present value of the lease payments using the incremental borrowing rate on that date.

For all other leases, the Company used the incremental borrowing rate on the lease commencement or the lease modification date, as applicable.

Beginning in February 2023, the Company no longer enters into these leasing arrangements and began transitioning to a reimbursement program with employees.

Supplemental information related to the Company’s leases is as follows:

48 unchanged sentences

Finance leases

2027 and thereafter

Total lease payments

1 unchanged sentence

Lease liabilities

At-The-Market Offering

On November 8, 2022, the Company filed a Registration Statement on Form S-3, which was declared effective on November 17, 2022.

Under the Registration Statement, the Company may offer and sell up to $ 150.0 million in the aggregate of its common stock, preferred stock, debt securities, warrants and units from time to time in one or more offerings.

Stockholders’ Deficit

Public Offering

On May 16, 2023, the Company entered into the Underwriting Agreement with the Underwriters, pursuant to which the Company issued and sold the Firm Shares to the Underwriters.

Additionally, under the terms of the Underwriting Agreement, the Company granted the Underwriters an option, for 30 days from the date of the Underwriting Agreement, to purchase the 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 the Company pursuant to the Underwriting Agreement at a price of $ 3.995 per share.

The Offering was made pursuant to a prospectus supplement and related prospectus filed with the SEC pursuant to the Company’s Registration Statement under which the Company may offer and sell up to $ 150.0 million in the aggregate of its common stock, preferred stock, debt securities, warrants and units from time to time in one or more offerings.

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

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

On November 8, 2022, the Company filed a Registration Statement.

Also on November 8, 2022, the Company entered into a Sales Agreement with Cowen, pursuant to which the Company may issue and sell from time to time up to $ 150.0 million of its common stock through or to Cowen as the Company’s sales agent or principal in the ATM Offering.

As of December 31, 2022, the Company sold 916,884 shares of common stock at a weighted-average price per share of $ 7.30 for gross proceeds of $ 6.7 million pursuant to the ATM Offering and received net proceeds of $ 6.5 million, net of $ 0.2 million of commissions and fees.

In January 2023, the Company settled an additional 295,200 shares at a weighted-average price per share of $ 7.41 for gross proceeds of $ 2.2 million pursuant to the ATM Offering and received net proceeds of $ 2.1 million, net of $ 0.1 million of commissions and fees.

On May 15, 2023, pursuant to an Amendment No.

1 to Sales Agreement and in connection with the Public Offering, the Company reduced the number of shares that could be issued and sold pursuant to its ATM Offering with TD Cowen by $ 86.25 million, lowering the aggregate offering price under the Sales Agreement from $ 150.0 million to $ 63.75 million.

On September 11, 2023, pursuant to an Amendment No.

2 to Sales Agreement, the Company increased the number of shares that could be issued and sold pursuant to its ATM Offering with TD Cowen by $ 28.75 million, increasing the aggregate offering price under the Sales Agreement from $ 63.75 million to $ 92.5 million.

The following table summarizes information regarding settlements under the ATM Offering:

Year Ended December 31,

(in thousands, except share and per share data)

Number of common stock shares sold during the period

Weighted-average price per share

Gross proceeds

Less commissions and fees

Net proceeds after commissions and fees

As of December 31, 2023, the Company had approximately $ 66.5 million of its common stock remaining available for sales under the ATM Offering.

On October 9, 2023, in accordance with the terms of the Optional Stock Purchase Agreement, the Company issued 2,225,513 shares of its common stock to the CMO for a price of $ 3.675 per share, with a total value of $ 8.2 million in this non-cash transaction.

The Optional Stock Purchase Agreement gave the Company the option, in its sole discretion, to elect to pay for certain manufacturing services provided by the CMO by either paying cash or a Stock Service Fee Payment.

On October 4, 2023, the Company notified the CMO of its election of the Stock Service Fee Payment.

The price per share of common stock was equal to the volume-weighted average closing trading price per share of common stock on the Nasdaq Global Market over the ten -trading day period ending on and including October 6, 2023.

Stock-Based Compensation and Employee Benefits

1 unchanged sentence

In October 2014, the Company’s board of directors and its stockholders adopted the 2014 Equity Incentive Plan, which became effective upon the closing of the Company’s IPO on November 6, 2014.

The 2014 Plan is subject to automatic annual increases in the number of shares available for issuance on the first business day of each fiscal year equal to four percent ( 4 %) of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by the Company’s board of directors.

All remaining shares under the Company’s 2010 Stock Plan (the “2010 Plan”) were transferred to the 2014 Plan upon adoption and any additional shares that would otherwise return to the 2010 Plan as a result of forfeiture, termination or expiration of the awards will return to the 2014 Plan.

The 2014 Plan provided for the Company to grant shares and/or options to purchase shares of common stock to employees, directors, consultants and other service providers.

While the 2014 Plan allows for non-qualified or incentive stock options, all option grants made since June 2016 have been for non-qualified stock options.

While the 2014 Plan allows for non-qualified or incentive stock options, primarily all option grants made since June 2016 have been for non-qualified stock options.

Under the 2010 Plan, no awards have been issued since 2014, and there were no shares of common stock available for future issuance as of December 31, 2023.

7 unchanged sentences

In addition, shares withheld to pay for minimum statutory tax obligations with respect to full-value awards are added back into the authorized pool.

The annual grant to eligible employees can vary on the type of award, and the award size is determined by the employee’s grade level.

The annual grant to eligible employees can vary depending on the type of award, and the award size is determined by the employee’s grade level.

Stock Options

17 unchanged sentences

Range of Exercise Prices

The intrinsic value is defined as the difference between the current market value and the exercise price.

Additional information on options is summarized as follows:

Year Ended December 31,

(in thousands, except weighted-average grant date fair values)

(in thousands, except weighted-average grant-date fair value per share)

Total intrinsic value of options exercised

Total grant date fair value of options vested

Weighted-average grant date fair value of options granted

Weighted-average grant date fair value per share of options granted

As of December 31, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $ 37.4 million, which is expected to be recognized over a weighted-average period of 2.3 years.

3 unchanged sentences

The RSUs cannot be transferred and are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions.

The Company’s RSUs generally vest over one to three years from

the applicable grant date, provided the employee remains continuously employed with the Company.

The Company’s RSUs generally vest over one to three years from the applicable grant date, provided the employee remains continuously employed with the Company.

The estimated fair value of RSUs is based on the closing price of the Company’s common stock on the grant date.

4 unchanged sentences

Balances at December 31, 2022

( 1,280,901 )

RSUs canceled

Balances at December 31, 2023

The total grant-date fair value of RSUs that vested during 2022, 2021 and 2020 was $ 13.6 million, $ 8.4 million and $ 4.1 million, respectively.

The total grant-date fair value of RSUs granted was $ 22.5 million, $ 27.9 million and $ 21.2 million during 2022, 2021 and 2020, respectively.

The estimated weighted-average grant-date fair value per share of RSUs granted during 2022, 2021 and 2020 was $ 13.34 , $ 16.86 and $ 17.86 , respectively.

Additional information on RSUs is summarized as follows:

Year Ended December 31,

(in thousands, except weighted-average grant-date fair value per share)

Total grant date fair value of RSUs vested

Total grant date fair value of RSUs granted

Weighted-average grant-date fair value per share of RSUs granted

As of December 31, 2023, total unrecognized stock-based compensation expense related to unvested RSUs was $ 10.8 million, which is expected to be recognized over a weighted-average period of 1.5 years.

7 unchanged sentences

Stock-Based Compensation

The following table summarizes the classification of stock-based compensation expense in the Company’s consolidated financial statements related to options and RSUs granted to employees and nonemployees:

The following table summarizes the classification of stock-based compensation expense in the Company’s consolidated statements of operations related to employees and nonemployees:

Year Ended December 31,

6 unchanged sentences

(1) Stock-based compensation capitalized into inventory is recognized as cost of goods sold when the related product is sold.

The stock-based compensation for the year ended December 31, 2023 includes restructuring charges described in Note 15 of $ 1.1 million in research and development expense and a net forfeiture credit of $ 0.1 million in selling, general and administrative expense.

The stock-based compensation expense recorded in connection with the Surface Acquisition that was not included in the consideration transferred was immaterial.

Valuation Assumptions of Awards Granted to Employees

12 unchanged sentences

The expected term represents the period for which the stock-based awards are expected to be outstanding and is based on the options’ vesting term and contractual term.

Through December 31, 2020, the Company elected to use the “simplified method” for estimating the expected term, which is calculated as the mid-point between the vesting period and the contractual term of the options, as it had limited historical information to develop expectations about future exercise patterns and post-vesting employment termination behavior.

Since January 1, 2021, the Company has used historical data to calculate the expected term.

6 unchanged sentences

401(k) Retirement Plan

In 2019, the Company’s Compensation Committee approved the Company’s matching of the employees 401(k) Plan (the “401(k) Plan”) whereby eligible employees may elect to contribute up to the lesser of 90 % of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations.

In 2019, the Company’s Compensation Committee approved the Company’s matching of the employees 401(k) Plan whereby eligible employees may elect to contribute up to the lesser of 90 % of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations.

Beginning January 1, 2021, the Company made matching contributions of 100 % of the first 4 % of eligible compensation, up to a maximum of $ 7,500 .

In 2020, the Company made matching contributions of 50 % of the first $ 6,000 of each participant’s contributions.

The Company recorded compensation expense related to the match of $ 1.8 million, $ 2.1 million and $ 1.7 million in 2023, 2022 and 2021, respectively.

The components of (loss) income before income taxes are as follows:

The components of loss before income taxes are as follows:

Year Ended December 31,

(in thousands)

Provision for income taxes:

For the periods presented, the income tax provision (benefit) is as follows:

Year Ended December 31,

(in thousands)

Provision for income taxes

Income tax provision (benefit)

There was no income tax provision in 2022 and 2021 due to the Company’s history of losses and valuation of allowances against the deferred tax assets.

The income tax provision in 2020 of $ 3.5 million is primarily related to state taxes in jurisdictions outside of California, for which the Company has a limited operating history.

A reconciliation of the statutory United States federal rate to the Company’s effective tax rate is as follows:

24 unchanged sentences

Less valuation allowance

Net deferred tax assets

Net deferred tax assets (liabilities)

The tax benefit of net operating losses, temporary differences and credit carry forwards is recorded as an asset to the extent that management assesses that realization is “more likely than not.” The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible.

Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its federal net deferred tax assets and certain state net deferred tax assets will not be realized, and therefore, the Company has fully offset the federal and certain state net deferred tax assets by a valuation allowance as of December 31, 2022 and 2021.

The valuation allowance increased by $ 64.4 million and $ 72.4 million during the years ended December 31, 2022 and 2021, respectively, and decreased by $ 22.7 million during the year ended December 31, 2020.

As of December 31, 2022, the Company had operating loss carryforwards for federal income of $ 591.2 million, which will start to expire in the year 2036 , and various states net operating loss carryforwards of $ 113.2 million, which have various expiration dates beginning in 2031 .

Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its federal net deferred tax assets and certain state net deferred tax assets will not be realized, and therefore, the Company has offset the federal and certain state net deferred tax assets by a valuation allowance as of December 31, 2023 and 2022.

The valuation allowance increased by $ 85.6 million, $ 64.4 million and $ 72.4 million during the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, the Company had net operating loss carryforwards for federal income of $ 774.9 million, which will start to expire in the year 2036 , and various states net operating loss carryforwards of $ 128.0 million, which have various expiration dates beginning in 2031 .

As of December 31, 2023, the Company had federal research and development credit carryforwards for federal income tax purposes of $ 60.6 million, which will start to expire in the year 2031 , and state research and development credit carryforwards of $ 26.5 million, which have no expiration date.

Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

3 unchanged sentences

The Company files income tax returns in the United States federal jurisdiction, various United States state jurisdictions, and a foreign jurisdiction with varying statutes of limitations.

The tax years from 2011 forward remain open to examination due to the carryover of unused net operating losses and tax credits.

The tax years from inception in 2011 forward remain open to examination due to the carryover of unused net operating losses and tax credits.

A reconciliation of the Company’s unrecognized tax benefits during 2023, 2022 and 2021 is as follows:

6 unchanged sentences

As of December 31, 2023, 2022 and 2021, the Company had $ 17.4 million, $ 16.8 million and $ 15.5 million, respectively, of unrecognized benefits, none of which would currently affect the Company’s effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuation allowance.

During 2022, 2021 and 2020, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.

During 2023, 2022 and 2021, the Company did no t recognize accrued interest and penalties related to unrecognized tax benefits.

The Company does not anticipate a material adjustment of unrecognized tax benefits during the next twelve months from the balance sheet date as reductions for tax positions of prior years.

Net (Loss) Income Per Share

The following table sets forth the computation of the basic and diluted net (loss) income per share:

Year Ended December 31,

(in thousands, except share and per share data)

Basic net (loss) income per share

Net (loss) income

Weighted-average common shares outstanding

Basic net (loss) income per share

Diluted net (loss) income per share

Net (loss) income

Add interest expense on 2026 Convertible Notes, net of tax

Numerator for diluted net (loss) income per share

Denominator for basic net (loss) income per share

Add effect of potential dilutive securities:

Stock options, including shares subject to ESPP

Restricted stock units

Shares issuable upon conversion of convertible notes

Denominator for diluted net (loss) income per share

Diluted net (loss) income per share

The following outstanding dilutive potential shares were excluded from the calculation of diluted net (loss) income per share due to their anti-dilutive effect:

Net Loss Per Share

The following outstanding dilutive potential shares were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

Year Ended December 31,

3 unchanged sentences

Shares issuable upon conversion of 2026 Convertible Notes

Restructuring Charges

On March 3, 2023, the Company committed to a plan to reduce its workforce to focus resources on strategic priorities including the commercialization of its diversified product portfolio and development of innovative immuno-oncology product candidates.

The reduction in force impacted approximately 50 full-time and part-time employees, effective March 10, 2023 for most of these employees.

In the first quarter of 2023, non-recurring restructuring charges associated with the reduction in force consisted of $ 3.9 million in cash expenses related to personnel expenses such as salaries, severance payments and other benefits;

and $ 1.5 million in non-cash stock-based compensation related to acceleration of vesting and extension of the stock option exercise windows for two impacted executives;

partially offset by $ 0.5 million in non-cash stock-based compensation forfeiture credits.

The reduction in force was completed during the second quarter of 2023.

For the year ended December 31, 2023, the consolidated statements of operations include $ 3.6 million in research and development expense and $ 1.3 million in selling, general and administrative expense related to the reduction in force.

Related Party Transactions

6 unchanged sentences

Jonathan Lanfear in February 2021 upon the execution of the Collaboration Agreement with Junshi Biosciences and recognized stock-based compensation expense of $ 0.8 million.

The Company recorded cash consulting expense of $ 0.2 million and $ 0.3 million in 2021 and 2020, respectively, with respect to these consulting services.

The Company recorded cash consulting expense of $ 0.2 million in 2021 with respect to these consulting services.

There have been no subsequent material related party expenses.

1 unchanged sentence

Subsequent Events

The parties to the Term Sheet expect to execute the Definitive Agreements contemplated by the Term Sheet and complete the transaction in the first half of 2023.

Under the Term Sheet, the Company will make a total upfront payment of approximately € 30 million, comprised of cash and the Company’s common stock, thirty days after the execution of the Definitive Agreements.

The Company has also agreed to make other regulatory and launch milestone payments and to make royalty payments based on approximately equal sharing of profits from the sale of FYB203 in consideration for the commercialization rights to FYB203 in the United States.

The material terms of the transaction with Klinge Biopharma will be set forth in the Definitive Agreements, which will be included in a subsequent filing by the Company when such Definitive Agreements are executed.

CIMERLI Sale Transaction

On January 19, 2024, the Company entered into the Purchase Agreement by and between the Company and Sandoz.

Such consideration is subject to certain adjustments that will be finalized following the closing pursuant to the Purchase Agreement.

Partial Release and Third Amendment to 2027 Term Loan

On February 5, 2024, the Company, entered into the Consent and Amendment with the Collateral Agent and the Lenders, pursuant to which the Lenders and the Collateral Agent provided certain consents, and released certain assets and subsidiaries of the Company from their obligations under the 2027 Term Loans and the other loan documents in connection therewith, and the parties thereto agreed to amend the Loan Agreement.

Pursuant to and subject to terms and conditions in the Consent and Amendment, among other things:

(1) the Lenders and the Collateral Agent provided consent to consummation of the transactions contemplated by the Purchase Agreement, and released certain subsidiary of the Company from its obligation and certain assets subject to the transactions contemplated thereby, (2) the Lenders and the Collateral Agent permitted the Company to make a partial prepayment of the principal of the loans outstanding under the 2027 Term Loans in the amount of $ 175.0 million upon consummation of the transactions contemplated by the Purchase Agreement, subject to certain conditions including a prepayment premium and makewhole amount calculated pursuant to the Consent and Amendment and (3) the parties thereto agreed to adjust the minimum net sales covenant level under the 2027 Term Loans.

Upon the closing of the Sale Transaction the Company became liable to repay $ 175.0 million of the existing principal balance of $ 250.0 million of the loans outstanding under the Loan Agreement on April 1, 2024 and the Company plans to repay $ 175.0 million and the prepayment premium and makewhole amount of $ 6.8 million to the Lenders on or before April 1, 2024 pursuant to the Consent and Amendment.

Other terms of the 2027 Term Loans, as amended by the Consent and Amendment, remain generally identical to those under the 2027 Term Loans.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk