XML 39 R13.htm IDEA: XBRL DOCUMENT

Surface Acquisition

12 Months Ended

Dec. 31, 2023

Surface Acquisition

Surface Acquisition

6. 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; and

●

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			11,971,460
Coherus common stock share price		$	4.89

Fair value of components of purchase price consideration at closing:
Equity of combined company owned by Surface equity holders		$	58,540
Contingent CVR liability			5,290
Equity of combined company owned by Surface former employees ⁽¹⁾			766
Fair value of total purchase consideration		$	64,596

(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		$	6,997
Investments in marketable securities			21,791
Other prepaids and other assets			5,260
In-process research and development			26,239
Out-licenses			13,530
Total assets		$	73,817
Liabilities Assumed
Accrued and other current liabilities		$	7,722
Deferred tax liability			1,499
Total liabilities			9,221
Total net assets acquired		$	64,596

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)		Useful lives			Fair Value at Acquisition Date
In-process research and development - casdozokitug		n/a		$	25,899
In-process research and development - CHS-114		n/a			340
Out-license - GSK		15 years			2,506
Out-license - Novartis Institutes		15 years			11,024
Total identifiable intangible assets				$	39,769

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)		2023			2022
Total revenues		$	257,244		$	241,042
Net loss		$	(284,575)		$	(369,442)

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.