Coherus BioSciences
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _________Commission File Number: 001-36721 Coherus BioSciences, Inc.(Exact name of registrant as specified in its charter) Delaware 27-3615821(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)333 Twin Dolphin Drive, Suite 600Redwood City, California 94065(650) 649 - 3530(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, $0.0001 par value per share The NASDAQ Stock Market, Inc.Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨Smaller reporting company ¨Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the registrant’s common stock, held by non-affiliates of the registrant as of June 30, 2015 (which is the last business day of registrant’s most recentlycompleted second fiscal quarter) based upon the closing market price of such stock on the NASDAQ Global Market on that date, was approximately $783.5 million. For purposesof this disclosure, shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be “affiliates” as that term is defined underthe Rules and Regulations of the Securities Exchange Act of 1934. This determination of affiliate status is not necessarily conclusive.The number of shares of registrant’s common stock issued and outstanding as of January 31, 2016 was 39,103,426.DOCUMENTS INCORPORATED BY REFERENCEPart III incorporates by reference certain information from the registrant’s definitive proxy statement for the 2016 Annual Meeting of Stockholders.  COHERUS BIOSCIENCES, INC.ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page PART I ITEM 1. Business 2 ITEM 1A. Risk Factors 28 ITEM 1B. Unresolved Staff Comments 66 ITEM 2. Properties 66 ITEM 3. Legal Proceedings 66 ITEM 4. Mine Safety Disclosures 66 PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 67 ITEM 6. Selected Financial Data 69 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 71 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 84 ITEM 8. Financial Statements and Supplementary Data 86 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 123 ITEM 9A. Controls and Procedures 123 ITEM 9B. Other Information 124 PART III ITEM 10. Directors, Executive Officers of the Registrant and Corporate Governance Matters 125 ITEM 11. Executive Compensation 125 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 125 ITEM 13. Certain Relationships and Related Transactions, and Director Independence 125 ITEM 14. Principal Accounting Fees and Services 125 PART IV ITEM 15. Exhibits and Financial Statement Schedules 126 Signatures 127 i CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis 2015 Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. We make such forward-lookingstatements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statementsother than statements of historical facts contained in this Annual Report on Form 10-K are forward-looking statements. In some cases, you can identifyforward-looking statements by words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,”“goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that arepredictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statementsinclude, but are not limited to, statements about: ·the timing and the success of the design of the clinical trials and planned clinical trials of CHS-1701 (our pegfilgrastim (Neulasta®) biosimilarcandidate); CHS-0214 (our etanercept (Enbrel®) biosimilar candidate); and CHS-1420 (our adalimumab (Humira®) biosimilar candidate); ·whether the results of our trials will be sufficient to support domestic or global regulatory approvals for CHS-1701, CHS-0214 and CHS-1420; ·our ability to obtain and maintain regulatory approval of CHS-1701, CHS-0214 and CHS-1420 or our future product candidates; ·our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved forcommercial use; ·our expectation that our existing capital resources together with funding we expect to receive under our license agreements with DaiichiSankyo Company, Limited and Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH, together Baxalta, will be sufficient to fund ouroperations for at least the next 12 months; ·The implementation of strategic plans for our business and product plans; ·the initiation, timing, progress and results of future preclinical and clinical studies and our research and development programs; ·the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates; ·our expectations regarding the scope or enforceability of third party intellectual property rights, or the applicability of such rights to ourproduct candidates; ·our ability to maintain and establish collaborations or obtain additional funding; ·our reliance on third-party contract manufacturers to supply our product candidates for us; ·our reliance on third-party contract research organizations to conduct clinical trials of our product candidates; ·the benefits of the use of CHS-1701, CHS-0214 and CHS-1420; ·the rate and degree of market acceptance of CHS-1701, CHS-0214 and CHS-1420 or any future product candidates; ·our expectations regarding government and third-party payor coverage and reimbursement; ·our ability to manufacture CHS-1701, CHS-0214 and CHS-1420 in conformity with regulatory requirements and to scale up manufacturingcapacity of these products for commercial supply; ·our ability to compete with companies currently producing the reference products, including Neulasta, Enbrel and Humira and other productsin our pipeline that are in preclinical stages of development; ·our financial performance; and ·developments and projections relating to our competitors and our industry.1 Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or to our future financialperformance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to bematerially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may causeactual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. Risk Factors and discussedelsewhere in this Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Exceptas required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes availablein the future.This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the marketsfor certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Informationthat is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events orcircumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry,business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry,medical and general publications, government data and similar sources.PART I Item 1.BusinessOverviewWe are a late-stage clinical biologics platform company focused on the global biosimilar market. Biosimilars are an emerging class of protein-basedtherapeutics with high similarity to approved originator products on the basis of various physicochemical and structural properties, as well as in terms ofsafety, purity and potency. Our goal is to become a global leader in the biosimilar market by leveraging our team’s collective expertise in key areas such asprocess science, analytical characterization, protein production and clinical-regulatory development. Since our founding in 2010, we have advanced threeproduct candidates into Phase 3 or Biologics License Application (BLA), enabling clinical development and entered into partnerships with two globalpharmaceutical companies and one strategic biologics manufacturer.Our business is organized around therapeutic franchises: 1)Oncology biosimilar candidates pegfilgrastim (Neulasta), in late clinical-stage, and bevacizumab (Avastin®), in preclinical-stage; 2)Immunology (Anti-TNF) biosimilar candidates, etanercept (Enbrel) and adalimumab (Humira), which are both in late clinical-stage; 3)Ophthalmology biosimilar candidate ranibizumab (Lucentis®) in preclinical stage; and 4)Multiple sclerosis small molecule therapeutic candidate, CHS-131 (formerly INT-131), in Phase 2 proof-of-concept trial.Oncology BiosimilarsOur long-acting granulocyte colony-stimulating factor (G-CSF) product candidate, CHS-1701, is a pegfilgrastim (Neulasta) biosimilar. G-CSFstimulates production of granulocytes (a type of white blood cell) in order to promote the body’s ability to fight infections. In March 2015, we initiated apivotal pharmacokinetic and pharmacodynamic (PK/PD) study for CHS-1701 in the United States to support the planned filing of a BLA in the United States,which we reported in October 2015. This study met its primary PD endpoints of absolute neutrophil count (ANC). In terms of PK parameters, the study alsomet bioequivalence for Cmax. The Area Under the Curve (AUC) portion of the PK results did not meet bioequivalence due to the presence of a low,anomalous PK profile in the first treatment period Neulasta group. Although this PK/PD study is acceptable to support filing the BLA, we initiated a follow-on PK/PD study in February 2016, which we anticipate will read-out in the end of the first half of 2016. We initiated an immunogenicity study in healthyvolunteers pursuant to this BLA in May 2015 and reported in February 2016 that CHS-1701 met its immunogenicity endpoints in that study. We continue tobelieve it may be possible to advance CHS-1701 to a 351(k) (biosimilar) approval application without a collaboration or licensing partner in the UnitedStates.We are developing master cell banks for several new biosimilar candidates of biologic therapeutics in oncology. As we intend to commercialize CHS-1701 in the United States, we anticipate being able to commercialize other candidates in that territory as well. We will seek to find a commercial partner forall oncology biosimilars outside the United States.2 Anti-TNF BiosimilarsOur clinical-stage pipeline consists of two anti-Tumor Necrosis Factors, or anti-TNFs. TNF is a substance in the body that is involved in theinflammatory response. Our most clinically advanced anti-TNF product candidate, CHS-0214, is an etanercept (Enbrel) biosimilar candidate which we havepartnered with Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH, or together, Baxalta, and Daiichi Sankyo Company, Limited, or Daiichi Sankyo, inkey markets outside of the United States. We have completed two Phase 3 clinical trials with CHS-0214 in rheumatoid arthritis and psoriasis, which met theirprimary clinical endpoints in November 2015 and January 2016, respectively. Our second anti-TNF product candidate, CHS-1420, is an adalimumab(Humira) biosimilar candidate, and completed Phase 1 studies in August 2014. We initiated a Phase 3 clinical trial in psoriasis in August 2015 for CHS-1420to support the planned filing of a marketing application in the United States in 2016 and in the European Union (EU) in 2017.We are developing master cell banks for anti-TNF or anti-inflammatory biosimilar candidates. We intend to find commercialization partners for all ofour anti-TNF or anti-inflammatory biosimilar candidates.Overview of the Market Opportunity for BiosimilarsAccording to Evaluate Pharma, total annual revenues from the anti-tumor necrosis factor alpha, or anti-TNF-a, and pegfilgrastim-based originatorproducts exceeded approximately $25 billion in 2014 in the sales territories targeted by our current clinical-stage pipeline. We intend to pursue a brandstrategy for our biosimilar products that projects high similarity to the originator and positive differentiation to competing biosimilars, at a competitive price.The global market opportunity for biosimilars is emerging as a result of several factors. First, through 2020, 30 “blockbuster” biologics, each withworldwide annual sales in excess of $1 billion, face loss of patent exclusivity in at least one major pharmaceutical market. These products achievedapproximately $108 billion in aggregate worldwide sales in 2014. Second, regulatory agencies around the world have responded to these upcoming patentexpirations by defining new biosimilar approval pathways. We believe these regulatory initiatives will help streamline the approval process across variousinternational regulatory agencies and encourage growth of the overall biosimilar market. Third, implementation of more stringent cost containment practiceson the part of governments and insurers has increased demand for high-quality biosimilars, which we believe will result in substantial market growth overtime.While the potential market opportunity is significant, biosimilar product development poses a number of scientific, regulatory and technicalchallenges that distinguish it from traditional, small-molecule generic product development. We believe our world-class team of biologic therapeuticdevelopers and renowned scientists gives us the critical capabilities to successfully address the complexities underlying these challenges. Our team includesindustry veterans with decades of experience in pioneering biologics companies, such as Amgen and Genentech, where they were responsible for leading, andin some cases establishing, these organizations’ core capabilities in process development, protein manufacturing and analytical research and development.We have also assembled a distinguished scientific advisory board of leading scientists who are acknowledged experts in their respective fields.Our business model places our internal team at the center of a coordinated development effort in which our senior team of experts focuses on thehighly-specialized, strategic and technical aspects of biosimilar development that are core to our business and difficult to replicate. For other aspects of ouroperations that require greater scale or more capital-intensive investments, we have established a network of highly-competent external organizations andstrategic partnerships that we believe will provide the competitive scale required to address the global biosimilar market opportunity. For example, inDecember 2015, we entered into a strategic manufacturing agreement with KBI Biopharma, Inc. (KBI Biopharma) for long-term commercial manufacturing ofCHS-1701. Many such collaborators are also our equity holders, which we believe results in a strategically aligned consortium designed to select, evaluateand develop biosimilar product candidates in an efficient, cost-effective manner. We believe these elements of our business model have helped us maintain arelatively modest cost structure while providing important fundamental advantages over larger companies. In addition, our dynamic organization allows usto respond to the rapidly evolving biosimilar landscape.3 Our StrategyOur goal is to become a leading global biosimilar company. The key elements of our strategy are to: ·Leverage our platform and internal expertise in process science, molecular biology and protein production, as well as our clinical,regulatory and commercial strategies, to screen and select biosimilar candidates. Our team possesses a deep understanding of the technicaladvancements that enable the development of biosimilars. We believe we are able to effectively select product candidates using a stringentprocess that factors in technical feasibility, size of originator products opportunity and market receptivity to biosimilars, as well as othercriteria. With this comprehensive approach, we believe we are able to move quickly and in a capital efficient manner to advance productcandidates into clinical trials with strong potential to be partnered and commercialized. ·Advance our lead programs through clinical development to secure approvals in major markets. We have developed a clinical-stage pipelineconsisting of three product candidates. In June and July 2014, we initiated our first Phase 3 clinical trials, advancing CHS-0214 in rheumatoidarthritis and psoriasis, to support the planned filing of a marketing application in Europe and Japan in 2016. We initiated a Phase 3 clinicaltrial of CHS-1420 in psoriasis in August 2015, to support the planned filing of a marketing application in the United States in 2016 and theE.U. in 2017. For CHS-1701, we initiated a pivotal pharmacokinetic and pharmacodynamic study in March 2015 and an immunogenicity studyin May 2015 to support filing of a BLA in the United States. As mentioned above, the PK/PD study met the bioequivalence endpoint for PDand C max, but not for AUC due to an anomalous PK profile in the first period Neulasta group. The immunogenicity study met the primaryendpoints. In February 2016, we have initiated a follow-on PK /PD study, which is expected to read-out late in the first half of 2016. We expectto file a BLA in the United States directly thereafter. We believe it is possible to advance CHS-1701 to a 351(k) (biosimilar) approvalapplication without a collaboration or licensing partner. We attempt to adapt our clinical trials to meet the regulatory requirements of multiplejurisdictions, including the United States, Europe and Japan, such that one set of pivotal clinical trials may be sufficient for approval in alljurisdictions. ·Continue to advance our early-stage product pipeline. We will apply our team’s expertise and our platform to identify and pursue multipleadditional biosimilar product opportunities. In addition to our clinical-stage product portfolio, we have identified at least two potentialproduct candidates (including CHS-5217, bevacizumab (Avastin) and CHS-3351, ranibizumab (Lucentis) biosimilar product candidates) thatmeet our stringent selection criteria, which have entered early development. Our goal is to advance at least one of these product candidates intoclinical trials in 2016. We continue to evaluate other potential product development candidates to further expand our pipeline. ·Maximize the value of our portfolio and pipeline by retaining commercial rights to our products for our oncology biosimilar candidates inthe United States and by partnering with leading pharmaceutical companies to commercialize our products in other therapeutic areas. Weintend to retain U.S. rights to our oncology assets while licensing rights in exchange for upfront, cost sharing, milestone and royalty paymentsfor our assets in other therapeutic areas. For example, we have partnered with Baxter and Daiichi Sankyo to commercialize CHS-0214 in keymarkets outside of the United States and we may seek a partner for CHS-1420 in 2016 in some or all territories. Such arrangements are intendedto support the clinical studies required for regulatory approval of our product candidates and provide us with financial resources and enhancedcommercial access. ·Attract and retain exceptionally capable team members who share our vision of bringing high quality, lower cost biologic therapeutics topatients. We value the experience that has been gained by our veteran team members over the course of decades in the biotechnology industryas essential for execution at all stages of biosimilar product development. Our level of technical expertise is also rare, difficult for others toreplicate and a basis for screening those who would join our team. We intend to maintain the capabilities that will enable us to realize ourvision of expanding patient access to high quality, lower cost biologic therapeutics globally.4 Background on BiosimilarsSignificant Market OpportunityAccording to the IMS Institute for Healthcare Informatics, the 2014 global biologics market represented over approximately $200 billion in sales, withvirtually the entire market composed of branded originator products. The next five years will see a surge in patent expirations for many commerciallysuccessful branded biologic products that will provide an unprecedented opportunity for cost containment through the introduction of biosimilars. For 30major branded biologic products that face loss of patent exclusivity in at least one major market through 2020, aggregate global sales in 2014 wereapproximately $108 billion. We believe this wave of patent expirations will create one of the most significant opportunities for the biotechnology industryin the coming years. The following originator products (all of which are “blockbuster” biologics) are facing loss of patent exclusivity in at least one majormarket through 2020: ActemraAdvateAvastinAvonexBotoxEnbrelEpogenErbitux HerceptinHumalogHumiraKogenateLantusLevemirLucentisNeulasta NeupogenNorditropin SimpleXxNovoMix 30NovoRapidOrenciaPediarixPegasysProcrit RebifRemicadeRituxanSynagisTysabriXolairEscalating healthcare costs and healthcare reform have been major drivers for the advancement of the biosimilar market. Governments and insurers arein search of mechanisms to contain costs and expand patient access without sacrificing quality of care. Further, governments and private-payors are using anincreasing and disproportionate amount of healthcare spending by governments and private payors is on biologic therapeutics. According to data fromExpress Scripts, approximately $4 out of every $10 spent on prescription drugs in 2014 in the United States is projected to be spent on specialty medications,mostly complex biologics that are only used by 2% of the population. Compounding the issue is the fact that biologic therapeutic costs are escalating at anincreasingly unsustainable rate. IMS Institute for Healthcare Informatics also reported that the total spend increase for specialty biologic therapeutics in 2014was as high as approximately 27%, depending on payor segment. Consequently, we believe there is tremendous cost pressure to bring high-quality, lower-priced biologic therapeutics to market. We further believe our products target payor segments having among the highest rates of spending and anticipatedspending growth, including inflammation and cancer.We expect the biosimilar marketplace to have several distinct characteristics as it develops. First, it is likely to become a branded market withoutsignificant participation by generic small molecule manufacturers, who are less likely to have the technical, regulatory and clinical expertise required tosucceed in this market. Second, the biosimilar markets we expect to target are unlikely to default to interchangeability in the near to medium term, whichmeans the prescription decision will not exclusively reside in the hands of pharmacists or payors but also in the hands of physicians, requiringcommercialization efforts to drive sales. We believe that the biosimilar market adoption and penetration rates for each biosimilar will primarily be determinedby four key factors: (1) patient criticality (the degree of severity in the patient’s condition), (2) rapidity of feedback on the safety and efficacy of the drugbased on the patient response, (3) the physician and patient share influence relative to the payor in the prescribing decision and (4) the prevalence of payorincentives to drive substitution. We believe there will be strong market adoption and penetration for G-CSF and anti-TNF biosimilars particularly due to lowpatient criticality and payor incentives. We believe that the expected participation of major pharmaceutical firms in the biosimilar markets that we aretargeting indicates that there will be a relatively small number of biosimilar competitors, pricing stability and favorable market dynamics.The Challenge of Biosimilar Product DevelopmentProteins consist of one or more long chains of amino acid residues and perform a vast array of functions within living organisms, including catalyzingmetabolic reactions, replicating DNA, responding to stimuli and transporting molecules from one location to another. Such protein molecules differ from oneanother primarily in their sequence of amino acids, which results in folding of the protein into a specific three-dimensional structure that determines itsactivity.5 Although the sequence of amino acids in a protein is consistently replicated, there are a number of changes that can occur following synthesis thatcreate inherent variability. Chief among these is the glycosylation, or the attachment of sugars at certain amino acids. Most protein-based therapeutics,including all monoclonal antibodies, are glycosylated to some degree. Monoclonal antibodies are identical antibodies that have an affinity for the sameantigen and are produced by a specific clone or cell line. The glycosylation of monoclonal antibodies and other protein-based therapeutics can be critical tohalf-life, efficacy and even safety of the therapeutic and is therefore a key consideration for biosimilarity. Defining and understanding the variability of anoriginator molecule in order to match its glycosylation profile requires significant skill in cell biology, protein purification and analytical protein chemistry.Furthermore, manufacturing proteins with reliable and consistent glycosylation profiles at scale is challenging and highly dependent on the skill of the cellbiologist and process scientist.Protein-based therapeutics are inherently heterogeneous and their structure is highly dependent on the production process and conditions. Productsfrom one production facility can differ within an acceptable range from those produced in another facility. Similarly, physicochemical differences can alsoexist among different lots produced within a single facility. The physicochemical complexity and size of biologic therapeutics creates significant technicaland scientific challenges in the context of their replication as biosimilar products. This is further exacerbated by the fact that some originator product’squality characteristics, such as glycosylation, have been shown to change or “drift” over time.Accordingly, inherent variation is a fundamental consideration with respect to establishing biosimilarity to an originator product to supportregulatory approval requirements. Since the product quality characteristics of originator molecules exist as a range of values rather than as an absolute,regulators have issued guidelines that require demonstration of biological similarity and functional equivalence. In contrast, small molecules arehomogeneous and therefore relatively simple to replicate, obtain regulatory approval for and commercialize as generics. This simplicity of small moleculesallows multiple market entrants and rapid price erosion upon loss of exclusivity. Thus, we believe the ultimate result of protein heterogeneity and complexityis a biosimilar market where only organizations with great technical skill can compete successfully and will do so in a market of relatively few participantsand relatively stable prices.Our ApproachOur PlatformThe essential elements of our platform that distinguish our development approach include: ·Advanced proprietary analytics. Regulators require extensive and sophisticated analytics to demonstrate comparability with the originatormolecule. Analytical techniques, such as mass spectrometry, which enable the measurement of the structure and elemental composition ofindividual molecules, are an essential tool in this process, and we have invested a substantial part of our capital budget in this area. ·Molecular tuning to achieve biosimilarity. After a protein is produced in a cell, a number of modifications to the protein can occur. Thesemodifications can vary greatly depending on the type of cell that was selected to produce the protein and the process conditions used togenerate the protein in the cell, as well as metabolic mechanisms and other considerations. One such modification, glycosylation, results whenthe cell that produces the protein adds sugar molecules to the backbone of the protein. For a highly glycosylated molecule such as Enbrel,accurately reproducing the glycosylation pattern of the originator protein is particularly critical as glycoform distribution profiles substantiallyimpact pharmacokinetics and biologic activity. For instance, with CHS-0214, we were able to complete the molecular tuning in an extremelyshort period of time by conducting a number of critical steps in a parallel fashion, making adjustments to cell growth conditions and processconditions while conducting in vivo and in vitro testing simultaneously. The same parallel process has been applied to our other biosimilarproduct candidates. While the range of acceptability for pharmacokinetic equivalence is 80% to 125% with the target being at 100%, for CHS-0214, we achieved a geometric ratio of 98% indicating pharmacokinetic equivalence in the pivotal Phase 1 study. As used herein, the term“geometric ratio” denotes the comparison of a measured pharmacokinetic value observed for a first drug, to the same measured value observedfor a different drug, where the geometric mean of each drug’s measured values is used as the basis for the comparison. The geometric meanindicates the central tendency or typical value of a set of numbers. The use of a geometric mean “normalizes” the ranges being averaged, so thatno range dominates the weighting, and a given percentage change in any numerical range has the same effect on the geometric mean. Thegeometric means ratio, or GMR, which is the ratio of a first geometric mean to a second geometric mean for a measured pharmacokineticparameter, such as maximum concentration, or C max, is commonly used to determine bioequivalence between drugs, such that a GMR value of1 (or 100%) signifies that the two compared pharmacokinetic values are the same.6 ·Process science. Originators are required by regulators to manufacture under the same decades-old protocols in existence when their biologictherapeutics were first approved unless they invest in costly process change protocols and file appropriate amendments. In contrast, we are notconstrained to replicate outdated processes and are free to design and develop systems that integrate state-of-the-art growth media,chromatography resins, filters and techniques to produce our products. We have demonstrated that our cutting-edge protein productionprocesses are highly scalable, extremely robust and easily automated, resulting in consistent product quality, biosimilarity and yield. ·Intellectual Property. We believe our expertise and investment in the discovery of proprietary technologies, such as in the area of proteinstabilization, enhances our ability to create intellectual property that can enable us to innovate around patent protected features of originatorproducts. For example, stabilization of protein in solution (the ability to maintain a protein’s three dimensional structure and biologicalactivity) is an essential part of obtaining a commercially viable therapeutic. While originator companies have pursued a strategy ofestablishing intellectual property around certain patent protected formulations, we believe our investment in proprietary formulationtechnology allows us to differentiate our products in order to avoid such patent protected formulations, thereby enabling earlier market entrythan otherwise would be possible. In particular, we note that the originator formulations for Humira and Enbrel are subject to unexpired patentsthat specify use of various formulation ingredients and properties. We have developed proprietary formulations for our Enbrel and Humirabiosimilar products which do not require these features. ·Global regulatory strategy and clinical development. The global biosimilar regulatory environment is rapidly evolving and differssignificantly from that of originator products. We and our global partners have met with competent authorities in the United States, Canada, theE.U. and Japan and have gained deep insight into regulatory rationale and the nuanced approach required to successfully navigate globalrequirements. To date, meetings with regulators have been held as follows: ·CHS-1701: We met with U.S. regulators in 2012 and 2014 to discuss our overall development plan. In our meeting with the FDA inOctober, 2014, we informed the agency of our decision to transition from a 351(a) (novel biologic) approval pathway to a 351(k)(biosimilar) approval pathway. We have finalized our development plan for CHS-1701 and implemented these plans in 2015. ·CHS-0214: We met with regulators in the United States and Japan in 2013 and in the E.U. in 2014. The subject of these meetings wasour overall development plan and the amount of evidence needed to support marketing approval in each of these regions. ·CHS-1420: We met with E.U. regulators in September 2014 and with U.S. FDA in the February 2015 to discuss our development planand the amount of evidence needed to support our application to obtain approval for all of the indications in the originator label. Wealso received feedback from central E.U. regulators in the first quarter of 2015 on our development plans. We implemented these plansstarting in August 2015 with the initiation of a global Phase 3 clinical study in psoriasis comparing CHS-1420 to Humira.Five Key Steps to Biosimilar Drug DevelopmentWe apply our platform to five key steps of biosimilar development that are designed to provide the analytical, nonclinical and clinical basis toestablish biosimilarity and support regulatory approvals of our product candidates. Regulators may approve a product label inclusive of all or a subset of theindications of the originator therapeutic based on the totality of the data. We have had meetings with regulators in the major regulated markets to discuss ourthree most advanced product candidates and the data required to support approval. The outcome of these discussions has informed our clinical designs,product development and regulatory strategies.Step 1: Cell Line Development and ManufacturingThe amino acid sequence of the candidate biosimilar molecule must precisely match that of the originator. We have found that publicly available datacan be unreliable in some instances. Therefore, we validate the amino acid sequence of all candidate biosimilar products prior to developing clones. While allclones are expected to produce proteins with the same primary sequence, it is essential to select clones which produce protein that most closely matches theglycosylation profile of the originator, since such product quality characteristics impact pharmacokinetics, or PK, and pharmacodynamics, or PD, propertiesas well as safety and efficacy of the molecule. A process to manufacture the desired product must be developed, scaled-up and implemented in a GoodManufacturing Practice, or GMP, facility in order to be used in human clinical trials.7 Step 2: Analytical Characterization and In Vitro ComparabilityOnce a biosimilar product candidate has been manufactured, we use sophisticated analytical methods and equipment as well as highly trained analystsin order to detect, analyze and interpret the chemical and structural similarity between our biosimilar candidate and the originator product. We test forcomparability of biologic activity using a battery of sensitive in vitro pharmacology assays that demonstrate binding characteristics, functionality andmechanism of action. These data may be predictive of clinically relevant differences in PK, PD, efficacy, safety and immunogenicity between our biosimilarcandidate and the originator product.Step 3: In Vivo Animal ComparabilityFollowing demonstration of in vitro biosimilarity, we compare our biosimilar product candidate to the originator product in relevant animal modelsusing the intended dosage form and route of administration prior to performing human clinical trials. As PK, PD and safety observations from these studiesmay be predictive of the human clinical trial experience, it is important to perform these studies in animals before proceeding to human clinical trials.Generally speaking, two studies are required in relevant animal models to provide sufficient nonclinical rationale to advance to a pivotal Phase 1 study.Step 4: Pivotal Phase 1 Human Pharmacokinetic and Pharmacodynamic StudyAn essential global regulatory requirement is the completion of a clinical study in a sufficient number of human subjects directly comparing theoriginator product and our biosimilar product candidate to establish PK / PD similarity. The U.S. and European regulatory agencies have establishedrequirements for bioequivalence with respect to three prospectively defined parameters as follows: ·C max : maximum measured serum concentration; ·AUC 0 - t : area under the concentration-time curve from the first time point measured (0) to the last time point measured (t); and ·AUC 0-inf : area under the concentration-time curve from the first time point measured (0) extrapolated to infinity.The area under the curve, or the AUC, is a measure of how much of a drug is in a patient’s system over a given time period. In order to calculate theAUC, the concentration of the drug in blood serum or plasma is plotted over time starting at the time the drug is administered and ending when the last timepoint is collected (AUC 0-t ) or when the serum or plasma concentration would be below the level of detection or zero (AUC 0- inf ), and then the area underthis curve is calculated. To be deemed bioequivalent, regulators require that, for each parameter, the ratio of the originator product and the biosimilarcandidate fall within 80% and 125%, with the identical match being at 100%.Step 5: Phase 3 Confirmatory Safety and Efficacy Clinical TrialsThe final step to support approval is a single Phase 3 confirmatory safety and efficacy study in a therapeutic indication for which the originatorproduct has been approved. The objective of this study is to demonstrate biosimilarity between the two molecules with respect to safety and efficacy. Subjectto discussions with regulators and agreement on trial endpoints, we strive to demonstrate that our biosimilar products are as effective and safe as theoriginators. Trial endpoints include considerations such as the number of subjects, statistical significance, confidence intervals and accumulated safetydatabase size.8 Development PortfolioThe following table summarizes key information regarding our current product candidate pipeline: CandidateOriginator ProductOriginator Approved IndicationsStatus/Anticipated MilestonesCoherus Commercial RightsOncology PipelineCHS-1701pegfilgrastim (Neulasta)Febrile neutropenia● Phase 1 (351 (a)) completedWorldwide ● Completed pivotal PK/PD BLA-enabling study in October 2015 ● Immunogenicity study read-out metprimary endpoints in the first quarter of 2016 ● Initiated follow-on PK/PD BLA-enabling study in the first quarter of2016 ● Expect to file 351 (k) BLA CHS-5217bevacizumab(Avastin)Metastatic Colorectal Cancer, Non–Small Cell Lung Cancer, MetastaticKidney Cancer, Advanced CervicalCancer, Platinum-Resistant OvarianCancer, Recurrent Glioblastoma.● Preclinical stageWorldwideImmunology (Anti-TNF) PipelineCHS-0214etanercept (Enbrel)Ankylosing Spondylitis, JuvenileIdiopathic Arthritis,Psoriasis (PsO),Psoriatic Arthritis,Rheumatoid Arthritis (RA),● Phase 3 clinical trials in PsO and in RA met primaryefficacy endpoints in fourth quarter of 2015 andfirst quarter of 2016, respectivelyUS only1 ● Initiate two bridging Phase 1 studies in the first halfof 2016 ● File Market Authorization Application (MAA) inE.U. in 2016 CHS-1420adalimumab (Humira)Ankylosing SpondylitisBehçet's DiseaseCrohn’s DiseaseJuvenile Idiopathic ArthritisPsoriasis (PsO)Psoriatic ArthritisRheumatoid Arthritis (RA)Ulcerative Colitis● Phase 1 study completedWorldwide ● Initiated Phase 3 clinical study in PsO in thirdquarter of 2015 ● Initiated PK bioequivalence bridging studies in 2016with Phase 3 drug material ● File BLA in U.S. in the second half of 2016 Ophthalmology PipelineCHS-3351ranibizumab (Lucentis)Neovascular (Wet) Age-relatedMacular Degeneration,Macular Edema Following, RetinalVein Occlusion,Diabetic Macular Edema,Diabetic RetinopathyUlcerative Colitis● Preclinical stageWorldwideOphthalmology PipelineCHS-3351ranibizumab (Lucentis)Neovascular (Wet) Age-relatedMacular DegenerationMacular Edema Following RetinalVein OcclusionDiabetic Macular EdemaDiabetic Retinopathy● Preclinical stageWorldwide 1The therapeutic protein in etanercept is subject to certain originator-controlled United States patents expiring in 2028 and 2029. Assuming thesepatents are valid and enforceable, and that we would be unable to obtain a license to them, we do not expect to commercialize CHS-0214 in theUnited States prior to their expiration.9 Oncology Biosimilar Pipeline OpportunityCHS-1701 (Our Pegfilgrastim (Neulasta) Biosimilar Candidate)Granulocyte colony-stimulating factor, or G-CSF, is a protein produced in different cell types of the body that promotes the survival, proliferation anddifferentiation of certain white blood cells called neutrophils. G-CSF regulates the production of neutrophils within the bone marrow by stimulatingneutrophil progenitor proliferation and differentiation, as well as activating certain immune functions in the body. Recombinant G-CSF therapies, such asfilgrastim (Neupogen) and pegfilgrastim (Neulasta), are commonly used in the prevention of chemotherapy-induced neutropenia, which is characterized byan abnormally low level of neutrophils and other white blood cells that aid in the defense against infections. Secondary infections arising fromchemotherapy-induced neutropenia are the most common dose-limiting toxicity of cancer therapy. Febrile neutropenia, a more severe form of neutropeniaassociated with fever and other signs of infection, occurs in as many as 25 to 40% of patients receiving common first-line chemotherapy regimens. Theoccurrence of febrile neutropenia often necessitates chemotherapy delays or dose reductions and may also lengthen the duration of hospital stays, increasemonitoring, diagnostic and treatment costs and reduce the patient’s quality of life. In light of this, G-CSF therapies are routinely used prophylactically toprevent febrile neutropenia resulting from chemotherapy and radiation treatments for cancer. Additionally, in the US, Neulasta is indicated for increasingsurvival in patients acutely exposed to myelosuppressive doses of radiation.The worldwide G-CSF market is composed of short-acting G-CSFs, such as filgrastim, lenograstim and TBO-filgrastim, and extended durationPEGylated G-CSFs such as pegfilgrastim. The term “PEGylation” refers to the attachment of a polymer (polyethylene glycol, or PEG) to the G-CSF protein inorder to improve its half-life, or the length of time the drug remains in the body. We selected pegfilgrastim (Neulasta) as the biosimilar development target forour biosimilar G-CSF product candidate, CHS-1701, for the following reasons: ·Large market opportunity. The combined opportunity for both short- and long-acting G-CSF therapies worldwide is estimated to beapproximately $5 billion in 2017 and pegfilgrastim therapies are expected to capture over 70% of worldwide market revenues in the G-CSFclass. It is estimated that the worldwide opportunity for Neulasta, the reference product for CHS-1701, will exceed $4.0 billion in 2017. ·Receptivity to biosimilars. We believe there is strong conviction among payors to drive biosimilar adoption in the G-CSF category. This issupported by the uptake of filgrastim biosimilars in the EU5 (Spain, Great Britain, France, Germany and Italy), which were initially launched in2008 and achieved approximately 59% share of the accessible short-acting G-CSF market and approximately 80% of the reference productmarket by the end of 2014. These percentage shares are based on sales of all short-acting G-CSF products in the EU5 measured in treatmentdays (TD). The accessible short-acting G-CSF market is formed by Euprotin, Granocyte, Myelostim, Neutrogin, Neulasta (the reference product)and filgrastim biosimilars. ·Timing of patent expiration. We believe that the expiration of certain originator patents pertaining to pegfilgrastim (Neulasta) in major marketsoffers us a near-term opportunity to introduce biosimilar competitors in these markets. Specifically, we believe we would not be precluded bythe originator’s patents from introducing a pegfilgrastim (Neulasta) biosimilar candidate in the United States after October 2015 and in Europeafter August 2017.Product OverviewPegfilgrastim (Neulasta), the reference product for CHS-1701, is a PEGylated form of the recombinant human G-CSF analog, filgrastim. Filgrastimproduced from E. coli is not glycosylated. We have performed extensive analytical characterization of CHS-1701 and have determined that its basic andhigher-order structures are similar to Neulasta. We have also performed in vitro characterization of the biological activity of CHS-1701. The biological effectof CHS-1701 on neutrophils was assessed by measuring the proliferation of NFS-60 cells that are commercially available hematopoietic cells (blood cells thatgive rise to other blood cells) of neutrophilic lineage expressing G-CSF receptors and have been used extensively for testing G-CSF products. The biologicalactivity of CHS-1701 (proliferation of NFS-60 cells) is a consequence of its binding to G-CSF receptors expressed on NFS-60 cells, activation of this receptorand induction of the proliferation. In this assay, proliferation of NFS-60 cells is stimulated with varying concentrations of CHS-1701. Proliferation is thenmeasured through the addition of the special dye that is transformed during cell proliferation and induces a luminescent signal directly proportional to thenumber of living cells. Luminescence is emission of light caused by chemical reactions. We determined that CHS-1701 stimulated the proliferation of theNFS-60 cells in a manner consistent with that observed with Neulasta.Neulasta is approved in the United States and Europe and is indicated as a treatment to reduce the incidence of infection, as manifested by febrileneutropenia, in patients with non-myeloid malignancies receiving myelosuppressive anticancer drugs associated with a clinically significant incidence offebrile neutropenia.10 Analysts project the worldwide market for Neulasta in 2017 will exceed $4.0 billion, of which approximately $3.2 billion would be in the UnitedStates. We have concluded that patent expiration in major markets offers a near-term opportunity to introduce biosimilar competitors in the United Statesafter October 2015 and in Europe after February 2018.Current Development Status and DataUnder the 351(a) (novel biologic) pathway, we have successfully advanced CHS-1701 through steps 1 through 4 of biosimilar drug development,including completion of a Phase 1 PK /PD study in healthy volunteers. This study was conducted under an Investigational New Drug application in theUnited States. In October 2014, we met with FDA to discuss our development plan for CHS-1701. We informed the agency of our decision to transition from a351(a) (novel biologic) approval pathway to a 351(k) (biosimilar) pathway. In March 2015, we received written feedback from the FDA on our developmentplan for CHS-1701 and we initiated a pivotal pharmacokinetic and pharmacodynamic study for CHS-1701. This study met its primary PD endpoints. In termsof PK parameters, the study also met bioequivalence for C max. The AUC portion of the PK results did not meet bioequivalence due to the presence of a low,anomalous PK profile in the first treatment period Neulasta group. Although this PK/PD study is acceptable to support filing the BLA, we initiated a follow-on PK/PD study in the first quarter of 2016, which we anticipate will be completed at the end of the first half of 2016. We expect to file a BLA directlythereafter the completion of the follow-on PK/PD study. In January 2016, we completed an immunogenicity study in healthy volunteers pursuant to thisBLA, which met its primary endpoints.Step 1: Cell Line Development and ManufacturingAs with our other product candidates, we confirmed that the amino acid sequence of CHS-1701 is identical to the originator molecule. CHS-1701 ismanufactured in E. coli and PEGylation occurs as a subsequent step in the manufacturing process. For PEGylation of CHS-1701, we used the equivalentpolyethylene glycol, or PEG, molecule as Neulasta and established that chemistry and site of attachment of the PEG molecule was the same. In December2015, we entered into a strategic manufacturing agreement with KBI Biopharma for long-term commercial manufacturing of CHS-1701.Step 2: Analytical Characterization and In Vitro ComparabilityFilgrastim produced from E. coli is not glycosylated. We performed extensive analytical characterization of CHS-1701 and have determined its basicand higher-order structures are similar to Neulasta. We studied the in vitro activity of CHS-1701 in a luminescence assay measuring the proliferation of themurine myeloid leukemia cell line, NFS-60. CHS-1701 stimulated the proliferation of the NFS-60 cells in a concentration-dependent manner, consistent withthe proliferation seen with Neulasta.Step 3: In Vivo Animal ComparabilityWith CHS-1701, we have performed two preclinical pharmacology/toxicology studies: a two-week study in rats and a four-week study in monkeys.We performed a two-week rat study to characterize the toxicity and pharmacodynamics of CHS-1701 administered every four days for two weeks, with arecovery period of one week compared to Neulasta. Doses ranged from 0.1 to 1.0 mg/kg. There was no mortality during the study and no systemic signs oftoxicity could be attributed to treatment. There were no differences in clinical observations between the control and treated animals. Dose-proportionalincreases in absolute neutrophil count, or ANC, and total white blood cell count were observed at all dose levels of CHS-1701. Clinical chemistry findingsand mild to moderate splenic enlargement in the CHS-1701-treated animals were consistent with the pharmacological effects of treatment with Neulasta.We designed a second pharmacology/toxicology study in animals to characterize PK and PD profiles as well as the potential for harmful antibodyresponses to CHS-1701 or other toxic effects, in order to compare these attributes observed for CHS-1701 with those we observed for Neulasta. Weadministered either CHS-1701 or Neulasta at dose levels of 0.075, 0.25 and 0.75 mg/kg once weekly for 4 weeks. We found that CHS-1701 performed in amanner similar to Neulasta in that it increased the production of white blood cells in the bone marrow and resulted in an increase in the amount of whiteblood cells in the blood, in the bone marrow and in lymphoid tissues such as spleen and thymus tissue. Moreover, we found no differences between CHS-1701 and Neulasta in terms of potentially harmful antibody responses or other toxicities, or in terms of PK and PD.Step 4: Pivotal Phase 1 Human Pharmacokinetic and Pharmacodynamic StudyWhile under the 351(a) regulatory pathway, we conducted a Phase 1, randomized, double-blind, single-dose, two-period crossover study to assess thePK profile, safety and activity of a single subcutaneous 6 mg dose of CHS-1701 compared to Neulasta in 79 healthy human subjects between November 2012and March 2013.This Phase 1 study met its primary endpoint for purposes of enabling us to pursue a 351(a) (novel biologic) approval pathway, but did not establishbioequivalence necessary to support a 351(k) (biosimilar) pathway. In October 2014, we met with the FDA to11 discuss our development plan for CHS-1701. We informed the agency of our decision to transition from a 351(a) (novel biologic) approval pathway to a351(k) (biosimilar) approval pathway.Step 5: Further Studies Supporting 351(k) BLA Regulatory Filing.In March 2015, we received written feedback from the FDA on our development plan for CHS-1701 and we initiated a pivotal pharmacokinetic andpharmacodynamic study for CHS-1701 under the 351(k) (biosimilar) pathway in the United States which completed in October 2015. This study met itsprimary PD endpoints. In terms of PK parameters, the study also met bioequivalence for C max. The AUC portion of the PK results did not meetbioequivalence due to the presence of a low, anomalous PK profile in the first treatment period Neulasta group. Although this PK/PD study could support theBLA, we initiated a follow-on PK/PD study in the first quarter of 2016, which we anticipate will read-out at the end of the first half of 2016. In May 2015, weinitiated an immunogenicity study in healthy volunteers pursuant to this BLA, which completed in January 2016 and met its primary endpoints. We expectto file the US BLA directly thereafter the completion of the follow-on PK/PD study. We anticipate seeking further advice in the EU to determine timing for aMAA.CHS-5217 (Our Bevacizumab (Avastin) Biosimilar Candidate)Bevacizumab is a recombinant humanized monoclonal antibody that blocks angiogenesis by inhibiting vascular endothelial growth factor A (VEGF-A). VEGF-A is a protein that stimulates angiogenesis, which is the formation of blood vessels. In turn, the formation of new blood vessels may contribute topromote the growth of certain solid tissues, including solid tumors. Bevacizumab was first approved in 2004 by the FDA for combination use with standardchemotherapy for metastatic colon cancer. It has since been approved for use in certain lung cancers, renal cancers, ovarian cancers and glioblastoma.Bevacizumab achieved approximately $7 billion in worldwide sales in 2014. We selected bevacizumab (Avastin) as the biosimilar development targetfor our biosimilar, CHS-5217, for the following reasons: ·Large market opportunity. The combined opportunity for bevacizumab worldwide is estimated to remain near $7 billion in 2017, andforecasted to decrease to $6.4 billion in 2020, when biosimilar candidates of bevacizumab may be introduced to the market. ·Channel synergy. We anticipate marketing CHS-5217 to many of the payers, hospitals and clinics that could contract for CHS-1701, ourpegfilgrastim (Neulasta) biosimilar candidate, and would aim to leverage a common sales force and commercial strategy for the oncologytherapeutic area. ·Timing of patent expiration. As part of a second wave of biosimilar candidates, we believe we would not be precluded by the originator’spatents from introducing a bevacizumab (Avastin) biosimilar candidate in the United States after July 2019.Current Development Status and DataStep 1: Cell Line Development and ManufacturingWe have identified the amino acid sequence of CHS-5217 and confirmed that it is identical to the reference product, Avastin. We established MasterCell Banks, or MCBs, and produced toxicology materials in the third quarter of 2015. We are currently transferring the manufacturing process to a UScontract manufacturing organization, or CMO, for clinical trial supply. Step 2: Analytical Characterization and In Vitro ComparabilityWe demonstrated CHS-5217 similarity to Avastin with respect to key physicochemical properties that impact PK / PD, safety and efficacy using abroad spectrum of analytical methods. Through in vitro ligand and receptor binding studies, we have shown CHS-5217 to have highly similarpharmacological activity to Avastin.Step 3: In Vivo Animal ComparabilityWe compared CHS-5217 to Avastin in a repeat dose study evaluating toxicity in cynomolgus monkeys and no appreciable differences were identified.12 Immunology (Anti-TNF) Pipeline OpportunityTumor necrosis factor, or TNF, belongs to a family of soluble protein mediators, or cytokines, that play an important role in disease progression acrossa number of inflammatory and chronic conditions, including rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s Disease, psoriasis andulcerative colitis. Cytokines, such as TNF, are substances produced by cells in the body that can cause a biological effect on other cells in the body. TNF isgenerally understood as the “master regulator” of the body’s immune response and is the key initiator of immune-mediated inflammation in multiple organsystems. Several biologic agents have been developed that inhibit the inflammatory activity of TNF in the context of these diseases, which are collectivelyreferred to as the anti-TNF class of therapeutics. Anti-TNF products with significant global sales include adalimumab (Humira), etanercept (Enbrel),infliximab (Remicade), golimumab (Simponi) and certolizumab pegol injection (Cimzia). These products share a common mechanism of action in that theyinhibit TNF, but differ in their dosing schedules as well as the indications for which they are approved. Collectively, these treatments represent a significantrevenue opportunity, with projected global sales in excess of $37 billion in 2017.Our anti-TNF biosimilar product candidates, CHS-0214 and CHS-1420, are based on Enbrel and Humira, respectively. We selected these originatorproducts as biosimilar development targets for the following principal reasons: ·Large market opportunity. Global sales of Enbrel and Humira are projected to exceed $24 billion in 2017, representing over 60% of combinedestimated global sales in the anti-TNF monoclonal antibody and TNF inhibitor markets in 2017. Approximately $21 billion of this estimatedmarket is in territories in which we or our partners currently intend to commercialize our anti-TNF products. In addition, among the top tenselling drugs in its pharmacological class, Humira is also approved for the largest number of inflammatory indications worldwide. ·Receptivity to biosimilars. Because anti-TNF agents are typically used to treat diseases where there is low risk of imminent mortality, webelieve physicians and payors will be inclined to support adoption of biosimilar anti-TNF agents that allow for rapid confirmation of safety andefficacy for the individual patient. We believe that physicians recognize the payor will be a key influencer in driving the adoption ofbiosimilar anti-TNF agents. ·Technical barriers to entry. There are numerous challenges in the development of biosimilars to these reference products related to qualitycharacteristics such as glycosylation that we believe our specialized expertise in protein chemistry and process science will allow us toovercome. ·Timing of patent expiration. The expiration of certain originator patents pertaining to etanercept (Enbrel) and adalimumab (Humira) in majormarkets offers us a near-term opportunity to introduce biosimilar competitors in these markets. Specifically, we believe we would not beprecluded by the originator’s patents from introducing an etanercept (Enbrel) biosimilar candidate in Europe after August 2015 or in Japanafter September 2015. In the case of adalimumab (Humira), we do not believe originator patents would preclude us from introducing abiosimilar in the United States after December 2016, in Europe after October 2018 and in Japan after August 2018 (for rheumatoid arthritis) orMay 2020 (for psoriasis).CHS-0214 (Our Etanercept (Enbrel) Biosimilar Candidate)Product OverviewEtanercept (Enbrel), the reference product for CHS-0214, is a complex fusion protein that combines the protein for tumor necrosis factor receptor 2, orTNFR-2, to another protein (called IgG1 Fc) which enables the fusion protein to attach to cells in the body. The TNFR-2 portion of the fusion protein binds tosoluble and cell bound tumor necrosis factors alpha and beta, or TNF- a and TNF- b, respectively, and inhibits TNF- a and TNF- b from binding to cellsurface proteins that recognize them. Autoimmune diseases are caused by an overactive immune response. Etanercept (Enbrel) treats these diseases byinhibiting TNF- a, thus inhibiting the inflammatory cytokine cascade, which is a sequence of events in the body, caused by cytokines, leading toinflammation in a tissue or organ.Enbrel has been approved by the European Medicines Agency, or EMA, and the U.S. Food and Drug Administration, or FDA, for the treatment of thefollowing indications: ·rheumatoid arthritis; ·juvenile idiopathic arthritis; ·psoriatic arthritis; ·ankylosing spondylitis; and ·psoriasis.13 Enbrel has been approved by the Japanese Pharmaceutical and Medical Devices Agency, or PMDA, for the treatment of the following indications onlywhen conventional therapies are not sufficiently effective: ·rheumatoid arthritis; and ·juvenile idiopathic arthritis.In 2017, sales of Enbrel are projected to exceed approximately $8 billion worldwide. Because patents in the United States, assuming validity andenforceability, provide market exclusivity for the etanercept (Enbrel) originator molecule until 2029, we focused our CHS-0214 regulatory program onEurope and Japan, but harmonized as needed for potential FDA approval. We have licensed CHS-0214 to Daiichi Sankyo in Japan and to Baxter in territoriesoutside of Japan, the United States and certain Caribbean and Latin American countries. We have licensed CHS-0214 to Orox for certain Caribbean and LatinAmerican countries. According to Evaluate Pharma, in 2017 sales of Enbrel in Europe, Japan and other territories outside the United States are projected to beapproximately $3.2 billion. Current Development Status and DataWe have successfully advanced CHS-0214 through steps 1 through 5 of biosimilar drug development. Our pivotal Phase 1 human PK / PD study wasconducted in the United States. We are currently evaluating CHS-0214 in two randomized Phase 3 clinical trials, which met their primary endpoints. ThePhase 3 clinical trial in rheumatoid arthritis enrolled subjects in the following countries: United States, Belarus, Ukraine, Spain, Italy, France, Germany,Hungary, Israel, Japan, Poland, Russia, South Africa and the United Kingdom. The Phase 3 clinical trial in psoriasis enrolled subjects in the followingcountries: United States, Canada, Australia, Germany, Israel, Poland, Russia, South Africa and the United Kingdom. We have filed an IND application orequivalent request for approval in all of the countries where we are performing studies. We expect the European marketing application for CHS-0214 to befiled with the EMA in the second half of 2016. If approved, we believe we will be able to extrapolate the data from our trials in rheumatoid arthritis andpsoriasis to gain approval for CHS-0214 in all the indications included in the label for Enbrel.Step 1: Cell Line Development and ManufacturingWe have identified the amino acid sequence of CHS-0214 and confirmed that it is identical to the reference product, Enbrel. We established MasterCell Banks, or MCBs, and Working Cell Banks, or WCBs, and produced toxicology materials in the third quarter of 2012 and Phase 1 study materials at aU.S. contract manufacturing organization, or CMO. We then transferred the manufacturing process to a European CMO for Phase 3 clinical trial supply andsubsequent commercialization.Step 2: Analytical Characterization and In Vitro ComparabilityWe demonstrated CHS-0214 similarity to Enbrel with respect to key physicochemical properties that determine PK / PD, safety and efficacy using abroad spectrum of analytical methods. Through in vitro receptor binding studies, including Fc receptors, complement (C1q) and Fc-mediated functionalactivities (i.e., antibody-dependent cell-mediated cytotoxicity, or ADCC, and complement-dependent cytotoxicity, or CDC), we have shown CHS-0214 tohave highly similar pharmacological activity to Enbrel. ADCC and CDC refer to biological mechanisms of immune system defense which facilitate thebody’s ability to use its immune system to target and destroy a given target cell. Comparing the effects of CHS-0214 and Enbrel on these mechanismsprovides us a basis for determining how similar CHS-0214 is to Enbrel in terms of pharmacological activity.Step 3: In Vivo Animal ComparabilityWe compared CHS-0214 to Enbrel in a single-dose PK study and a 28-day study in evaluating toxicity and PK in cynomolgus monkeys and noappreciable differences were identified.Step 4: Pivotal Phase 1 Human Pharmacokinetic and Pharmacodynamic StudyWe announced the Phase 1 PK similarity trial results for CHS-0214 in October 2013. This study was a single dose cross-over study conducted in 60healthy adult human volunteers to evaluate the PK and safety of CHS-0214 compared to Enbrel. CHS-0214 met the primary endpoint of clinical PK similarityto Enbrel with the study demonstrating a 98% correlation between CHS-0214 and Enbrel.We also collected safety data in all subjects and both CHS-0214 and Enbrel were well tolerated. Treatment emergent adverse events were similar foreach treatment and treatment period, and there were no unusual or unexpected or serious adverse events related to either product. There were no clinicallymeaningful differences in other safety parameters observed during this study.14 Due to the change in the manufacturing location from the United States to the E.U., we conducted an additional PK similarity trial comparing CHS-0214 to a lot of Enbrel manufactured in Europe, which met its primary endpoint in April 2015. The design of this trial was a single-dose, cross-over studysimilar to the one described above. We initiated a PK similarity trial comparing EU Enbrel to CHS-0214 produced under a new process and we plan to initiatea PK similarity trial comparing CHS-0214 produced under a new process and CHS-0214 under a former process and used in the two Phase 3 trials.Step 5: Phase 3 Confirmatory Safety and Efficacy Clinical TrialsWe announced the dosing of the first patient in a Phase 3 rheumatoid arthritis clinical trial in June 2014, and subsequently initiated a separate Phase 3clinical trial in psoriasis in July 2014. The design of each Phase 3 clinical trial reflects guidance from regulatory agencies regarding key study parameters.Our intent is to complete both Phase 3 clinical trials in parallel in May 2016 and to file a Marketing Authorization Application, or MAA, for CHS-0214 withthe EMA in the second half of 2016.The Phase 3 clinical trial in rheumatoid arthritis is on-going and is designed as a double blind, multi-center, parallel group study in which patientswith DMARD (disease-modifying antirheumatic drug)-refractory active rheumatoid arthritis were put on a stable dose of methotrexate. This trial enrolled 647subjects who were randomized 1:1 to CHS-0214 50 mg or Enbrel 50 mg, administered subcutaneously weekly over a period of 24 weeks and, in January2016, met its primary efficacy endpoint of ACR 20 (20% improvement according to American College of Rheumatology Criteria) scores at 24 weeks, thesame primary endpoint that was used in the Enbrel registration trial for rheumatoid arthritis. Following the initial 24-week double-blind period, all patientswere moved to a CHS-0214 treatment for a period of 6 months. The trial is expected to complete dosing in April 2016.The Phase 3 clinical trial in psoriasis is on-going and is designed as a double-blind, parallel group, multi-center study in patients with active psoriasis.This trial enrolled 521 patients who were randomized 1:1 to CHS-0214 or Enbrel, 50 mg administered subcutaneously twice weekly for the first 12 weeks,switching to once weekly and continuing in the same treatment arms for an additional 40 weeks, which included four weeks of follow-up. In November 2015,this trial met its primary efficacy endpoint of mean percent change in Psoriasis Area and Severity Index, or PASI from baseline and the proportion of subjectsachieving a 75% improvement in the PASI from baseline (PASI-75), scores at 12 weeks.In July 2015, we initiated an open-label, safety extension study (OLSES) evaluating the longer-term safety and durability of response of subjects whocompleted 48 weeks of evaluations in the confirmatory safety and efficacy Phase 3 studies evaluating CHS-0214 in patients with rheumatoid arthritis andpsoriasis. We expect enrolling up to 400 subjects in this study.CHS-1420 (Our Adalimumab (Humira) Biosimilar Candidate)Product OverviewAdalimumab (Humira), which is the reference, or originator, product for CHS-1420, is a monoclonal antibody that can bind to a substance in the bodyknown as tumor necrosis factor, or TNF, thereby inhibiting the known effect of this substance as a potent mediator of inflammation. Humira thus provides atherapeutic benefit for treatment of various inflammatory diseases characterized by increased production of TNF in the body. However, it is also known thatHumira can bind to receptors on white blood cells which may lessen the ability of the body’s immune system to fight infections.Humira has been approved by the EMA and the FDA for the treatment of the following indications only when conventional therapies are notsufficiently effective: ·rheumatoid arthritis; ·juvenile idiopathic arthritis; ·psoriatic arthritis; ·ankylosing spondylitis; ·Crohn’s disease; ·ulcerative colitis; and ·psoriasis.15 Humira has been approved by the PMDA for the treatment of the following indications only when conventional therapies are not sufficientlyeffective: ·rheumatoid arthritis; ·psoriatic arthritis; ·psoriasis; and ·Behçet’s disease.Worldwide sales of Humira are projected to exceed $15 billion in 2017, with about $11.4 billion in the United States and $4.5 billion in Europe, thetwo primary regions in which we plan to focus our commercialization efforts. CHS-1420 will target a large global anti-TNF market, including but not limitedto the worldwide market for the originator product, Humira. According to Evaluate Pharma, in 2017, sales of Humira worldwide and of Enbrel in the UnitedStates are projected to exceed $20 billion.Current Development Status and DataWe have successfully advanced CHS-1420 through steps 1 through 4 of biosimilar drug development, and we have completed a pivotal Phase 1 PK /PD study comparing CHS-1420 to Humira in healthy volunteers. This Phase 1 PK study met the primary endpoint and demonstrated bioequivalence for allprospectively defined endpoints and was conducted under an IND application in the United States. We initiated a Phase 3 clinical trial in psoriasis in August2015 to support the planned filing of a marketing application in the United States in the second half of 2016 and the E.U. in 2017. We initiated a Phase 1 PKbridging study comparing our Phase 3 material to U.S. manufactured Humira in the first quarter of 2016 and plan to initiate a study bridging to E.U.manufactured Humira in mid-2016. We reached concurrence with regulatory authorities the United States and Europe with the objective of designing aharmonized global Phase 3 program to support registration in these territories. If approved, we believe we will be able to extrapolate the data from our trial inpsoriasis to gain approval for CHS-1420 in all the indications included in the label for Humira.Step 1: Cell Line Development and ManufacturingAs with all our molecules, we matched the amino acid sequence of CHS-1420 to the originator molecule (Humira) prior to development anddemonstrated it to be identical. We established MCBs and WCBs and transferred the manufacturing process to a U.S. CMO for manufacturing of Phase 1study and Phase 3 clinical trial supplies.Step 2: Analytical Characterization and In Vitro ComparabilityWe accomplished characterization of CHS-1420 and Humira by a multi-dimensional analytical study, demonstrating a high degree of similaritybetween Humira and CHS-1420. Through extensive biochemical, biophysical and biological analysis we have shown that CHS-1420 has a structure and invitro activity similar to that of Humira with respect to primary sequence (the linear sequence of the amino acids in the protein), protein folding (the structureof the protein in three dimensions which is critical to its biological function) and charge profiles (the overall electrical charge characteristic of the proteinresulting from the electrical charges of its constituent amino acids), as well as the protein’s glycosylation profile and potency.We have also shown CHS-1420 to be highly similar to Humira through in vitro receptor binding studies, specifically in its ability to inhibit TNF-amediated cell death. In all of these studies we demonstrated CHS-1420 to have similar pharmacological activity to Humira by evaluating the binding of bothCHS-1420 and Humira to Fc receptors, complement (C1q) and Fc-mediated functional activities: ADCC and CDC.Step 3: In Vivo Animal ComparabilityWe conducted two nonclinical studies in monkeys in order to compare the PK and nonclinical safety profile of CHS-1420 to Humira. Following onemonth of repeat dosing, we determined the pharmacokinetics of CHS-1420 to be similar to that of Humira.Step 4: Pivotal Phase 1 Human Pharmacokinetic and Pharmacodynamic StudyIn April 2014, we initiated a Phase 1 pivotal PK study in human subjects. This is a single dose, double-blind parallel group study designed todemonstrate bioequivalence between CHS-1420 and Humira. A secondary objective was to assess the safety and tolerability of CHS-1420 in this population.The study has been successfully completed and met the primary endpoint and demonstrated bioequivalence with respect to the three prospectively definedPK endpoints. CHS-1420 and Humira were both well tolerated in this single-dose study in healthy adult volunteers.16 We initiated a Phase 1 PK bridging studies comparing our Phase 3 material to U.S. manufactured Humira in the first quarter of 2016 and plan to initiatea Phase 1 bridging study to E.U. manufactured Humira in mid-2016.Step 5: Phase 3 Confirmatory Safety and Efficacy Clinical TrialsIn August 2015, we initiated a multi-center, global, randomized, double-blind, active-controlled, Phase 3 clinical trial in psoriasis that plans to enrollapproximately 500 subjects. This study would be considered the primary confirmatory safety and efficacy study to support a registration filing.Ophthalmology Pipeline OpportunityCHS-3351 (Our Ranibizumab (Lucentis) Biosimilar Candidate)Ranibizumab is a monoclonal antibody fragment (Fab) created from the same parent mouse antibody as bevacizumab and produced through amicrobial culture. It is an anti-angiogenic that has been first approved to treat age-related wet macular degeneration, or AMD. Like bevacizumab,ranibizumab blocks angiogenesis by inhibiting VEGF-A.Ranibizumab achieved approximately $4.3 billion in worldwide sales in 2014, and is expected to decrease to approximately $3 billion in 2020, whenthe composition of matter patent on ranibizumab expires in the United States. We selected ranibizumab (Lucentis) as the biosimilar development target forour biosimilar, CHS-3351, to leverage the analytics deployed on bevacizumab and because we could address a concentrated market where we can focusresources and establish a therapeutic franchise.Current Development Status and DataStep 1: Cell Line Development and ManufacturingWe have identified the amino acid sequence of CHS-3351 and confirmed that it is identical to the reference product, Lucentis. We are currentlyestablishing Master Cell Banks, or MCBs, as well as Working Cell Banks, or WCBs. We are currently transferring the manufacturing process to a US CMO forproduction of material to supply toxicology studies and clinical trials. Early-Stage Biosimilar Pipeline Beyond the products we are currently advancing, there is significant value in the biosimilar product development platform we have built. With thesame rigorous discipline we have put in place to develop our current clinical portfolio, we have created a repeatable process that we believe will acceleratenew products through our pipeline and create long term value.We are continuously performing a product opportunity review of additional biosimilar pipeline candidates in conjunction with our scientific advisoryboard and we plan to submit one or two new investigational new drug (IND) applications per year.Sales and MarketingOur strategy entails licensing product rights outside of the United States to commercially proficient entities, while retaining U.S. rights tocommercialization. Because the sales call points for our clinical stage assets in the United States are highly concentrated and addressable by a relativelysmall commercial organization, the preservation of U.S. rights allows us the flexibility to cost effectively build our own commercial capability should wedetermine that to be the most effective path. For example, the majority of Humira prescriptions flow through rheumatology physicians, the smallestprescribing set in the category. In the circumstance of a collaboration model outside of the United States involving a joint governance structure, a strategicmarketing capability will be employed to provide decision support to the collaboration.ManufacturingWe have entered into agreements with several CMOs for the manufacture and clinical drug supply for our lead products candidates. We continue toscreen other contract manufacturers to meet our clinical, commercial and regulatory supply requirements on a product-by-product basis. In December 2015,we entered into a strategic commercial supply agreement with KBI Biopharma for the supply of CHS-1701. For a discussion of risks related to our sources andavailability of supplies, please see “Risk Factors — Risks Related to our Ability to Hire Highly Qualified Personnel and our Reliance on Third Parties.”17 CompetitionThe development and commercialization of protein-based therapeutics is highly competitive. While we believe that our biologics platform,knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources. Suchcompetition includes larger and better-funded pharmaceutical, generic pharmaceutical, specialty pharmaceutical and biotechnology companies, as well asoriginator companies and any other firms developing the biosimilars that would compete with the product candidates in our pipeline and other novelproducts with similar indications. For example, CHS-0214 may compete with products developed by Pfizer, Inc., or Pfizer, (which holds ex-North Americarights to Enbrel, the reference product of CHS-0214), Sandoz (as a biosimilar company) and Samsung Bioepis Co Ltd., or Samsung Bioepis. Similarly, CHS-1420 may face competition from AbbVie (the holder of rights to Humira, the reference product of CHS-1420), Sandoz (as a biosimilar company), Amgen,Actavis, Plc, or Actavis, Pfizer, Momenta Pharmaceuticals, Inc., or Momenta, and Boehringer Ingelheim (as biosimilar companies and as developers of novelproducts). CHS-1701 may face competition from Amgen (which holds rights to Neulasta, the reference product of CHS-1701), Sandoz (as a biosimilarcompany), Apotex Inc., or Apotex, and Hospira and Teva (as developers of novel products).Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we doand significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatmentsand commercializing those treatments. Accordingly, our competitors may be more successful than we are in obtaining approval for treatments and achievingwidespread market acceptance. Our competitors’ treatments may be more effective or more effectively marketed and sold than any treatment we maycommercialize and may render our treatments obsolete or non-competitive before we can recover the expenses of developing and commercializing any of ourproduct candidates.Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smallernumber of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel andestablishing clinical study sites and subject registration for clinical studies, as well as in acquiring technologies complementary to or necessary for ourprograms. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large andestablished companies.We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, price and the availabilityof reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop andcommercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products thatwe may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours,which could result in our competitors establishing a strong market position before we are able to enter the market.Collaboration and License AgreementsLicense Agreement with Daiichi Sankyo Company, LimitedIn January 2012, we entered into a license agreement with Daiichi Sankyo for the development and commercialization of certain biosimilar productsin certain territories. Under this agreement, we granted to Daiichi Sankyo an exclusive, royalty-bearing license to develop, commercialize and use biosimilarversions of etanercept (Enbrel) and rituximab (Rituxan) for the treatment of human diseases and conditions in Japan, Taiwan and South Korea. Under thisagreement, Daiichi Sankyo has an option, exercisable only within a certain time period, to obtain an exclusive license to develop and commercialize certainbiosimilar products in China. Daiichi Sankyo also has an option, exercisable at any time during the term of the agreement, to obtain a license to manufacturelicensed products to support development and commercialization of licensed products in the licensed territory, on a product-by-product basis. Prior toDaiichi Sankyo’s exercise of its manufacturing option, we are responsible for manufacturing and supplying to Daiichi Sankyo licensed products pursuant to amanufacturing and supply agreement to be entered under the terms of this agreement.In May 2012, Daiichi Sankyo terminated its licensed rights, solely as to CHS-0214, in Taiwan and South Korea. In August 2012, Daiichi Sankyodeclined its right to expand the territory to include China. In July 2014, Daiichi Sankyo terminated all of its licensed rights to a biosimilar rituximab product.Upon execution of the agreement, we received an upfront payment in cash of $10.0 million and $20.0 million in the form of an equity investment. Weare eligible to receive from Daiichi Sankyo tiered royalties based on a percentage of net sales of licensed products in the licensed territory ranging from thelow double digits to high teens, on a product-by-product basis. If we are manufacturing product, we are eligible to receive an incremental royalty reflectingour manufacturing costs for each licensed product which, when combined with the base royalty, will result in royalties equal to a percentage of net sales oflicensed products ranging from the low- to high-twenties, on a product-by-product basis.18 Our agreement with Daiichi Sankyo will expire on a product-by-product and country-by-country basis ten years after receipt of regulatory approval forsuch product in such country, subject to possible three-year extensions at Daiichi Sankyo’s sole discretion, if Daiichi Sankyo is then manufacturing therelevant product, or otherwise by mutual agreement of the parties, based on the approval of a commercial plan in the year before such extension would takeeffect. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period. Prior tocommercialization, Daiichi Sankyo may terminate the agreement on a product-by-product and country-by-country basis within specific time periods afterachieving certain development milestones only if Daiichi Sankyo concludes, in good faith, that the product is not commercially viable, that there arematerial safety, efficacy or tolerability issues that cannot be overcome or that there would be difficulties caused by internal or portfolio reasons. Aftercommencement of commercialization, Daiichi Sankyo may terminate the agreement on a product-by-product and country-by-country basis with one year’sprior written notice to us only if Daiichi Sankyo concludes, in good faith, that the product is not commercially viable, that there are material safety, efficacyor tolerability issues that cannot be overcome or that there are difficulties caused by internal or portfolio reasons. Either party may terminate the agreementupon bankruptcy or insolvency of the other party, and we may terminate the agreement if Daiichi Sankyo challenges the licensed patents.License Agreement with Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbHIn August 2013, we entered into a license agreement with Baxter (now Baxalta) for the development, use and commercialization of a biosimilarversion of etanercept (Enbrel). Under this agreement, we granted to Baxalta an exclusive, royalty-bearing license to develop, commercialize and use abiosimilar version of etanercept (Enbrel) for the treatment of human diseases and conditions worldwide, excluding the United States, Japan and certainCaribbean and Latin American countries. Under this agreement, Baxalta has the exclusive, time-limited right to negotiate and enter into a definitiveagreement with a third party relating to the commercialization of the licensed product in an additional, specified country. If Baxalta fails to do so within thespecified time period, we will obtain a right to pursue such an agreement for such product in such country as well. Baxalta may also elect to enter into anagreement with us for the development and commercialization of an additional biosimilar product. Additionally, if Baxalta decides not to proceed withdevelopment of the licensed product solely based on certain clinical results failing to demonstrate pharmacokinetic bioequivalence, material safety issueswith the licensed product based on such clinical results that cannot be remedied or overcome or the identification of violations by third party vendors ofapplicable laws relating to quality of licensed products that in the aggregate would preclude the ability of such vendors to qualify under Baxalta’s standardvendor qualification policies and procedures, then Baxalta has the right to identify up to two additional biosimilar products for which Baxalta would have aright of first refusal or the right to negotiate a term sheet for development and commercialization of such additional products at Baxalta’s election. We areresponsible for the manufacture and supply of licensed product pursuant to a manufacturing agreement to be entered into under the terms of this Agreement.Upon execution of the license agreement, we received an upfront payment in cash of $30.0 million. We are eligible to receive from Baxalta tieredroyalties, based on the manufacturing cost as a percentage of net sales of licensed products, ranging from the mid-single digits to the high teens on a country-by-country basis. These royalties are subject to certain offsets and reductions. We are also eligible to receive milestone payments for achievement of specifieddevelopment and regulatory milestones totaling up to $216.0 million. In February 2014, we amended the license agreement to increase the eligible milestonepayments by $5.3 million to an aggregate amount of $221.3 million. Contingent payments intended to cover development-related expenses are potentiallyreimbursable, in part, to Baxalta in certain limited circumstances. The amounts that are potentially reimbursable to Baxalta contain a claw-back feature that,in the event that we commercialize a biosimilar version of etanercept (Enbrel) in the United States, as opposed to Baxalta opting-in to commercialize themolecule in the United States, fifty percent (50%) of those contingent payments are refundable to Baxalta.In April 2015, we entered into a second amendment (the “Second Amendment”) to the license agreement with Baxalta . Under the terms of the SecondAmendment, a revised milestone payment structure totaling $130.0 million replaced certain existing milestone and funding obligations under the licenseagreement as originally executed. Therefore, we are eligible to receive up to $335.3 million in milestones payments for achievement of specific developmentand regulatory milestones. The Second Amendment does not provide for any change in the contracted deliverables set forth in the license agreement.Likewise, if we commercialize CHS-0214, our etanercept biosimilar product, in the United States, we will be required to refund a portion of the milestonepayments received from Baxalta as specified in the Second Amendment. A portion of each of the $130.0 million milestones would be subject to refund.19 Our agreement with Baxalta will expire in its entirety ten years from August 2013, subject to possible three-year extensions on a country-by-countrybasis at Baxalta’s discretion provided the parties have agreed upon a commercialization plan for such country at least six months prior to the date uponwhich the term would otherwise expire in such country. Either party may terminate the agreement for any material breach by the other party that is not curedwithin a specified time period. Baxalta may terminate the agreement in its entirety or on a country-by-country basis on written notice to us within specifiedtime periods if Baxalta concludes in good faith that the product is not commercially viable or that there are material safety, efficacy or tolerability issues thatcannot be overcome. Baxalta may also terminate the agreement in its entirety in Baxalta’s sole discretion after first commercial sale upon 18 months priorwritten notice or if certain types of costs for which it is responsible exceed specified levels. Either party may terminate the agreement upon bankruptcy orinsolvency of the other party, and we may terminate the agreement if Baxalta challenges the licensed patents.Distribution Agreement with Orox Pharmaceuticals B.V.In December 2012, we entered into a distribution agreement with Orox Pharmaceuticals B.V., or Orox, for the commercialization of biosimilar versionsof etanercept (Enbrel), rituximab (Rituxan), adalimumab (Humira) and pegfilgrastim (Neulasta). Under this agreement, we granted to Orox an exclusivelicense to commercialize the products for the treatment of human diseases and conditions in certain Caribbean and Latin American countries. Under thisagreement, Orox has an option, exercisable within a defined time period, to obtain an exclusive license to commercialize certain additional biosimilarproducts in the same field and territory. We are obligated to manufacture and supply licensed products to Orox.We are obligated to develop licensed products and achieve regulatory approval for such products outside of the Caribbean and Latin Americancountries covered by the agreement by specified dates in order to support Orox’s activities under the agreement in its licensed territory. We are eligible toreceive from Orox a share of gross profits in the low 20 percent range from the sale of licensed products, on a product-by-product basis.Our agreement with Orox will expire on a product-by-product and country-by-country basis ten years after regulatory approval of such product in suchcountry, subject to automatic three-year extensions unless Orox notifies us in writing at least 18 months in advance of the date upon which the term wouldotherwise expire that it does not wish to extend the term for such product in such country. Either party may terminate the agreement for material breach by theother party that is not cured within a specified time period. Orox may terminate the Agreement for convenience on a product-by-product basis at any timeupon 12-months prior written notice. Either party may terminate the agreement upon bankruptcy or insolvency of the other party, and we may terminate theagreement immediately upon written notice to Orox if Orox challenges the licensed patents or commits a breach of specified provisions of the agreement.License Agreement with Genentech, Inc.In July 2013, we entered into a license agreement with Genentech, under which we obtained a royalty-bearing, non-exclusive, sublicensable licenseunder a family of patents, commonly referred to as the Cabilly patents, to manufacture, use and commercialize products containing antibodies that bind toTNF- a. In consideration for the rights granted to us under the agreement, we made a cash up-front payment to Genentech and are required to make a paymentof $5.0 million based upon achievement of a regulatory milestone. We will also be required to pay tiered royalties on net sales of products covered by the in-licensed patents ranging from the low- to mid-single digits.We may terminate the agreement at any time upon sixty days prior written notice to Genentech. Genentech may terminate the agreement for anymaterial breach by us that is not cured within a specified time period or in the event of our insolvency. Genentech may also terminate the agreement if wechallenge the licensed patents. Absent earlier termination, the agreement with Genentech will expire on a country-by-country basis on the expiration of thelast valid patent claim.License Agreements with Selexis SAIn April 2011 and June 2012, we entered into license agreements with Selexis SA, or Selexis, under which Selexis granted to us royalty-bearing, non-exclusive, sublicensable licenses under Selexis’s intellectual property rights to manufacture, use and commercialize two of our biosimilar products usingSelexis cell lines. In consideration for the rights granted to us under the agreements, we made cash upfront payments to Selexis and are required to makepayments based upon the achievement of certain development, regulatory and commercial milestones for such biosimilar products, totaling up to €210,000for each of the two products, or a total aggregate amount of €420,000. In addition, we are also required to pay a royalty as a percentage of revenue on aproduct-by-product and country-by-country basis in the low-single digits.20 We may terminate each agreement at any time upon sixty days written notice to Selexis. Either we or Selexis may terminate an agreement for anymaterial breach by the other party that is not cured within a specified time period or in the event of the other party’s insolvency. Absent earlier termination,the agreements with Selexis terminate on a country-by-country and product-by-product basis on the expiration of the last-to-expire or lapse of the validpatent claims covering such product in such country.Intellectual PropertyOur commercial success depends in part on our ability to avoid infringing the proprietary rights of third parties, our ability to obtain and maintainproprietary protection for our technologies where applicable and to prevent others from infringing our proprietary rights. We seek to protect our proprietarytechnologies by, among other methods, filing U.S. and international patent applications on these technologies, inventions and improvements that areimportant to our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietaryposition.The term of individual patents depends upon the legal term of the patents in countries in which they are obtained. In most countries, including theUnited States, the patent term is generally 20 years from the earliest date of filing a non-provisional patent application in the applicable country. In theUnited States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by theUnited States Patent and Trademark Office in examining and granting a patent or may be shortened if a patent is terminally disclaimed over a commonlyowned patent or a patent naming a common inventor and having an earlier expiration date.In the normal course of business, we pursue patent protection for inventions related to our biosimilar product candidates, including proteinmanufacture and formulation inventions. We are owners of a portfolio of issued and pending patent applications, all of which pertain to our productcandidates. We have 157 pending patent applications, and one issued patent, the United States and in other countries covering formulations and manufactureof CHS-0214, which if granted are expected to expire in 2032, 2033 and 2035. We have 35 pending patent applications in the United States and in othercountries covering CHS-1420, which if granted are expected to expire in 2033, 2035, and 2036.We have non-exclusive licenses from Selexis under patents and patent applications granted or filed in the United States and other countries that coverSelexis’s recombinant cell line technology in two families. One family of patents is directed to methods for transfecting eukaryotic cells with nucleic acidvectors using Matrix Attachment Regions, or MARs, elements to increase stable and transient transfection efficiency. The second family of patents is relatedto purified and isolated DNA sequences having protein production increasing activity and to the use of MARs for increasing protein production activity in aeukaryotic cell. The licensed patents are expected to expire between 2023 and 2026.We have a non-exclusive license from Genentech under two U.S. patents which are commonly known as the “Cabilly” patents. The Cabilly patentscover key steps of therapeutic antibody manufacturing methods. One of the Cabilly patent covers a process for producing an immunoglobulin molecule (Ig)in a single host cell; the second Cabilly patent covers a method for making an antibody heavy chain and antibody light chain in a recombinant host cell.Both licensed patents are expected to expire in December 2018.To date we have not licensed any patents from Daiichi Sankyo or Baxalta.We do not know whether any of the pending patent applications described above will result in the issuance of any patents or whether the rightsgranted under any patents issuing from these applications will prevent any of our competitors from marketing similar products that may be competitive withour own. Moreover, even if we do obtain issued patents, they will not guarantee us the right to use our patented technology for commercialization of ourproduct candidates. Third parties may have blocking patents that could prevent us from commercializing our own products, even if our products use orembody our own, patented inventions.The validity and enforceability of patents are generally uncertain and involve complex legal and factual questions. Any patents that may issue on ourpending applications may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing products similar toours. Furthermore, our competitors may develop similar or alternative technologies not covered by any patents that may issue to us.In a merger completed February 12, 2014, we acquired InteKrin Therapeutics Inc., or InteKrin. InteKrin is developing a small molecule peroxisomeproliferator-activated receptor, or PPAR, gamma inhibitor, CHS-131 (formerly INT-131), for the treatment of multiple sclerosis which we believe may becomplementary with one or more biologic therapeutics for multiple sclerosis we are currently evaluating as a potential candidate for inclusion in our pipelineof biosimilar products. InteKrin is the exclusive licensee of certain U.S. and foreign patents and patent applications owned by Amgen, covering the specificPPAR gamma inhibitor molecule that InteKrin is developing. InteKrin also owns pending patent filings related to this PPAR gamma inhibitor.21 InteKrin has an exclusive license from Amgen under 120 patents and patent applications granted or filed in the United States and other countries thatcover PPAR gamma inhibitor molecules and therapeutic product compositions that are expected to expire in 2020 and 2021, as well as certain salt forms andpolymorphic forms of PPAR gamma inhibitor molecules that are expected to expire in 2024 (with possible Hatch-Waxman patent term extension).Additionally, InteKrin owns 25 patents and patent applications granted or filed in the United States and other countries that cover solid forms of PPARgamma pharmaceutical compositions, treatment of diabetes, treatment of multiple sclerosis and treatment of non-alcoholic fatty liver disease orlipodystrophy that, if granted, are expected to expire in 2031, 2034 and 2036.In March 2015, we initiated a proof-of-concept Phase 2 trial in relapsing, remitting multiple sclerosis patients in the Russian Republic. This trialenrolled subjects in three treatment arms of 1 mg, 3mg and placebo with approximately 75 subjects per arm. We anticipate completion of this trial in mid-2016. The trial will continue with an open-label study of 24 weeks.For technologies for which we do not seek patent protection, we may rely on trade secrets to protect our proprietary position. However, trade secretsare difficult to protect. We seek to protect our technology and product candidates, in part, by entering into confidentiality agreements with those who haveaccess to our confidential information, including our employees, consultants, advisors, contractors or collaborators. We also seek to preserve the integrity andconfidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of ourinformation technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may bebreached and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discoveredby competitors. To the extent that our employees, consultants, advisors, contractors and collaborators use intellectual property owned by others in their workfor us, disputes may arise as to the rights in related or resulting know-how and inventions. For a discussion of risks related to our proprietary technology andprocesses, please see “Risk Factors — Risks Related to Intellectual Property.”RegulatoryGovernment Regulation and Product ApprovalGovernment authorities at the federal, state and local level in the United States and in other countries extensively regulate, among other things, theresearch, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and exportof pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries,along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.FDA Approval ProcessAll of our current product candidates are subject to regulation in the United States by the FDA as biological products, or biologics. The FDA subjectsbiologics to extensive pre- and post-market regulation. The Public Health Service Act, or PHSA, the Federal Food, Drug and Cosmetic Act, or FFDCA, andother federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of biologics. Failure tocomply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pendingBLAs, withdrawal of approvals, clinical holds, warning letters, product recalls, product seizures, total or partial suspension of production or distribution,injunctions, fines, civil penalties or criminal penalties.The PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The PHSA also providesauthority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event ofshortages and critical public health needs and to authorize the creation and enforcement of regulations to prevent the introduction or spread ofcommunicable diseases in the United States and between states.The process required by the FDA before a new biologic may be marketed in the United States is long, expensive and inherently uncertain. Biologicsdevelopment in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug, orIND, which must become effective before clinical testing may commence and adequate and well-controlled clinical trials to establish the safety andeffectiveness of the biologic for each indication for which FDA approval is sought. Developing the data to satisfy FDA pre-market approval requirementstypically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.22 Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics andpotential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including goodlaboratory practices. An IND is a request for authorization from the FDA to administer an investigational new product to humans. The central focus of an INDsubmission is on the general investigational plan and the protocol(s) for human studies, although the IND must also include the results of preclinical testingand animal testing assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product along with otherinformation, including information about product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long-term preclinical tests,such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.An IND must become effective before United States clinical trials may begin. A 30-day waiting period after the submission of each IND is requiredprior to the commencement of clinical testing in humans. If during the 30-day waiting period the FDA raises concerns or questions related to the proposedclinical studies, the sponsor and the FDA must resolve any outstanding concerns or questions before clinical studies can begin. If the FDA has neithercommented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.Clinical trials involve the administration of the investigational new drug or biologic to healthy volunteers or patients with the condition underinvestigation, all under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) incompliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinicaltrial sponsors, administrators and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safetyand the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to theFDA as part of the IND.The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinicaltrial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol andinformed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may alsorequire the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose otherconditions. The study sponsor may also suspend a clinical trial at any time on various grounds, including a determination that the subjects or patients arebeing exposed to an unacceptable health risk.Abbreviated Licensure Pathway of Biological Products as Biosimilar under 351(k)The Biologics Price Competition and Innovation Act of 2009, or BPCIA, amended the PHSA and created an abbreviated approval pathway forbiological products shown to be highly similar to an FDA-licensed reference biological product. The BPCIA attempts to minimize duplicative testing andthereby lower development costs and increase patient access to affordable treatments. For example, in contrast to the 351(a) (novel biologic) approvalpathway discussed above, our experience to date with the FDA indicates that an application for licensure of a biosimilar product under the 351(k) (biosimilar)approval pathway may proceed on the basis of only two clinical study phases (typically termed Phase 1 and Phase 3) with supporting analytical and animalstudies, as compared with the requirement for three study phases under the 351(a) (novel biologics) approval pathway. Thus, under the 351(k) (biosimilar)approval pathway, an application for licensure of a biosimilar product must include information demonstrating biosimilarity based upon the following,unless the FDA determines otherwise: ·analytical studies demonstrating that the proposed biosimilar product is highly similar to the approved product notwithstanding minordifferences in clinically inactive components; ·animal studies (including the assessment of toxicity); and ·two clinical study phases: first, a clinical study or studies (generally termed “Phase 1”) that demonstrate the pharmacokinetic similarity (e.g.bioequivalence study) of the proposed biosimilar to the originator molecule, and second, a clinical study or studies (generally termed “Phase3”) that demonstrate the safety (including immunogenicity), purity and that potency is statistically not inferior to that of the originator in oneor more conditions for which the reference product is licensed and intended to be used.In addition, an application submitted under the 351(k) pathway must include information demonstrating that: ·the proposed biosimilar product and reference product utilize the same mechanism of action for the condition(s) of use prescribed,recommended or suggested in the proposed labeling, but only to the extent the mechanism(s) of action are known for the reference product; ·the condition or conditions of use prescribed, recommended or suggested in the labeling for the proposed biosimilar product have beenpreviously approved for the reference product;23 ·the route of administration, the dosage form and the strength of the proposed biosimilar product are the same as those for the reference product;and ·the facility in which the biological product is manufactured, processed, packed or held meets standards designed to assure that the biologicalproduct continues to be safe, pure and potent.Biosimilarity, as defined in PHSA §351(i), means that the biological product is highly similar to the reference product notwithstanding minordifferences in clinically inactive components and that there are no clinically meaningful differences between the biological product and the referenceproduct in terms of the safety, purity and potency of the product. In addition, section 351(k)(4) of the PHSA provides for a designation of“interchangeability” between the reference and biosimilar products, whereby the biosimilar may be substituted for the reference product without theintervention of the health care provider who prescribed the reference product. The higher standard of interchangeability must be demonstrated by informationsufficient to show that: ·the proposed product is biosimilar to the reference product; ·the proposed product is expected to produce the same clinical result as the reference product in any given patient; and ·for a product that is administered more than once to an individual, the risk to the patient in terms of safety or diminished efficacy of alternatingor switching between the biosimilar and the reference product is no greater than the risk of using the reference product without such alternationor switch.FDA approval is required before a biosimilar may be marketed in the United States. However, complexities associated with the large and intricatestructures of biological products and the process by which such products are manufactured pose significant hurdles to the FDA’s implementation of the351(k) approval pathway that are still being worked out by the FDA. For example, the FDA has discretion over the kind and amount of scientific evidence —laboratory, preclinical and/or clinical — required to demonstrate biosimilarity to a licensed biological product. The FDA intends to consider the totality ofthe evidence, provided by a sponsor to support a demonstration of biosimilarity, and recommends that sponsors use a stepwise approach in the developmentof their biosimilar products. Biosimilar product applications thus may not be required to duplicate the entirety of preclinical and clinical testing used toestablish the underlying safety and effectiveness of the reference product. However, the FDA may refuse to approve a biosimilar application if there isinsufficient information to show that the active ingredients are the same or to demonstrate that any impurities or differences in active ingredients do not affectthe safety, purity or potency of the biosimilar product. In addition, as with BLAs, biosimilar product applications will not be approved unless the product ismanufactured in facilities designed to assure and preserve the biological product’s safety, purity and potency.The submission of an application via the 351(k) pathway does not guarantee that the FDA will accept the application for filing and review, as the FDAmay refuse to accept applications that it finds are incomplete. The FDA will treat a biosimilar application or supplement as incomplete if, among otherreasons, any applicable user fees assessed under the Biosimilar User Fee Act of 2012 have not been paid. In addition, the FDA may accept an application forfiling but deny approval on the basis that the sponsor has not demonstrated biosimilarity, in which case the sponsor may choose to conduct further analytical,preclinical or clinical studies to demonstrate such biosimilarity under section 351(k) or submit a BLA for licensure as a new biological product under section351(a) of the PHSA. For example, the potential for different regulatory outcomes depending on the selected approval pathway has been illustrated inconnection with our development program for CHS-1701. At the outset of our development effort for this product candidate, we elected to proceed under the351(a) (novel biologic) approval pathway. However, although our Phase 1 PK / PD trial for CHS-1701 met its primary endpoint and was satisfactory forpurposes of pursuing the 351(a) (novel biologic) approval pathway (which does not require bioequivalence to the originator drug), the trial did not establishbioequivalence to Neulasta sufficient to support the 351(k) (biosimilar) approval pathway. To preserve the option of pursuing a 351(k) (biosimilar) approvalpathway for CHS- 1701, we are making necessary preparations that would enable us to conduct a new pivotal Phase 1 PK / PD study in healthy volunteers,but have not yet made a decision to proceed with this additional study.24 The timing of final FDA approval of a biosimilar for commercial distribution depends on a variety of factors, including whether the manufacturer ofthe branded product is entitled to one or more statutory exclusivity periods, during which time the FDA is prohibited from approving any products that arebiosimilar to the branded product. The FDA cannot approve a biosimilar application for 12 years from the date of first licensure of the reference product.Additionally, a biosimilar product sponsor may not submit an application under the 351(k) pathway for four years from the date of first licensure of thereference product. A reference product may also be entitled to exclusivity under other statutory provisions. For example, a reference product designated for arare disease or condition, or an orphan drug, may be entitled to seven years of exclusivity under section 360cc of the FFDCA, in which case no product that isbiosimilar to the reference product may be approved until either the end of the 12-year period provided under §351(k) or the end of the seven year orphandrug exclusivity period, whichever occurs later. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent and thusblock §351(k) applications from being approved on or after the patent expiration date. In addition, the FDA may under certain circumstances extend theexclusivity period for the reference product by an additional six months if the FDA requests, and the manufacturer undertakes, studies on the effect of itsproduct in children, a so-called pediatric extension.The first biological product determined to be interchangeable with a branded product for any condition of use is also entitled to a period ofexclusivity, during which time the FDA may not determine that another product is interchangeable with the reference product for any condition of use. Thisexclusivity period extends until the earlier of: (1) one year after the first commercial marketing of the first interchangeable product; (2) 18 months afterresolution of a patent infringement suit instituted under 42 U.S.C. § 262(l)(6) against the applicant that submitted the application for the first interchangeableproduct, based on a final court decision regarding all of the patents in the litigation or dismissal of the litigation with or without prejudice; (3) 42 monthsafter approval of the first interchangeable product, if a patent infringement suit instituted under 42 U.S.C. § 262(l)(6) against the applicant that submitted theapplication for the first interchangeable product is still ongoing; or (4) 18 months after approval of the first interchangeable product if the applicant thatsubmitted the application for the first interchangeable product has not been sued under 42 U.S.C. § 262(l)(6).Advertising and PromotionOnce a BLA is approved, a product will be subject to continuing post-approval regulatory requirements, including, among other things, requirementsrelating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with theproduct. For instance, the FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Failureto comply with these regulations can result in significant penalties, including the issuance of warning letters directing a company to correct deviations fromFDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA and federal and state civil and criminalinvestigations and prosecutions.Biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. After approval, mostchanges to the approved product, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval ofa new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to thatin the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs. There are alsocontinuing annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as newapplication fees for supplemental applications with clinical data.Adverse Event Reporting and GMP ComplianceAdverse event reporting and submission of periodic reports are required following FDA approval of a BLA. The FDA also may require post-marketingtesting, including Phase 4 testing, REMS and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approvalthat could restrict the distribution or use of the product. In addition, manufacture, packaging, labeling, storage and distribution procedures must continue toconform to current cGMPs after approval. Biologics manufacturers and certain of their subcontractors are required to register their establishments with theFDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agencyinspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areasof production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals, request product recalls orimpose marketing restrictions through labeling changes or product removals if a company fails to comply with regulatory standards, if it encounters problemsfollowing initial marketing or if previously unrecognized problems are subsequently discovered.25 The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the productreaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency or withmanufacturing processes or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMSprogram. Other potential consequences include, among other things: ·restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; ·fines, warning letters or holds on post-approval clinical trials; ·refusal of the FDA to approve pending applications or supplements to approved applications or suspension or revocation of product licenseapprovals; ·product seizure or detention or refusal to permit the import or export of products; or ·injunctions or the imposition of civil or criminal penalties.Other Healthcare Laws and Compliance RequirementsAlthough we currently do not have any products on the market, if our product candidates are approved and we begin commercialization, we will besubject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. Theselaws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws andregulations.The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providingremuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, forwhich payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The Anti-Kickback Statute is subject toevolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare companies based onsham consulting and other financial arrangements with physicians. Further, the recently enacted Patient Protection and Affordable Care Act, as amended bythe Health Care and Education Reconciliation Act, or collectively, the PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and the criminal statute governing healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutesor specific intent to violate them. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from aviolation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil moneypenalties statute. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply to items or servicesreimbursed by any third-party payor, including commercial insurers.Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim forpayment to the U.S. government. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual inthe name of the government. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal governmentis using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnologycompanies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices.The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictionsunder applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devotesubstantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. ThePPACA, among other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, aswell as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civilmonetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfersof value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers wererequired to begin collecting data on August 1, 2013 and submit reports on aggregate payment data to the government for the first reporting period (August 1,2013 — December 31, 2013) by March 31, 2014 and to report detailed payment data for the first reporting period and submit legal attestation to the accuracyof such data by June 30, 2014. Thereafter, drug manufacturers must submit reports by the 90th day of each subsequent calendar year. Certain states alsomandate implementation of commercial compliance programs, impose restrictions on pharmaceutical manufacturer marketing practices and/or require thetracking and reporting of gifts, compensation and other remuneration to physicians.26 The shifting commercial compliance environment and the need to build and maintain robust systems to comply with different compliance and/orreporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements. If ouroperations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including,without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal andstate healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.International RegulationIn addition to regulations in the United States, a variety of foreign regulations govern clinical trials, commercial sales and distribution of productcandidates. The approval process varies from country to country and the time to approval may be longer or shorter than that required for FDA approval. InEurope, the approval of a biosimilar for marketing is based on an opinion issued by the European Medicines Agency and a decision issued by the EuropeanCommission. However, substitution of a biosimilar for the originator is a decision that is made at the local (national) level on a country-by-country basis.Additionally, a number of European countries do not permit the automatic substitution of biosimilars for the originator product. Other regions, includingCanada, Japan and Korea, also have their own legislation outlining a regulatory pathway for the approval of biosimilars. In some cases, other countries haveeither adopted European guidance (Singapore and Malaysia) or are following guidance issued by the World Health Organization (Cuba and Brazil). Whilethere is overlap in the regulatory requirements across regions, there are also still some areas of non-overlap.Pharmaceutical Coverage, Pricing and ReimbursementIn the United States and other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on theavailability of coverage and reimbursement from third-party payors, including government health administrative authorities, managed care providers, privatehealth insurers and other organizations. Third-party payors are increasingly examining the medical necessity and cost effectiveness of medical products andservices in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Inaddition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including pricecontrols, restrictions on coverage and reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containmentmeasures and adoption of more restrictive policies in jurisdictions with existing controls and measures could further limit our net revenue and results.Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reducephysician utilization of our products and have a material adverse effect on our sales, results of operations and financial condition.EmployeesAs of December 31, 2015, we had 109 full-time employees, including a total of 24 employees with M.D. or Ph.D. degrees. Within our workforce, 76employees are engaged in research and development and 33 in business development, finance, legal, human resources, facilities, information technology andgeneral management and administration.Corporate and Available InformationWe were incorporated in Delaware in 2010. We completed the initial public offering of our common stock in November 2014. Our common stock iscurrently listed on The NASDAQ Global Market under the symbol “CHRS.”Our principal executive offices are located at 333 Twin Dolphin Drive, Suite 600, Redwood City, CA 94065, and our telephone number is (650) 649-3530.You may find on our website at http://www.coherus.com electronic copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Suchfilings are placed on our website as soon as reasonably possible after they are filed with the SEC. Our most recent charter for our audit, compensation, andnominating and corporate governance committees and our Code of Ethics are available on our website as well. Any waiver of our Code of Ethics may bemade only by our Board of Directors. Any waiver of our Code of Ethics for any of our directors or executive officers must be disclosed on a Current Report onForm 8-K within four business days, or such shorter period as may be required under applicable regulation.27 You can read our SEC filings over the Internet at the SEC’s web site at www.sec.gov. You may also read and copy any document we file with the SECat its public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed ratesby writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (202) 551-8090 or(800) 732-0330 for further information on the operation of the public reference facilities. Item 1A.Risk FactorsYou should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. Ifany of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. Therisks described below are not the only risks facing the Company. Risks and uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financial condition, results of operations and/or prospects.Risks Related to Our Financial Condition and Capital RequirementsWe have a limited operating history in an emerging regulatory environment on which to assess our business, have incurred significant losses since ourinception and anticipate that we will continue to incur significant losses for the foreseeable future.We are a biopharmaceutical company with a limited operating history in an emerging regulatory environment. We have incurred net losses in eachyear since our inception in September 2010, including net losses of $223.9 million, $87.2 million and $53.6 million for the years ended December 31, 2015,2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of $410.0 million.We have devoted substantially all of our financial resources to identify and develop our product candidates, including conducting, among otherthings, analytical characterization, process development and manufacturing, formulation and clinical studies, and providing general and administrativesupport for these operations. To date, we have financed our operations primarily through the sale of equity securities and convertible notes, as well as throughour license agreements with Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH (collectively “Baxalta”), and Daiichi Sankyo Company, Limited, orDaiichi Sankyo. In the second quarter of 2015, Baxalta assigned its rights and obligations under our license agreement to Baxalta. The amount of our futurenet losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings or strategiccollaborations. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are in Phase 3 orother BLA-enabling clinical development with all three of our lead products, CHS-0214 (our etanercept (Enbrel) biosimilar candidate), CHS-1420 (ouradalimumab (Humira) biosimilar candidate) and CHS-1701 (our pegfilgrastim (Neulasta) biosimilar candidate). It may be several years, if ever, before wecomplete Phase 3 or other BLA-enabling clinical trials and have a product candidate ready to file for market approval with the relevant regulatory agencies. Ifwe obtain regulatory approval to market a biosimilar product candidate, our future revenue will depend upon the size of any markets in which our productcandidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate marketshare for our product candidates in those markets. However, even if one or more of our product candidates gain regulatory approval and are commercialized,we may never become profitable.We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses willincrease substantially if and as we: ·continue our nonclinical and clinical development of our product candidates; ·expand the scope of our current clinical studies for our product candidates; ·advance our programs into more expensive clinical studies; ·initiate additional nonclinical, clinical or other studies for our product candidates; ·change or add contract manufacturers, clinical research service providers, testing laboratories, device suppliers, legal service providers or othervendors or suppliers; ·seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies; ·establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; ·seek to identify, assess, acquire and/or develop other biosimilar product candidates or products that may be complementary to our products;28 ·make upfront, milestone, royalty or other payments under any license agreements; ·seek to create, maintain, protect and expand our intellectual property portfolio; ·engage legal counsel and technical experts to help us evaluate and avoid infringing any valid and enforceable intellectual property rights ofthird parties; ·engage in litigation including patent litigation and Inter Partes Reviews (“IPR’s”) with originator companies or others that may hold patents; ·seek to attract and retain skilled personnel; ·create additional infrastructure to support our operations as a public company and our product development and planned futurecommercialization efforts; and ·experience any delays or encounter issues with any of the above, including but not limited to failed studies, conflicting results, safety issues,manufacturing delays, litigation or regulatory challenges that may require longer follow-up of existing studies, additional major studies oradditional supportive studies in order to pursue marketing approval.Further, the net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year such that a period-to-period comparison of ourresults of operations may not be a good indication of our future performance quarter-to-quarter and year-to-year due to factors including the timing of clinicaltrials, any litigation that we may initiate or that may be initiated against us, the execution of collaboration, licensing or other agreements and the timing ofany payments we make or receive thereunder.We have never generated any revenue from product sales and may never be profitable.Although we have received upfront payments, milestone and other contingent payments and/or funding for development from some of ourcollaboration and license agreements (e.g., Baxalta and Daiichi Sankyo), we have no products approved for commercialization and have never generated anyrevenue from product sales. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, tosuccessfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize, one or more of our productcandidates. We cannot predict when we will begin generating revenue from product sales, as this depends heavily on our success in many areas, including butnot limited to: ·attracting, hiring and retaining qualified personnel; ·completing nonclinical and clinical development of our product candidates; ·developing and testing of our product formulations; ·obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies; ·developing a sustainable and scalable manufacturing process for any approved product candidates and establishing and maintaining supplyand manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) products tosupport clinical development and the market demand for our product candidates, if approved; ·launching and commercializing product candidates for which we obtain regulatory and marketing approval, either directly or withcollaboration partners or distributors; ·obtaining adequate third-party coverage and reimbursements for our products; ·obtaining market acceptance of our product candidates as viable treatment options; ·addressing any competing technological and market developments; ·identifying, assessing and developing (or acquiring/in-licensing) new product candidates; ·negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; ·maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and ·defending against any litigation including patent infringement lawsuits, that may be filed against us; or achieving successful outcomes inIPR’s that we have filed, or may in the future file, against third parties.29 Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs tocommercialize any such product. Our expenses could increase beyond our expectations if we are required by the U.S. Food and Drug Administration, or theFDA, the European Medicines Agency, or the EMA, other regulatory agencies, domestic or foreign, or by any unfavorable outcomes in intellectual propertylitigation filed against us, to change our manufacturing processes or assays or to perform clinical, nonclinical or other types of studies in addition to thosethat we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenuewill be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the number of biosimilar competitors in suchmarkets, the accepted price for the product, the ability to get reimbursement at any price, the nature and degree of competition from originators and otherbiosimilar companies (including competition from large pharmaceutical companies entering the biosimilar market that may be able to gain advantages in thesale of biosimilar products based on brand recognition and/or existing relationships with customers and payors) and whether we own (or have partnered) thecommercial rights for that territory. If the market for our product candidates (or our share of that market) is not as significant as we expect, the indicationapproved by regulatory authorities is narrower than we expect or the reasonably accepted population for treatment is narrowed by competition, physicianchoice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are unable to successfullycomplete development and obtain regulatory approval for our products, our business may suffer. Additionally, if we are not able to generate revenue from thesale of any approved products, we may never become profitable.We expect that we will need to raise substantial additional funding. This additional funding may not be available on acceptable terms or at all. Failure toobtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.We are currently advancing three product candidates through late-stage clinical development, which is expensive.As of December 31, 2015, our cash and cash equivalents were $158.2 million. We expect that our existing cash and cash equivalents, together withgross proceeds of $100.0 million received in February 2016 from the issuance of convertible debt and funding we expect to receive under our licenseagreements with Daiichi Sankyo and Baxalta, will be sufficient to fund our current operations for at least the next 12 months; however, we will requireadditional capital to obtain regulatory approval for, and to commercialize, our product candidates. In addition, our operating plans may change as a result ofmany factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements willdepend on many factors, including but not limited to: ·the scope, rate of progress, results and cost of our clinical studies, nonclinical testing and other related activities; ·the cost of manufacturing clinical supplies and establishing commercial supplies, of our product candidates and any products that we maydevelop; ·the number and characteristics of product candidates that we pursue; ·the cost, timing and outcomes of regulatory approvals; ·the cost and timing of establishing sales, marketing and distribution capabilities; ·the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any milestone and royaltypayments thereunder; and ·the cost, timing and outcomes of any litigation that we may file or that may be filed against us by third parties.Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop andcommercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptableto us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders, and the issuance of additionalsecurities, whether equity or debt, by us or the possibility of such issuance may cause the market price of our shares to decline. The sale of additional equityor convertible securities would dilute the share ownership of our existing stockholders. The incurrence of indebtedness could result in increased fixedpayment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitationson our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct ourbusiness. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would bedesirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any ofwhich may have a material adverse effect on our business, operating results and prospects. Even if we believe we have sufficient funds for our current or futureoperating plans, we may seek additional capital if market conditions are favorable or for specific strategic considerations.30 If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research ordevelopment programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our businessopportunities, as desired, which could materially affect our financial condition and results of operations.Risks Related to the Discovery and Development of Our Product CandidatesWe are heavily dependent on the clinical success, regulatory approval and commercial success of our product candidates. We cannot give any assurancethat any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.To date, we have invested substantially all of our efforts and financial resources to identify, acquire and develop our product candidates. Our futuresuccess is dependent on our ability to develop, obtain regulatory approval for, and then commercialize and obtain adequate third party coverage andreimbursement for one or more product candidates. We currently do not have any approved products and generate no revenue from sales of any products, andwe may never be able to develop or commercialize a marketable product.Our product candidates are in varying stages of development and will require additional clinical development, management of nonclinical, clinicaland manufacturing activities, regulatory approval, adequate manufacturing supplies, commercial organization and significant marketing efforts before wegenerate any revenue from product sales. CHS-1701, CHS-0214 and CHS-1420 have entered Phase 3 or BLA-enabling clinical development.Our clinical trials must use originator products as comparators, and such supplies may not be available on a timely basis to support such trials.Although certain of our employees have prior experience with submitting marketing applications to the FDA or comparable foreign regulatoryauthorities, neither we nor our collaboration partners have submitted such applications for our product candidates. We cannot be certain that any of ourproduct candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approvaleven if they are successful in clinical trials. If we and our collaboration partners do not receive regulatory approvals for our product candidates, we may notbe able to continue our operations.We, together with our collaboration partners, generally plan to seek regulatory approval to commercialize our product candidates in the United States,the European Union, or E.U., and in additional foreign countries where we or our partners have commercial rights. To obtain regulatory approval, we and ourcollaboration partners must comply with numerous and varying regulatory requirements of such countries regarding safety, efficacy, chemistry,manufacturing and controls, clinical studies, commercial sales and pricing and distribution of our product candidates. Even if we and our collaborationpartners are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. If we and ourcollaboration partners are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations could benegatively affected.The regulatory approval processes of the FDA, EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, andthe regulatory approval requirements for biosimilars are evolving. If we and our collaboration partners are ultimately unable to obtain regulatoryapproval for our product candidates, our business will be substantially harmed.The research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, marketing, distribution, post-approval monitoring and reporting and export and import of biologic products are subject to extensive regulation by the FDA and other regulatoryauthorities in the United States, by the EMA and EEA Competent Authorities in the European Economic Area, or EEA, and by other regulatory authorities inother countries, which regulations differ from country to country. Neither we nor any collaboration partner is permitted to market our product candidates inthe United States until we and our collaboration partners receive approval from the FDA, or in the EEA until we and our collaboration partners receive E.U.Commission or EEA Competent Authority approvals.The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, may take many years following the completionof clinical studies and depends upon numerous factors. In addition, approval policies, regulations or the type and amount of clinical data necessary to gainapproval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in theapproval or the decision not to approve an application. Neither we nor any collaboration partner has obtained regulatory approval for any of our productcandidates, and it is possible that none of our current or future product candidates will ever obtain regulatory approval.31 Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following: ·the data collected from clinical studies of our product candidates may not be sufficient to support the submission of a BLA, a biosimilarproduct application under the 351(k) pathway of the Public Health Service Act, or PHSA, a biosimilar marketing authorization under Article 6of Regulation (EC) No. 726/2004 and/or Article 10(4) of Directive 2001/83/EC in the EEA or other submission or to obtain regulatoryapproval in the United States, the EEA or elsewhere; ·the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies; ·the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for whichwe seek approval; ·the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from analytical and bioanalytical studies,nonclinical studies or clinical studies; ·we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for itsproposed indication is acceptable; ·the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications orfacilities of third-party manufacturers with which we contract for clinical and commercial supplies; and ·the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner renderingour clinical data insufficient for approval.This approval process, as well as the unpredictability of the results of clinical studies, may result in our failure to obtain regulatory approval to marketany of our product candidates, which would significantly harm our business. Any delays in the commencement or completion of clinical testing couldsignificantly impact our product development costs and could result in the need for additional financing.If we are not able to demonstrate biosimilarity of our biosimilar product candidates to the satisfaction of regulatory authorities, we will not obtainregulatory approval for commercial sale of our biosimilar product candidates and our future results of operations would be adversely affected.Our future results of operations depend, to a significant degree, on our ability to obtain regulatory approval for and to commercialize our proposedbiosimilar products. To obtain regulatory approval for the commercial sale of these product candidates, we will be required to demonstrate to the satisfactionof regulatory authorities, among other things, that our proposed biosimilar products are highly similar to biological reference products already licensed bythe regulatory authority pursuant to marketing applications, notwithstanding minor differences in clinically inactive components, and that they have noclinically meaningful differences as compared to the marketed biological products in terms of the safety, purity and potency of the products. Each individualjurisdiction may apply different criteria to assess biosimilarity, based on a preponderance of the evidence that can be interpreted subjectively in some cases.In the EEA, the similar nature of a biosimilar and a reference product is demonstrated by comprehensive comparability studies covering quality, biologicalactivity, safety and efficacy.It is uncertain if regulatory authorities will grant the full originator label to biosimilar product candidates when they are approved. For example, aninfliximab (Remicade) biosimilar molecule was approved in Europe for the full originator label but did not receive the full originator label when approved inCanada. A similar outcome could occur with respect to one or more of our product candidates.In the event that regulatory authorities require us to conduct additional clinical trials or other lengthy processes, the commercialization of ourproposed biosimilar products could be delayed or prevented. Delays in the commercialization of or the inability to obtain regulatory approval for theseproducts could adversely affect our operating results by restricting or significantly delaying our introduction of new biosimilars.32 The structure of complex proteins used in protein-based therapeutics is inherently variable and highly dependent on the processes and conditions used tomanufacture them. If we are unable to develop manufacturing processes that achieve a requisite degree of biosimilarity to the originator drug, and withina range of variability considered acceptable by regulatory authorities, we may not be able to obtain regulatory approval for our products.Protein-based therapeutics are inherently heterogeneous and their structures are highly dependent on the production process and conditions. Productsfrom one production facility can differ within an acceptable range from those produced in another facility. Similarly, physicochemical differences can alsoexist among different lots produced within a single facility. The physicochemical complexity and size of biologic therapeutics create significant technicaland scientific challenges in the context of their replication as biosimilar products.The inherent variability in protein structure from one production lot to another is a fundamental consideration with respect to establishingbiosimilarity to an originator product to support regulatory approval requirements. For example, the glycosylation of the protein, meaning the manner inwhich sugar molecules are attached to the protein backbone of a therapeutic protein when it is produced in a living cell, is critical to therapeutic efficacy,half-life (how long the drug stays in the body), efficacy and even safety of the therapeutic and is therefore a key consideration for biosimilarity. Defining andunderstanding the variability of an originator molecule in order to match its glycosylation profile requires significant skill in cell biology, proteinpurification and analytical protein chemistry. Furthermore, manufacturing proteins with reliable and consistent glycosylation profiles at scale is challengingand highly dependent on the skill of the cell biologist and process scientist.There are extraordinary technical challenges in developing complex protein-based therapeutics that not only must achieve an acceptable degree ofsimilarity to the originator molecule in terms of characteristics such as the unique glycosylation pattern, but also the ability to develop manufacturingprocesses that can replicate the necessary structural characteristics within an acceptable range of variability sufficient to satisfy regulatory authorities.Given the challenges caused by the inherent variability in protein production, we may not be successful in developing our products if regulatorsconclude that we have not achieved a sufficient level of biosimilarity to the originator product, or that the processes we use are unable to generate ourproducts within an acceptable range of variability.Clinical drug development involves a lengthy and expensive process and we may encounter substantial delays in our clinical studies or may fail todemonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we (and/or our collaboration partners) mustconduct clinical studies to demonstrate the safety and efficacy of the product candidates in humans.Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during theclinical study process. The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stageclinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequentregistration clinical studies. There is a high failure rate for product candidates proceeding through clinical studies, and product candidates in later stages ofclinical studies may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical studies.A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adversesafety profiles, notwithstanding promising results in earlier studies. Nonclinical and clinical data are also often susceptible to varying interpretations andanalyses. We do not know whether any clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatoryapproval.We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studiescan occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinicaldevelopment include but are not limited to: ·inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies; ·delays in reaching a consensus with regulatory agencies on study design; ·delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical study sites, the termsof which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites; ·delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;33 ·imposition of a clinical hold by regulatory agencies, after review of an investigational new drug, or IND, application or amendment orequivalent application or amendment, or an inspection of our clinical study operations or study sites or as a result of adverse events reportedduring a clinical trial; ·delays in recruiting suitable patients to participate in our clinical studies sponsored by us or our partners; ·difficulty collaborating with patient groups and investigators; ·failure by our CROs, other third parties or us to adhere to clinical study requirements; ·failure to perform in accordance with the FDA’s good clinical practices requirements or applicable regulatory guidelines in other countries; ·delays in having patients complete participation in a study or return for post-treatment follow-up, or patients dropping out of a study; ·occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; ·changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; ·the cost of clinical studies of our product candidates being greater than we anticipate; ·clinical studies of our product candidates producing negative or inconclusive results, which may result in us deciding or regulators requiring usto conduct additional clinical studies or abandon product development programs; and ·delays in manufacturing, testing, releasing, validating or importing/exporting and/or distributing sufficient stable quantities of our productcandidates and originator products for use in clinical studies or the inability to do any of the foregoing.Any inability to successfully complete nonclinical and clinical development could result in additional costs to us or impair our ability to generaterevenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to bridge ourmodified product candidates to earlier versions.For example, we intend to alter the manufacturing processes for CHS-0214 and CHS-1420 and will need to provide data to the FDA and foreignregulatory authorities demonstrating that the change in manufacturing process has not changed the product candidate. If we are unable to make thatdemonstration to the FDA or comparable foreign regulatory authorities, we could face significant delays or fail to obtain regulatory approval to market theproduct, which could significantly harm our business.Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit thecommercial profile of an approved label or result in significant negative consequences following marketing approval, if granted.As with most pharmaceutical products, use of our product candidates could be associated with side effects or adverse events which can vary in severity(from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our product candidates maybe observed at any time, including in clinical trials or when a product is commercialized. Undesirable side effects caused by our product candidates couldcause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in a more restrictive label or the delay or denial of regulatoryapproval by the FDA or other comparable foreign authorities. Results of our studies could reveal a high and unacceptable severity and prevalence of sideeffects such as toxicity or other safety issues and could require us or our collaboration partners to perform additional studies or halt development or sale ofthese product candidates or expose us to product liability lawsuits which will harm our business. In such an event, we may be required by regulatory agenciesto conduct additional animal or human studies regarding the safety and efficacy of our product candidates which we have not planned or anticipated or ourstudies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny orwithdraw approval of our product candidates for any or all targeted indications. There can be no assurance that we will resolve any issues related to anyproduct-related adverse events to the satisfaction of the FDA or any other regulatory agency in a timely manner, if ever, which could harm our business,prospects and financial condition.Additionally, product quality characteristics have been shown to be sensitive to changes in process conditions, manufacturing techniques, equipmentor sites and other such related considerations, hence any manufacturing process changes we implement prior to or after regulatory approval could impactproduct safety and efficacy.34 Drug-related side effects could affect patient recruitment for clinical trials, the ability of enrolled patients to complete our studies or result in potentialproduct liability claims. We currently carry product liability insurance and we are required to maintain product liability insurance pursuant to certain of ourlicense agreements. We believe our product liability insurance coverage is sufficient in light of our current clinical programs; however, we may not be able tomaintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim orseries of claims brought against us could adversely affect our results of operations and business. In addition, regardless of merit or eventual outcome, productliability claims may result in impairment of our business reputation, withdrawal of clinical study participants, costs due to related litigation, distraction ofmanagement’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, theinability to commercialize our product candidates and decreased demand for our product candidates, if approved for commercial sale.Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused bysuch products, a number of potentially significant negative consequences could result, including but not limited to: ·regulatory authorities may withdraw approvals of such product; ·regulatory authorities may require additional warnings on the label; ·we may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining therisks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use; ·we could be sued and held liable for harm caused to patients; and ·our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and couldsignificantly harm our business, results of operations and prospects.If we receive approval, regulatory agencies including the FDA and foreign regulatory agencies, regulations require that we report certain informationabout adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would betriggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of withinthe prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as anadverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reportingobligations, the FDA or foreign regulatory agencies could take action including criminal prosecution, the imposition of civil monetary penalties, seizure ofour products or delay in approval or clearance of future products.The development, manufacture and commercialization of biosimilar products under various global regulatory pathways pose unique risks.United States Regulatory Framework for BiosimilarsWe and our collaboration partners intend to pursue market authorization globally. In the United States, an abbreviated pathway for approval ofbiosimilar products was established by the Biologics Price Competition and Innovation Act of 2009, or BPCIA, enacted on March 23, 2010, as part of thePatient Protection and Affordable Care Act. The BPCIA established this abbreviated pathway under section 351(k) of the Public Health Service Act, or PHSA.Subsequent to the enactment of the BPCIA, the FDA issued draft guidance regarding the demonstration of biosimilarity as well as the submission and reviewof biosimilar applications. Moreover, market acceptance of biosimilar products in the United States is unclear. Numerous states are considering or havealready enacted laws that regulate or restrict the substitution by state pharmacies of biosimilars for originator products already licensed by the FDA. Marketsuccess of biosimilar products will depend on demonstrating to patients, physicians, payors and relevant authorities that such products are similar in quality,safety and efficacy as compared to the reference product.We will continue to analyze and incorporate into our biosimilar development plans any final regulations issued by the FDA, pharmacy substitutionpolicies enacted by state governments and other applicable requirements established by relevant authorities. The costs of development and approval, alongwith the probability of success for our biosimilar product candidates, will be dependent upon the application of any laws and regulations issued by therelevant regulatory authorities.35 Biosimilar products may also be subject to extensive patent clearances and patent infringement litigation, which may delay and could prevent thecommercial launch of a product. Moreover, the BPCIA prohibits the FDA from accepting an application for a biosimilar candidate to a reference productwithin four years of the reference product’s licensure by the FDA. In addition, the BPCIA provides innovative biologics with 12 years of exclusivity from thedate of their licensure, during which time the FDA cannot approve any application for a biosimilar candidate to the reference product.The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation andmeaning are evolving and subject to significant uncertainty. Future implementation decisions by the FDA could result in delays in the development orcommercialization of our product candidates or increased costs to assure regulatory compliance and could adversely affect our operating results by restrictingor significantly delaying our ability to market new biosimilar products.Regulatory Framework for Biosimilars Outside the United StatesIn 2004, the European Parliament issued legislation allowing the approval of biosimilar therapeutics. Since then, the European Commission hasgranted marketing authorizations for more than 20 biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvalsissued over the past few years. Because of their extensive experience in the review and approval of biosimilars, Europe has more guidelines for these productsthan the FDA, including data requirements needed to support approval.Under current EU regulations, an application for regulatory approval of a biosimilar drug cannot be submitted in the EU until expiration of an eightyear data exclusivity period for the reference (originator) product, measured from the date of the reference product’s initial marketing authorization.Furthermore, once approved, the biosimilar cannot be marketed until expiration of a 10-year period following the initial marketing authorization of thereference product, such ten year period being extendible to 11 years if the reference product received approval of an additional therapeutic indication, withinthe first eight years following its initial marketing authorization, representing a significant clinical benefit in comparison with existing therapies. However,we understand that reference products approved prior to November 20, 2005 (which would include, for example, Enbrel, Humira and Neulasta, approved inthe EU on March 2, 2000, August 9, 2003 and August 22, 2002, respectively) are subject to a 10 year period of data exclusivity. While the data exclusivityperiods for Enbrel, Humira and Neulasta have now expired in Europe, these reference products are presently still subject to unexpired patents and suchpatents may or may not be susceptible to challenges to their validity and enforceability.In Europe, the approval of a biosimilar for marketing is based on an opinion issued by the EMA and a decision issued by the European Commission.Therefore, the marketing approval will cover the entire EEA. However, substitution of a biosimilar for the originator is a decision that is made at the nationallevel. Additionally, a number of countries do not permit the automatic substitution of biosimilars for the originator product. Therefore, even if we obtainmarketing approval for the entire EEA, we may not receive substitution in one or more European nations, thereby restricting our ability to market ourproducts in those jurisdictions.Other regions, including Canada, Japan and Korea, also have their own legislation outlining a regulatory pathway for the approval of biosimilars. Insome cases other countries have either adopted European guidance (Singapore and Malaysia) or are following guidance issued by the World HealthOrganization (Cuba and Brazil). While there is overlap in the regulatory requirements across regions, there are also some areas of non-overlap. Additionally,we cannot predict whether countries that we may wish to market in, which do not yet have an established or tested regulatory framework could decide to issueregulations or guidance and/or adopt a more conservative viewpoint than other regions. Therefore, it is possible that even if we obtain agreement from onehealth authority to an accelerated or optimized development plan, we will need to defer to the most conservative view to ensure global harmonization of thedevelopment plan. Also, for regions where regulatory authorities do not yet have sufficient experience in the review and approval of a biosimilar product,these authorities may rely on the approval from another region (e.g., the United States or the E.U.), which could delay our approval in that region. Finally, it ispossible that some countries will not approve a biosimilar without clinical data from their population and/or may require that the biosimilar product bemanufactured within their region.If other biosimilars of pegfilgrastim (Neulasta), etanercept (Enbrel) or adalimumab (Humira) ) are approved and successfully commercialized before ourproduct candidates for these originator products (CHS-1701, CHS-0214 or CHS-1420, respectively), our business would suffer.We expect other companies to seek approval to manufacture and market biosimilar versions of Neulasta, Enbrel, or Humira. If other biosimilars ofNeulasta, Enbrel or Humira are approved and successfully commercialized before CHS-0214, CHS-1420 or CHS-1701, respectively, we may never achievesignificant market share for these products, our revenue would be reduced and, as a result, our business, prospects and financial condition could suffer.36 If other biosimilars of pegfilgrastim (Neulasta), etanercept (Enbrel) or adalimumab (Humira) are determined to be interchangeable and our biosimilarscandidates for these originator products are not, our business would suffer.The FDA or other relevant regulatory authorities may determine that a proposed biosimilar product is “interchangeable” with a reference product,meaning that the biosimilar product may be substituted for the reference product without the intervention of the health care provider who prescribed thereference product, if the application includes sufficient information to show that the product is biosimilar to the reference product and that it can be expectedto produce the same clinical result as the reference product in any given patient. If the biosimilar product may be administered more than once to a patient,the applicant must demonstrate that the risk in terms of safety or diminished efficacy of alternating or switching between the biosimilar product candidateand the reference product is not greater than the risk of using the reference product without such alternation or switch. To make a final determination ofinterchangeability, regulatory authorities may require additional confirmatory information beyond what we plan to initially submit in our applications forapproval, such as more in-depth analytical characterization, animal testing or further clinical studies. Provision of sufficient information for approval mayprove difficult and expensive.We cannot predict whether any of our biosimilar product candidates will meet regulatory authority requirements for approval not only as a biosimilarproduct but also as an interchangeable product in any jurisdiction. Furthermore, legislation governing interchangeability could differ by jurisdiction on astate or national level worldwide.The concept of “interchangeability” is important because, in the United States for example, the first biosimilar determined to be interchangeable witha particular reference, or originator, product for any condition of use is eligible for a period of market exclusivity that delays an FDA determination that asecond or subsequent biosimilar product is interchangeable with that originator product for any condition of use until the earlier of: (1) one year after the firstcommercial marketing of the first interchangeable product; (2) 18 months after resolution of a patent infringement suit instituted under 42 U.S.C. § 262(l)(6)against the applicant that submitted the application for the first interchangeable product, based on a final court decision regarding all of the patents in thelitigation or dismissal of the litigation with or without prejudice; (3) 42 months after approval of the first interchangeable product, if a patent infringementsuit instituted under 42 U.S.C. § 262(l)(6) against the applicant that submitted the application for the first interchangeable product is still ongoing; or (4) 18months after approval of the first interchangeable product if the applicant that submitted the application for the first interchangeable product has not beensued under 42 U.S.C. § 262(l)(6). Thus, a determination that another company’s product is interchangeable with the originator biologic before we obtainapproval of our corresponding biosimilar product candidates may delay the potential determination that our products are interchangeable with the originatorproduct, which could materially adversely affect our results of operations and delay, prevent or limit our ability to generate revenue.Failure to obtain regulatory approval in any targeted regulatory jurisdiction would prevent us from marketing our products to a larger patient populationand reduce our commercial opportunities.We and our collaboration partners have not initiated marketing efforts in any regulatory jurisdiction. Subject to product approvals and relevant patentexpirations, we or our collaboration partners intend to market our etanercept (Enbrel) biosimilar product, CHS-0214 in Japan (through our licensee DaiichiSankyo), Europe (through our licensee Baxalta) and certain Latin American countries (through our licensee, Orox). We intend to market our pegfilgrastim(Neulasta) biosimilar product, CHS-1701, and future oncology biosimilar candidates in the United States and may seek to partner commercially all oncologybiosimilars outside the United States. We intend to find favorable strategic commercialization partners or retain rights for some or all of our immunology(anti-TNF) biosimilar candidates.In order to market our products in the E.U., the United States and other jurisdictions, we and our collaboration partners must obtain separate regulatoryapprovals and comply with numerous and varying regulatory requirements. The EMA is responsible for the centralized procedure for the regulation andapproval of human medicines. This procedure results in a single marketing authorization that is valid in all E.U. countries, as well as in Iceland, Liechtensteinand Norway. The time required to obtain approval abroad may differ from that required to obtain FDA approval. The foreign regulatory approval process mayinclude all of the risks associated with obtaining FDA approval and we may not obtain foreign regulatory approvals on a timely basis, if at all. Approval bythe FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval byregulatory authorities in other foreign countries or by the FDA. We or our collaboration partners may not be able to file for regulatory approvals and may notreceive necessary approvals to commercialize our products within the United States or in any market outside the United States. Failure to obtain theseapprovals would materially and adversely affect our business, financial condition and results of operations.37 Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information,including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements,including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations. As such, weand our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made inany NDA, BLA or marketing authorization application, or MAA. Accordingly, we and others with whom we work must continue to expend time, money andeffort in all areas of regulatory compliance, including manufacturing, production and quality control.Any regulatory approvals that we or our collaboration partners receive for our product candidates may be subject to limitations on the approvedindicated uses for which the product may be marketed or to the conditions of approval or may contain requirements for potentially costly additional clinicaltrials and surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse events and productionproblems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays inproduct development or commercialization or increased costs to assure compliance. We will have to comply with requirements concerning advertising andpromotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions andmust be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they donot have approval. If our product candidates are approved, we must submit new or supplemental applications and obtain approval for certain changes to theapproved products, product labeling or manufacturing process. We or our collaboration partners could also be asked to conduct post-marketing clinicalstudies to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval is obtained via an acceleratedbiosimilar approval pathway, we could be required to conduct a successful post-marketing clinical study to confirm clinical benefit for our products. Anunsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency orproblems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of a product, such regulatory agencymay impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatoryrequirements, a regulatory agency or enforcement authority may, among other possibilities: ·issue warning letters; ·impose civil or criminal penalties; ·suspend or withdraw regulatory approval; ·suspend any of our ongoing clinical studies; ·refuse to approve pending applications or supplements to approved applications submitted by us; ·impose restrictions on our operations, including closing our contract manufacturers’ facilities; or ·seize or detain products or require a product recall.Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generatenegative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize andgenerate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operatingresults will be adversely affected.38 Adverse events involving an originator product, or other biosimilars of such originator product, may negatively affect our business.In the event that use of an originator product, or other biosimilar for such originator product, results in unanticipated side effects or other adverseevents, it is likely that our biosimilar product candidate will be viewed comparably and may become subject to the same scrutiny and regulatory sanctions asthe originator product or other biosimilar, as applicable. Accordingly, we may become subject to regulatory supervisions, clinical holds, product recalls orother regulatory actions for matters outside of our control that affect the originator product, or other biosimilar, as applicable, if and until we are able todemonstrate to the satisfaction of our regulators that our biosimilar product candidate is not subject to the same issues leading to the regulatory action as theoriginator product or other biosimilar, as applicable.Risks Related to our Ability to Hire Highly Qualified Personnel and our Reliance on Third PartiesWe are highly dependent on the services of our key executives and personnel, including our President and Chief Executive Officer, Dennis M. Lanfear, andif we are not able to retain these members of our management or recruit additional management, clinical and scientific personnel, our business will suffer.We are highly dependent on the principal members of our management and scientific and technical staff. The loss of service of any of our managementor key scientific and technical staff could harm our business. In addition, we are dependent on our continued ability to attract, retain and motivate highlyqualified additional management, clinical and scientific personnel. If we are not able to retain our management, particularly our President and ChiefExecutive Officer, Mr. Lanfear, and to attract, on acceptable terms, additional qualified personnel necessary for the continued development of our business,we may not be able to sustain our operations or grow.Our future performance will also depend, in part, on our ability to successfully integrate newly hired executive officers into our management team andour ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and create effective workingrelationships among them and other members of management could result in inefficiencies in the development and commercialization of our productcandidates, harming future regulatory approvals, sales of our product candidates and our results of operations. Additionally, we do not currently maintain“key person” life insurance on the lives of our executives or any of our employees.We will need to expand and effectively manage our managerial, scientific, operational, financial and other resources in order to successfully pursueour clinical development and commercialization efforts. Our success also depends on our continued ability to attract, retain and motivate highly qualifiedmanagement and scientific personnel. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due tothe intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco Bay Area. If weare not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantlyimpede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.As of December 31, 2015, we had 109 full-time employees. As our development and commercialization plans and strategies develop, we expect toneed additional managerial, operational, sales, marketing, financial, legal and other resources. Our management may need to divert a disproportionateamount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be ableto effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of businessopportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expendituresand may divert financial resources from other projects, such as the development of our current and potential future product candidates. If our management isunable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced andwe may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and competeeffectively will depend, in part, on our ability to effectively manage any future growth.39 We rely on third parties to conduct our nonclinical and clinical studies and perform other tasks for us. If these third parties do not successfully carry outtheir contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for orcommercialize our product candidates and our business could be substantially harmed.We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing nonclinical and clinicalprograms. We rely on these parties for execution of our nonclinical and clinical studies and control only certain aspects of their activities. Nevertheless, weare responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards andour reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with cGMP,current good clinical practices, or cGCP, and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced by the FDA, the CompetentAuthorities of the Member States of the EEA and comparable foreign regulatory authorities for all of our product candidates in clinical development.Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. Ifwe, any of our CROs, service providers or investigators fail to comply with applicable regulations or cGCPs, the data generated in our nonclinical andclinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional nonclinicaland clinical studies before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, suchregulatory authority will determine that any of our clinical studies comply with cGCP regulations. In addition, our clinical studies must be conducted withproduct generated under cGMP regulations. Failure to comply by any of the participating parties or ourselves with these regulations may require us to repeatclinical studies, which would delay the regulatory approval process. Moreover, our business may be implicated if our contract research organization, or CRO,or any other participating parties violate federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so oncommercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs,we cannot control whether or not they devote sufficient time and resources to our on-going nonclinical and clinical programs. If CROs do not successfullycarry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain iscompromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our clinical studies may be extended, delayed orterminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate highercosts than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs couldincrease and our ability to generate revenue could be delayed.Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, a transition period is necessarywhen a new CRO commences work, which can materially impact our ability to meet our desired clinical development timelines. Though we strive to carefullymanage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays orchallenges will not have a material adverse impact on our business, prospects and financial conditionWe rely on third parties, and in some cases a single third party, to manufacture nonclinical and clinical supplies of our product candidates and to storecritical components of our product candidates for us. Our business could be harmed if those third parties fail to provide us with sufficient quantities ofproduct candidates or fail to do so at acceptable quality levels or prices.We do not currently have the infrastructure or capability internally to manufacture supplies of our product candidates for use in our nonclinical andclinical studies, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on thirdparty manufacturers to manufacture and supply us with our product candidates for our preclinical and clinical studies. Successfully transferring complicatedmanufacturing techniques to contract manufacturing organizations and scaling up these techniques for commercial quantities is time consuming and we maynot be able to achieve such transfer or do so in a timely manner. Moreover, the availability of contract manufacturing services for protein-based therapeuticsis highly variable and there are periods of relatively abundant capacity alternating with periods in which there is little available capacity. If our need forcontract manufacturing services increases during a period of industry-wide production capacity shortage, we may not be able to produce our productcandidates on a timely basis or on commercially viable terms. Although we will plan accordingly and generally do not begin a clinical study unless webelieve we have a sufficient supply of a product candidate to complete such study, any significant delay or discontinuation in the supply of a productcandidate for an ongoing clinical study due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies,product testing and potential regulatory approval of our product candidates, which could harm our business and results of operations.40 Reliance on third-party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality assurance,the possible breach of the manufacturing agreement by the third party and the possible termination or nonrenewal of the agreement by the third party at atime that is costly or inconvenient for us. In addition, third party manufacturers may not be able to comply with cGMP or similar regulatory requirementsoutside the United States. Our failure or the failure of our third party manufacturers to comply with applicable regulations could result in sanctions beingimposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products,operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or any otherproduct candidates or products that we may develop. Any failure or refusal to supply the components for our product candidates that we may develop coulddelay, prevent or impair our clinical development or commercialization efforts. If our contract manufacturers were to breach or terminate their manufacturingarrangements with us, the development or commercialization of the affected products or product candidates could be delayed, which could have an adverseeffect on our business. Any change in our manufacturers could be costly because the commercial terms of any new arrangement could be less favorable andbecause the expenses relating to the transfer of necessary technology and processes could be significant.If any of our product candidates are approved, in order to produce the quantities necessary to meet anticipated market demand, any contractmanufacturer that we engage may need to increase manufacturing capacity. If we are unable to build and stock our product candidates in sufficient quantitiesto meet the requirements for the launch of these candidates or to meet future demand, our revenue and gross margins could be adversely affected. Althoughwe believe that we will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supply arrangements for ourproduct candidates or materials used to produce them on acceptable terms, if at all. If we are unable to arrange for third-party manufacturing, or to do so oncommercially reasonable terms, we may not be able to complete development of our product candidates or market them.We have entered into collaborations with third parties in connection with the development of certain of our product candidates. Even if we believe that thedevelopment of our technology and product candidates is promising, our partners may choose not to proceed with such development.We have collaborations with several partners for the development and commercialization of certain of our product candidates. Our existingagreements with our collaboration partners are generally subject to termination by the counterparty on short notice under certain circumstances. Accordingly,even if we believe that the development of certain product candidates is worth pursuing, our partners may choose not to continue with such development.If any of our collaborations are terminated, we may be required to devote additional resources to the development of our product candidates or seek a newcollaboration partner on short notice, and the terms of any additional collaborations or other arrangements that we establish may not be favorable to us oravailable at all.We are also at risk that our collaborations or other arrangements may not be successful. Factors that may affect the success of our collaborationsinclude the following: ·our collaboration partners may incur financial, legal or other difficulties that force them to limit or reduce their participation in our jointprojects; ·our collaboration partners may be pursuing alternative technologies or developing alternative products that are competitive to our technologyand products, either on their own or in partnership with others. For example, in December 2014 Momenta Pharmaceuticals, or Momenta,announced acceptance by the UK of a clinical trial application for an adalimumab (Humira) biosimilar being developed by Momenta incollaboration with Baxalta; ·our collaboration partners may terminate their collaborations with us, which could make it difficult for us to attract new partners or adverselyaffect perception of us in the business and financial communities. For example, in July 2014 our partner Daiichi terminated its license with uspertaining to a rituximab (Rituxan) biosimilar; and ·our collaboration partners may pursue higher priority programs or change the focus of their development programs, which could affect theircommitment to us.If we cannot maintain successful collaborations, our business, financial condition and operating results may be adversely affected.41 We are dependent on Daiichi Sankyo, Baxalta and Orox for the commercialization of our biosimilar product candidates in certain major markets, andtheir failure to commercialize in those markets could have a material adverse effect on our business and operating results.Our exclusive licensee, Baxalta, is responsible for commercialization of CHS-0214 in Europe, Brazil and other jurisdictions outside the U.S.(excluding Japan and certain Caribbean and Latin American countries). Our exclusive licensee, Daiichi Sankyo, is responsible for commercialization of CHS-0214 in Japan. Our exclusive licensee, Orox Pharmaceuticals B.V., or Orox, is responsible for commercialization of certain of our products, including CHS-1701, CHS-0214 and CHS-1420, in certain Caribbean and Latin American countries (excluding Brazil). If these entities fail to exercise commerciallyreasonable efforts to market and sell our products in their respective licensed jurisdictions or are otherwise ineffective in doing so, our business will beharmed and we may not be able to adequately remedy the harm through negotiation, litigation, arbitration or termination of the license agreements.Moreover, any disputes with our collaboration partners concerning the adequacy of their commercialization efforts will substantially divert the attention ofour senior management from other business activities and will require us to incur substantial costs associated with litigation or arbitration proceedings.We are subject to a multitude of manufacturing risks. Any adverse developments affecting the manufacturing operations of our biosimilar productcandidates could substantially increase our costs and limit supply for our product candidates.The process of manufacturing our product candidates is complex, highly regulated and subject to several risks, including but not limited to: ·product loss due to contamination, equipment failure or improper installation or operation of equipment or vendor or operator error; and ·equipment failures, labor shortages, natural disasters, power failures and numerous other factors associated with the manufacturing facilities inwhich our product candidates are produced.Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields, productdefects and other supply disruptions. For example, we have experienced failures with respect to the manufacturing of certain lots of each of our productcandidates resulting in delays prior to our taking corrective action. Additionally, if microbial, viral or other contaminations are discovered in our productcandidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extendedperiod of time to investigate and remedy the contamination.For example in October 2014, as part of our quality process and upon routine visual inspection during storage, four syringes containing CHS-0214(our etanercept (Enbrel) biosimilar candidate) from a production lot in use in our ongoing Phase 3 clinical trials were observed to contain small dark particles.We immediately initiated a visual inspection of remaining unlabeled inventory of this lot as well as a subsequent lot. While none of the approximately 8,000unlabeled syringes inspected exhibited any such particulate, we decided in the interests of patient safety, to temporarily stop dosing in the ongoing Phase 3clinical trials of CHS-0214 in order to determine a potential cause and incidence of the observed phenomenon. Based on our investigation, including achemical analysis of the particles by a qualified independent laboratory, we concluded that the particulates did not result from any instability in the CHS-0214 protein product or its formulation, but were most likely a result of a non-recurring anomaly related to first use of new process equipment. We thereforeconcluded that the approximately 7,000 unlabeled syringes that were 100% inspected and found free of any particulates were safe for patient use in ourclinical trials. In consultation with the FDA, our Phase 3 trials were resumed in December 2014 and are ongoing. Any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lotfailures, withdrawals or recalls or other interruptions in the supply of our product candidates. We may also have to take inventory write-offs and incur othercharges and expenses for product candidates that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturingalternatives.42 We currently engage single suppliers for manufacture, clinical trial services, formulation development and product testing of our product candidates. Theloss of any of these suppliers or vendors could materially and adversely affect our business.For each of our lead products, CHS-1701, CHS-0214 and CHS-1420, we currently engage a distinct vendor or service provider for each of the principalactivities supporting our manufacture and development of these lead products, such as manufacture of the biological substance present in each of theproducts, manufacture of the final filled and finished presentation of these products, as well as laboratory testing, formulation development and clinicaltesting of these products. Because we currently have not engaged back up suppliers or vendors for these single-sourced services, and although we believethat there are alternate sources that could fulfill these activities, we cannot assure you that identifying and establishing relationships with alternate suppliersand vendors would not result in significant delay in the development of our product candidates. Additionally, we may not be able to enter into arrangementswith alternative service providers on commercially reasonable terms or at all. A delay in the development of our product candidates, or having to enter into anew agreement with a different third party on less favorable terms than we have with our current suppliers, could have a material adverse impact on ourbusiness.We and our collaboration partners and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.The manufacturing facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet supply demands.All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for ourproduct candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stageclinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including recordkeeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved forsale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our productcandidates that may not be detectable in final product testing. We, our collaboration partners or our contract manufacturers must supply all necessarydocumentation in support of a BLA or MAA on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA and other regulatoryagencies through their facilities inspection program. Some of our contract manufacturers may have never produced a commercially approved pharmaceuticalproduct and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of ourcollaboration partners and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition ofregulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspecta manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems forcompliance with the regulations applicable to the activities being conducted. Although we oversee the contract manufacturers, we cannot control themanufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If thesefacilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until anyviolations are corrected to the satisfaction of the regulatory authority, if ever.The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our collaborationpartners and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our productspecifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedialmeasures that may be costly and/or time consuming for us or a third party to implement and that may include the temporary or permanent suspension of aclinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties withwhom we contract could materially harm our business.If we, our collaboration partners or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatoryauthority can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new product candidate, withdrawalof an approval or suspension of production. As a result, our business, financial condition and results of operations may be materially harmed.Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through a BLAsupplement or MAA variation or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additionalstudies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in adelay in our desired clinical and commercial timelines.43 These factors could cause us to incur additional costs and could cause the delay or termination of clinical studies, regulatory submissions, requiredapprovals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure oneor more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potentialrevenue.Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our tradesecrets will be misappropriated or disclosed.Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek toprotect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative researchagreements, consulting agreements or other similar agreements with our collaboration partners, advisors, employees and consultants prior to beginningresearch or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidentialinformation increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others or aredisclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’sdiscovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on ourbusiness.Risks Related to Commercialization of Our Product CandidatesOur biosimilar product candidates, if approved, will face significant competition from the reference products and from other pharmaceuticals approvedfor the same indication as the originator products. Our failure to effectively compete may prevent us from achieving significant market penetration andexpansion.We expect to enter highly competitive pharmaceutical markets. Successful competitors in the pharmaceutical market have demonstrated the ability toeffectively discover, obtain patents, develop, test and obtain regulatory approvals for products, as well as an ability to effectively commercialize, market andpromote approved products. Numerous companies, universities and other research institutions are engaged in developing, patenting, manufacturing andmarketing of products competitive with those that we are developing. Many of these potential competitors are large, experienced pharmaceutical companiesthat enjoy significant competitive advantages, such as substantially greater financial, research and development, manufacturing, personnel and marketingresources. These companies also have greater brand recognition and more experience in conducting preclinical testing and clinical trials of productcandidates and obtaining FDA and other regulatory approvals of products.If an improved version of an originator product, such as Enbrel, Humira or Neulasta, is developed or if the market for the originator product significantlydeclines, sales or potential sales of our biosimilar product candidates may suffer.Originator companies may develop improved versions of a reference product as part of a life cycle extension strategy and may obtain regulatoryapproval of the improved version under a new or supplemental BLA filed with the applicable regulatory authority. Should the originator company succeed inobtaining an approval of an improved biologic product, it may capture a significant share of the collective reference product market in the applicablejurisdiction and significantly reduce the market for the reference product and thereby the potential size of the market for our biosimilar product candidates. Inaddition, the improved product may be protected by additional patent rights that may subject our follow-on biosimilar to claims of infringement.Biologic reference products may also face competition as technological advances are made that may offer patients a more convenient form ofadministration or increased efficacy or as new products are introduced. As new products are approved that compete with the reference product to ourbiosimilar product candidates, or sales of the reference originator products may be adversely impacted or rendered obsolete. If the market for the referenceproduct is impacted, we may lose significant market share or experience limited market potential for our approved biosimilar products or product candidates,and the value of our product pipeline could be negatively impacted. As a result of the above factors, our business, prospects and financial condition couldsuffer.44 If efforts by manufacturers of originator products to delay or limit the use of biosimilars are successful, our sales of biosimilar products may suffer.Many manufacturers of originator products have increasingly used legislative, regulatory and other means, such as litigation, to delay regulatoryapproval and to seek to restrict competition from manufacturers of biosimilars. These efforts may include or have included: ·settling patent lawsuits with biosimilar companies, resulting in such patents remaining an obstacle for biosimilar approval by others; ·submitting Citizen Petitions to request the FDA Commissioner to take administrative action with respect to prospective and submittedbiosimilar applications; ·appealing denials of Citizen Petitions in United States federal district courts and seeking injunctive relief to reverse approval of biosimilarapplications; ·restricting access to reference brand products for equivalence and biosimilarity testing that interferes with timely biosimilar developmentplans; ·attempting to influence potential market share by conducting medical education with physicians, payors, regulators and patients claiming thatbiosimilar products are too complex for biosimilar approval or are too dissimilar from originator products to be trusted as safe and effectivealternatives; ·implementing payor market access tactics that benefit their brands at the expense of biosimilars; ·seeking state law restrictions on the substitution of biosimilar products at the pharmacy without the intervention of a physician or throughother restrictive means such as excessive recordkeeping requirements or patient and physician notification; ·seeking federal or state regulatory restrictions on the use of the same non-proprietary name as the reference brand product for a biosimilar orinterchangeable biologic; ·seeking changes to the United States Pharmacopeia, an industry recognized compilation of drug and biologic standards; ·obtaining new patents covering existing products or processes which could extend patent exclusivity for a number of years or otherwise delaythe launch of biosimilars; and ·influencing legislatures so that they attach special patent extension amendments to unrelated federal legislation.In 2012, Abbott Laboratories filed a Citizen Petition with the FDA asking the agency to refrain from accepting biosimilar applications under theBPCIA arguing that to approve such applications, without compensation to the originator, would constitute an unconstitutional taking of an originatorcompany’s valuable trade secrets under the fifth amendment of the United States constitution. The FDA has not yet acted on this petition and its outcome isuncertain. If the FDA grants Abbott Laboratories’ petition, we may be precluded from applying for approval of CHS-1701, CHS-0214 and CHS-1420 underthe 351(k) pathway. Even if the FDA rejects Abbott Laboratories’ petition, we think it is likely that Abbott will file appeals to the federal courts andultimately pursue its appeals to the United States Supreme Court. Other originator companies may file Citizen Petitions in an effort to restrict or prevent theintroduction of biosimilars.We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are similar, moreadvanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our productcandidates.We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, specialtypharmaceutical companies and biotechnology companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include, forexample, Apotex Inc., or Apotex, Sandoz International GmbH, or Sandoz, Amgen, Pfizer Inc., or Pfizer, Boehringer Ingelheim GmbH, or Boehringer, TevaPharmaceutical Industries, Ltd., or Teva, Samsung Bioepis, Ltd., or Bioepis, (a Merck/Biogen/Samsung biosimilar venture) and Hanwha ChemicalCorporation, or Hanwha Momenta, as well as other smaller companies. We are currently aware that such competitors are engaged in the development ofbiosimilar product candidates to pegfilgrastim (Neulasta), etanercept (Enbrel) and adalimumab (Humira). For example, we understand that Sandoz andApotex have each submitted a Neulasta (pegfilgrastim) biosimilar product candidate for market approval in the United States. We understand that Mylan Inc.appears to have an ongoing Phase 3 clinical trial for a Neulasta biosimilar. Similarly, we understand that Sandoz and Samsung Bioepis are each currentlyengaged in the development of competing biosimilar product candidates for etanercept (Enbrel). Both Sandoz and Samsung Bioepis have each submitted anetanercept biosimilar product candidate for market approval in the E.U. and Sandoz has filed a BLA for its candidate in the United States. On January 16,2016 the European Commission (EC) approved45 Samsung Bioepis’ entanercept biosimilar (Benepali), also known as SB4, for the treatment of rheumatoid arthritis, psoriatic arthritis, axial spondyloarthritis(ankylosing spondylitis and non-radiographic axial spondyloarthritis) and plaque psoriasis. Boehringer, Amgen, Sandoz, Samsung Bioepis and Pfizer areexamples of companies engaged in development of biosimilar product candidates for adalimumab (Humira). We understand Boehringer Ingelheim’s programand Pfizer’s program are in Phase 3, and that Amgen’s program has successfully completed Phase 3. On November 25, 2015, Amgen announced thesubmission with the FDA of a BLA for its adalimumab (Humira) biosimilar, ABP 501.Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff andexperienced marketing and manufacturing organizations. Additional mergers and acquisitions in the pharmaceutical industry may result in even moreresources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may bemore effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly throughcollaborative arrangements with large, established companies. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis,products that are more effective or less costly than any product candidate that we may develop; they may also obtain patent protection that could block ourproducts; and they may obtain regulatory approval, product commercialization and market penetration earlier than we do. Biosimilar product candidatesdeveloped by our competitors may render our potential product candidates uneconomical, less desirable or obsolete, and we may not be successful inmarketing our product candidates against competitors. Competitors may also assert in their marketing or medical education programs that their biosimilarproducts demonstrate a higher degree of biosimilarity to the originator products than do ours or other competitor’s biosimilar products, thereby seeking toinfluence health care practitioners to select their biosimilar products, versus ours or other competitors.We currently have no marketing and sales organization. If we are unable to establish sales and marketing capabilities in jurisdictions for which we chooseto retain commercialization rights or if we are unable to enter into agreements with third parties to market and sell our product candidates, we may beunable to generate any revenue.We currently have no marketing or sales organization. Although our employees may have sold other biologic products in the past while employed atother companies, our products have not yet been approved for sale, and thus we as a company have no experience selling and marketing our productcandidates. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either onour own or with others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization with technicalexpertise and supporting distribution capabilities to commercialize our product candidates in major markets where we may choose to retaincommercialization rights. Doing so will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketingand distribution capabilities would adversely impact the commercialization of our products.Further, given our lack of prior experience in marketing and selling biopharmaceutical products, our initial estimate of the size of the required salesforce may be materially more or less than the size of the sales force actually required to effectively commercialize our product candidates. As such, we may berequired to hire substantially more sales representatives to adequately support the commercialization of our product candidates or we may incur excess costsas a result of hiring more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with otherentities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If ourfuture collaboration partners do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessarymarketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We expect competition from companiessuch as Sandoz, Samsung Bioepis, Teva, Boehringer, Pfizer and Amgen that currently have extensive and well-funded marketing and sales operations.Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against thesemore established companies.We may need to enter into alliances with other companies that can provide capabilities and funds for the development and commercialization of ourproduct candidates. If we are unsuccessful in forming or maintaining these alliances on favorable terms, our business could be adversely affected.Because we have limited or no internal capabilities for late-stage product development, manufacturing, sales, marketing and distribution, we havefound it necessary to enter into alliances with other companies. For example, we entered into a collaboration agreement with Baxalta for the development andcommercialization of CHS-0214 in Europe, Brazil and other jurisdictions outside the United States. Similarly, we entered into a collaboration agreement withDaiichi Sankyo for the development and commercialization of CHS-0214 in Japan. For commercialization of our biosimilar product candidates in certainCaribbean and Latin American countries, we entered into an exclusive distribution arrangement with Orox. In the future, we may also find it necessary to formalliances or joint ventures with major pharmaceutical companies to jointly develop and/or commercialize specific biosimilar product candidates. In suchalliances, we would expect our collaboration partners to provide substantial capabilities in clinical development, manufacturing, regulatory affairs, sales andmarketing. We may not be successful in entering into any such alliances. Even if we do46 succeed in securing such alliances, we may not be able to maintain them if, for example, development or approval of a product candidate is delayed or salesof an approved product are disappointing. If we are unable to secure or maintain such alliances, we may not have the capabilities necessary to continue orcomplete development of our product candidates and bring them to market, which may have an adverse effect on our business.In addition to product development and commercialization capabilities, we may depend on our alliances with other companies to provide substantialadditional funding for development and potential commercialization of our product candidates. We may not be able to obtain funding on favorable termsfrom these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular product candidate internally or to bringproduct candidates to market. Failure to bring our product candidates to market will prevent us from generating sales revenue, and this may substantiallyharm our business. Furthermore, any delay in entering into these alliances could delay the development and commercialization of our product candidates,reduce their competitiveness even if they reach the market, and harm our business and operating results.The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-partypayors and others in the medical community.Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates willdepend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe. Anyproduct that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. Thedegree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including: ·the safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments; ·the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling; ·the clinical indications for which approval is granted; ·the possibility that a competitor may achieve interchangeability and we may not; ·relative convenience and ease of administration; ·the extent to which our product may be similar to the originator product than competing biosimilar product candidates; ·policies and practices governing the naming of biosimilar product candidates; ·prevalence of the disease or condition for which the product is approved; ·the cost of treatment, particularly in relation to competing treatments; ·the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; ·the strength of marketing and distribution support and timing of market introduction of competitive products; ·the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations; ·publicity concerning our products or competing products and treatments; ·the extent to which third-party payors provide adequate third-party coverage and reimbursement for our product candidates, if approved; and ·our ability to maintain compliance with regulatory requirements.Even if a potential product displays a favorable efficacy and safety profile in nonclinical and clinical studies, market acceptance of the product willnot be fully known until after it is launched and may be negatively affected by a potential poor safety experience and the track record of other biosimilarproduct candidates. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significantresources, may be under-resourced compared to large well-funded pharmaceutical entities and may never be successful. If our product candidates areapproved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the medical community, we will not beable to generate sufficient revenue to become or remain profitable.47 Policies and practices governing the naming of biosimilar product candidates are neither fully established nor fully harmonized and are subject to debateand change. Failure to achieve a non-proprietary name sufficiently close to the reference product or be competitively disadvantaged in this regard, couldadversely affect the commercial performance of our biosimilar product candidate.United States Adopted Name, and International Nonproprietary Names, or INN, two important bodies involved in nonproprietary nomenclature, haveno policy for the naming of biosimilar product candidates, and products are named on a case-by-case basis. Non-glycosylated proteins can follow theapproach established for small molecule generics, which is to retain the same non-proprietary name if it is synthesized by a different route provided thesubstance is the same. Glycosylated proteins from different sources are given distinct names, as these proteins are expected to differ in their glycosylationprofile. The same approach is valid for all other modifications to the protein that can occur in a cell after the cell has finished making the protein. A systemcurrently under discussion at the World Health Organization that would enable the clear definition of all Similar Biotherapeutic Proteins would include theINN of the reference product in the first part of the name, and some form of biological qualifier that could uniquely identify the substance. Currently the FDAand EMA have final authority regarding names in the United States and the E.U. respectively, and it is unclear how they will handle nonproprietarynomenclature in the future. However, if they adopt policies requiring non-proprietary names that are distinct from the reference product or chose to assign acompeting biosimilar product candidate to a Coherus product with a lower degree of nomenclature distinction from the reference product, payors, providersand patients may be more hesitant to use our biosimilar product candidate, believing the difference in nomenclature to be indicative of an importantdifference in quality of function from the reference product or the competing biosimilar product candidate. If this were to occur, our business could benegatively affected.The third-party coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage andreimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.Pricing, coverage and reimbursement of our biosimilar product candidates, if approved, may not be adequate to support our commercial infrastructure.Our per-patient prices may not be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly, theavailability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensivetreatments such as ours, if approved. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which thecosts of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations orreimbursed by government authorities, private health insurers and other third-party payors. If coverage and reimbursement are not available, or are availableonly to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursementamount may not be adequate to allow us to establish or maintain pricing sufficient to realize a return on our investment.There is significant uncertainty related to third-party coverage and reimbursement of newly approved products. In the United States, third-partypayors, including private and governmental payors such as the Medicare and Medicaid programs, play an important role in determining the extent to whichnew drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older or those who are disabled orsuffering from end-stage renal disease. The Medicaid program, which varies from state to state, covers certain individuals and families who have limitedfinancial means. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop theircoverage and reimbursement policies for drugs and biologics. It is difficult to predict at this time what third-party payors will decide with respect to thecoverage and reimbursement for our biosimilar product candidates, if approved. In addition, in the United States, no uniform policy of coverage andreimbursement for biologics exists among third-party payors. Therefore, coverage and reimbursement for biologics can differ significantly from payor topayor. As a result, the process for obtaining favorable coverage determinations often is time-consuming and costly and may require us to provide scientificand clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. Forexample, Centers for Medicare & Medicaid Services (“CMS”) issued a proposed Part B rule in the third quarter of 2015 on biosimilar payment and codingwhich requires that multiple biosimilars to the same reference product be grouped and issued the same J-code for Medicare reimbursement purposes and thatthe payment amount for a billing code that describes a biosimilar is based on the average sales price (ASP) of all biosimilar products that reference a commonbiological product’s license application. This reimbursement rule could potentially create greater pricing pressure for biosimilars reimbursed in the medicalbenefit (Part B) segment. The final CMS rule is expected by the middle of the fourth quarter of 2015.Outside the United States, pharmaceutical businesses are generally subject to extensive governmental price controls and other market regulations. Webelieve the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricingand usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of nationalhealth systems. Other countries allow companies to fix their own48 prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrictthe amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products maybe reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.Increasing efforts by governmental and third-party payors in the United States and abroad to control healthcare costs may cause such organizations tolimit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for ourproduct candidates. While cost containment practices generally benefit biosimilars, severe cost containment practices may adversely affect our product sales.We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, theincreasing influence of health maintenance organizations and additional legislative changes.Our biosimilar product candidates, if approved, could face price competition from other biosimilars of the same reference products for the sameindication. This price competition could exceed our capacity to respond, detrimentally affecting our market share and revenue as well as adverselyaffecting the overall financial health and attractiveness of the market for the biosimilar.We expect to enter highly competitive biosimilar markets. Successful competitors in the biosimilar market have the ability to effectively compete onprice through payors and their third-party administrators who exert downward pricing pressure. It is possible our biosimilar competitors’ compliance withprice discounting demands in exchange for market share could exceed our capacity to respond in kind and reduce market prices beyond our expectations.Such practices may limit our and our collaboration partners’ ability to increase market share and will also impact profitability.Risks Related to Intellectual PropertyIf we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed. Third-party claims of intellectualproperty infringement may prevent or delay our development and commercialization efforts.Our commercial success depends in large part on avoiding infringement of the patents and proprietary rights of third parties. There have been manylawsuits and other proceedings involving patent and other intellectual property rights in the pharmaceutical industry, including patent infringement lawsuits,interferences, oppositions and reexamination proceedings before the U.S. Patent and Trademark Office, or USPTO, and corresponding foreign patent offices.Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developingproduct candidates. As the pharmaceutical industry expands and more patents are issued, the risk increases that our product candidates may be subject toclaims of infringement of the patent rights of third parties.Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patentsowned or controlled by other parties. The companies that originated the products for which we intend to introduce biosimilar versions, such as Amgen,AbbVie Inc., or AbbVie, and Genentech, as well as other competitors (including other companies developing biosimilars) have developed, and are continuingto develop, worldwide patent portfolios of varying sizes and breadth, many of which are in fields relating to our business, and it may not always be clear toindustry participants, including us, which patents cover various types of products or methods of use.Third parties may assert that we are employing their proprietary technology without authorization. We are aware of third-party patents or patentapplications with claims, for example, to compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture ofour product candidates. While we have conducted freedom to operate analyses with respect to our lead product candidates CHS-0214, CHS-1420 and CHS-1701, we cannot guarantee that any of our analyses are complete and thorough, nor can we be sure that we have identified each and every patent and pendingapplication in the United States and abroad that is relevant or necessary to the commercialization of our product candidates. Moreover, because patentapplications can take many years to issue, there may be currently pending patent applications that may later result in issued patents covering our productcandidates. With respect to products we are evaluating for inclusion in our future biosimilar product pipeline, our freedom to operate analyses, including ourresearch on the timing of potentially relevant patent expirations, are ongoing.There may also be patent applications that have been filed but not published and if such applications issue as patents, they could be asserted againstus. For example, in most cases, a patent filed today would not become known to industry participants for at least 18 months given patent rules applicable inmost jurisdictions which do not require publication of patent applications until 18 months after filing. We may also face claims from non-practicing entitiesthat have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect. In addition, coverage of patents is subject tointerpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that ourproduct candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid and/orunenforceable, and49 we may not be able to do this. Proving that a patent is invalid or unenforceable is difficult. For example, in the United States, proving invalidity requires ashowing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Also in proceedings before courts in Europe,the burden of proving invalidity of the patent usually rests on the party alleging invalidity. Even if we are successful in these proceedings, we may incursubstantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have amaterial adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.Third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to paysubstantial monetary damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development,manufacturing or sales of the product or product candidate that is the subject of the suit. Ultimately, we could be prevented from commercializing a productor be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter intolicenses on commercially acceptable terms or at all. If, as a result of patent infringement claims or to avoid potential claims, we choose or are required to seeklicenses from third parties, these licenses may not be available on acceptable terms or at all. Even if we are able to obtain a license, the license may obligateus to pay substantial license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gainingaccess to the same intellectual property. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block ourability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would likely involvesubstantial litigation expense and would likely be a substantial diversion of employee resources from our business. In the event of a successful claim ofinfringement against us, we may, in addition to being blocked from the market, have to pay substantial monetary damages, including treble damages andattorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may beimpossible or require substantial time and monetary expenditure.In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, interpartes review, or IPR, derivation or post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regardingintellectual property rights with respect to our current or future products. An unfavorable outcome in any such proceedings could require us to cease usingthe related technology or to attempt to license rights to it from the prevailing party or could cause us to lose valuable intellectual property rights. Ourbusiness could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Litigation orother proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may also becomeinvolved in disputes with others regarding the ownership of intellectual property rights. For example, we jointly develop intellectual property with certainparties, and disagreements may therefore arise as to the ownership of the intellectual property developed pursuant to these relationships. If we are unable toresolve these disputes, we could lose valuable intellectual property rights. On November 7, 2015 and December 9, 2015, we filed petitions for Inter Partes Review (“IPR”) in the United States Patent Office against threeAbbVie patents: U.S. patents 8,889,135; 9,017,680; and 9,073,987, all of which concern a 40 mg. biweekly subcutaneous dosing regimen for treatingrheumatoid arthritis (“RA”) with Humira® (Adalimumab). This treatment regimen is referenced in the approved FDA label for Humira. IPR filings, includingours, are a matter of public record and can be viewed at the USPTO website. We expect the USPTO to reach a decision in May, 2016 on whether to instituteour IPR’s. If the USPTO decides to institute the IPR’s, it will then conduct an administrative trial to determine the patentability of patent claims challengedin the IPR’s. If the USPTO refuses to institute the IPR’s, we and others will be able to challenge these patents in further IPR’s or in district court litigation. However, if the PTO institutes the IPR’s but the arguments we raise therein fail to persuade the USPTO, after trial, that the challenged patent claims areunpatentable, we will not be able to raise those same arguments in district court litigation. However, other biosimilar entities may be in a position tochallenge the patents in IPR’s or district court litigation, and we could still assert certain bases of invalidity or unenforceability that are not subject to reviewin IPR proceedings. We note that on December 29, 2015, Boehringer Ingelheim filed two IPR’s against AbbVie’s U.S. patent 8,889,135. If we do not prevailin the IPR’s or in any subsequent litigation that may occur between us and AbbVie concerning AbbVie’s RA dosing patents, and if other parties are notsuccessful in challenging the validity of these patents, we could be precluded from marketing a 40 mg biweekly subcutaneous dosage for RA until theexpiration of AbbVie’s dosing patents directed to this treatment regimen. AbbVie’s public statements have indicated that the earliest expiration of thesepatents will occur in 2022.Third parties may submit applications for patent term extensions in the United States or other jurisdictions where similar extensions are availableand/or Supplementary Protection Certificates in the E.U. states (including Switzerland) seeking to extend certain patent protection which, if approved, mayinterfere with or delay the launch of one or more of our biosimilar products.50 The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Patent litigation and other proceedingsmay fail, and even if successful, may result in substantial costs and distract our management and other employees. The companies that originated theproducts for which we intend to introduce biosimilar versions, as well as other competitors (including other biosimilar companies) may be able to sustain thecosts of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from theinitiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace.So called “submarine” patents may be granted to our competitors that may significantly alter our launch timing expectations, reduce our projected marketsize, cause us to modify our product or process or block us from the market altogether.The term “submarine” patent has been used in the pharmaceutical industry and in other industries to denote a patent issuing from an application thatwas not published, publically known or available prior to its grant. Submarine patents add substantial risk and uncertainty to our business. Submarine patentsmay issue to our competitors covering our biosimilar product candidates or our pipeline candidates and thereby cause significant market entry delay, defeatour ability to market our products or cause us to abandon development and/or commercialization of a molecule.Examples of submarine patents include Brockhaus, et al., U.S. patents 8,063,182 and 8,163,522 (controlled by Amgen), which are directed to thefusion protein in Enbrel. If challenges to the scope, validity or enforceability of the Brockhaus patents are not initiated, or, if initiated, are not successful,these patents, unless licensed to us by Amgen, will preclude our ability to introduce an etanercept (Enbrel) biosimilar product candidate in the U.S. marketuntil at least 2029.The issuance of one or more submarine patents may harm our business by causing substantial delays in our ability to introduce a biosimilar candidateinto the U.S. market.We may not identify relevant patents or may incorrectly interpret the relevance, scope or expiration of a patent which might adversely affect our ability todevelop and market our products.We cannot guarantee that any of our patent searches or analyses, including but not limited to the identification of relevant patents, the scope of patentclaims or the expiration of relevant patents, are complete and thorough, nor can we be certain that we have identified each and every patent and pendingapplication in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction.The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Ourinterpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market ourproducts or pipeline molecules. We may incorrectly determine that our products are not covered by a third party patent.Many patents may cover a marketed product, including but not limited to the composition of the product, methods of use, formulations, cell lineconstructs, vectors, growth media, production processes and purification processes. The identification of all patents and their expiration dates relevant to theproduction and sale of an originator product is extraordinarily complex and requires sophisticated legal knowledge in the relevant jurisdiction. It may beimpossible to identify all patents in all jurisdictions relevant to a marketed product. Our determination of the expiration date of any patent in the UnitedStates or abroad that we consider relevant may be incorrect which may negatively impact our ability to develop and market our products.Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.51 Although we are not currently involved in any litigation, we may be involved in lawsuits to protect or enforce our patents, which could be expensive, timeconsuming and unsuccessful.Although we have no issued patents, when and if we do obtain issued patents, we may discover that competitors are infringing those patents.Expensive and time-consuming litigation may be required to abate such infringement. Although we are not currently involved in any litigation to enforcepatents, if we or one of our collaboration partners, such as Baxalta, Daiichi Sankyo or Orox, were to initiate legal proceedings against a third party to enforcea patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/orunenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for avalidity challenge could be an alleged failure to meet any of several statutory requirements, including but not limited to lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone involved in the prosecution of the patent withheld relevantor material information related to the patentability of the invention from the USPTO or made a misleading statement during prosecution. The outcomefollowing legal assertions of invalidity and unenforceability is unpredictable.Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority ofinventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt tolicense rights to it from the prevailing party. Our business could be harmed if we cannot obtain a license from the prevailing party on commerciallyreasonable terms. Third parties may request an IPR of our patents in the USPTO. An unfavorable decision may result in the revocation of our patent or alimitation to the scope of the claims of our patents. Our defense of litigation, interference or IPR proceedings may fail and, even if successful, may result insubstantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverseeffect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from thirdparties or enter into development partnerships that would help us bring our product candidates to market.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some ofour confidential information could be compromised by disclosure during any litigation we initiate to enforce our patents. There could also be publicannouncements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to benegative, it could have a material adverse effect on the price of our common stock.We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information ofthird parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.We employ individuals, retain independent contractors and consultants and members on our board of directors or Scientific Advisory Board who werepreviously employed at universities or other pharmaceutical companies, including our competitors or potential competitors. For example, our ChiefExecutive Officer, Dennis M. Lanfear, and our Chief Technical Officer, Peter K. Watler, Ph.D., are former employees of Amgen. Our Chief Scientific Officer,Alan C. Herman, Ph.D., is a former employee of Amgen and Genentech. Mr. Lanfear and Drs. Watler and Herman were employed at Amgen during periodswhen Amgen’s operations included the development and commercialization of Neupogen, Neulasta and Enbrel. Our Chief Medical Officer, Barbara K. Finck,M.D., is a former employee of Immunex Corporation, or Immunex (the company that initially discovered the drug Enbrel and was later acquired by Amgen).Dr. Finck was involved in the clinical development of etanercept (Enbrel) while at Immunex and is a named inventor on at least four U.S. patents assigned toAmgen directed to the use of etanercept (Enbrel) for the treatment of psoriasis and psoriatic arthritis. Our board of directors and Scientific Advisory Boardinclude members that were former employees of Genentech, Amgen and Abbott Laboratories. Although we try to ensure that our employees, consultants andindependent contractors do not use the proprietary information or know-how of others in their work for us and we are not currently subject to any claims thatthey have done so, we may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If we fail in defending anysuch claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact ourbusiness. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and otheremployees.52 If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to preventcompetitors from using technologies we consider important in our successful development and commercialization of our product candidates, resulting inloss of any potential competitive advantage our patents may have otherwise afforded us.While our principal focus in matters relating to intellectual property is to avoid infringing the valid and enforceable rights of third parties, we also relyupon a combination of patents, trade secret protection and confidentiality agreements to protect our own intellectual property related to our productcandidates and development programs. Our ability to enjoy any competitive advantages afforded by our own intellectual property depends in large part onour ability to obtain and maintain patents and other intellectual property protection in the United States and in other countries with respect to variousproprietary elements of our product candidates, such as, for example, our product formulations and processes for manufacturing our products and our abilityto maintain and control the confidentiality of our trade secrets and confidential information critical to our business.We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our products that areimportant to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patentapplications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and developmentoutput before it is too late to obtain patent protection. There is no guarantee that any patent application we file will result in an issued patent having claimsthat protect our products. Additionally, while the basic requirements for patentability are similar across jurisdictions, each jurisdiction has its own specificrequirements for patentability. We cannot guarantee that we will obtain identical or similar patent protection covering our products in all jurisdictions wherewe file patent applications.The patent positions of biopharmaceutical companies generally are highly uncertain and involve complex legal and factual questions for which legalprinciples remain unresolved. As a result, the patent applications that we own or license may fail to result in issued patents with claims that cover our productcandidates in the United States or in other foreign countries for many reasons. There is no assurance that all potentially relevant prior art relating to ourpatents and patent applications has been found, considered or cited during patent prosecution, which can be used to invalidate a patent or prevent a patentfrom issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties maychallenge their validity, enforceability or scope, which may result in such patent claims being narrowed, found unenforceable or invalidated. Our patents andpatent applications, even if they are unchallenged, may not adequately protect our intellectual property, provide exclusivity for our product candidates orprevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competitors from using the technologies claimedin any patents issued to us, which may have an adverse impact on our business.In addition, recent changes to the patent laws of the United States provide additional procedures for third parties to challenge the validity of issuedpatents based on patent applications filed after March 15, 2013. If the breadth or strength of protection provided by the patents and patent applications wehold or pursue with respect to our current or future product candidates is challenged, then it could threaten our ability to prevent competitive products usingour proprietary technology. Further, because patent applications in the United States and most other countries are confidential for a period of time, typicallyfor 18 months after filing, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates or (ii) invent anyof the inventions claimed in our patents or patent applications. Furthermore, for applications filed before March 16, 2013 or patents issuing from suchapplications, an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was the first to invent any of thesubject matter covered by the patent claims of our applications and patents. As of March 16, 2013, the United States transitioned to a “first-to-file” system fordeciding which party should be granted a patent when two or more patent applications claiming the same invention are filed by different parties. A thirdparty that files a patent application in the USPTO before we do, could therefore be awarded a patent covering an invention of ours even if we had made theinvention before it was made by the third party. The change to “first-to-file” from “first-to-invent” is one of the changes to the patent laws of the United Statesresulting from the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011. Among some of the other significantchanges to the patent laws are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challengeany issued patent in the USPTO. It is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents, all of which could have a material adverse effect on our business and financial condition.Patents granted by the European Patent Office may be opposed by any person within nine months from the publication of their grant and, in addition,may be challenged before national courts at any time. If the breadth or strength of protection provided by the patents and patent applications we hold, licenseor pursue with respect to our product candidates is threatened, it could threaten our ability to prevent third parties from using the same technologies that weuse in our product candidates.53 We do not have any issued patents, but we have filed patent applications, which are currently pending, covering various aspects of our productcandidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be foundinvalid and unenforceable or will be threatened or infringed by third parties. Any successful actions by third parties to challenge the validity orenforceability of any patents which may issue to us could deprive us of the ability to prevent others from using the technologies claimed in such issuedpatents. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protectioncould be reduced.While our business is based primarily on the timing of our biosimilar product launches to occur after the expiration of relevant patents, we have filed anumber of patents covering our own proprietary formulations and processes for our product candidates when we have believed securing such patents mayafford a competitive advantage. For example, the companies that originated Enbrel and Humira (Amgen and AbbVie, respectively) own patents directed toformulations for these products. We have developed our own proprietary formulations for these products which we believe are not covered by valid,enforceable third party patents, including Amgen or AbbVie’s formulation patents, and we have filed patent applications covering our formulations which arecurrently pending in the U.S. and globally. We cannot guarantee that our proprietary formulations will avoid infringement of third party patents. Moreover,because competitors may be able to develop their own proprietary product formulations, it is uncertain whether issuance of any of our pending patentapplications directed to formulations of etanercept (Enbrel) and adalimumab (Humira) would cover the formulations of any competitors. As in the case offormulations, originators have also filed patents directed to methods for manufacturing their products. We have filed patent applications, currently pending,both in the U.S. and globally, directed to aspects of our manufacturing processes for CHS-0214 and CHS-1420. We believe the proprietary technologiesembodied in our process-related patent filings may provide us with competitive advantage and are not covered by valid, enforceable intellectual propertyrights of third party patents, including AbbVie and Amgen. However, as in the case of our formulation patent filings, it is highly uncertain and we cannotpredict whether our patent filings on process enhancements will afford us a competitive advantage against third parties, and we cannot guarantee that themethods we use to manufacture our products will avoid infringement of third party patents. We do not consider it necessary for us or our competitors to obtain or maintain a proprietary patent position in order to engage in the business ofbiosimilar development and commercialization. Hence, while our ability to secure patent coverage on our own proprietary developments may improve ourcompetitive position with respect to the product candidates we intend to commercialize, we do not view our own patent filings as a necessary or essentialrequirement for conducting our business nor do we rely on our own patent filings or the potential for any commercial advantage they may provide us as abasis for our success.Obtaining and maintaining our patent protection depends on compliance with various procedural requirements, document submissions, fee payment andother requirements imposed by governmental patent agencies. Our patent protection could be reduced or eliminated for non-compliance with theserequirements.The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and otherprovisions during the patent process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with theapplicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting inpartial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than wouldotherwise have been the case.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting, defending and enforcing patents on product candidates in all countries throughout the world would be prohibitively expensive,and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws ofsome foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Further, licensing partnerssuch as Baxalta or Daiichi Sankyo may chose not to file patent applications in certain jurisdictions in which we may obtain commercial rights, therebyprecluding the possibility of later obtaining patent protection in these countries. Consequently, we may not be able to prevent third parties from practicingour inventions in all countries outside the United States or importing products made using our inventions into the United States or other jurisdictions.Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also exportinfringing products to territories where we have patent protection, but the ability to enforce our patents is not as strong as that in the United States. Theseproducts may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them fromcompeting.Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legalsystems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual propertyprotection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietaryrights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert ourefforts and attention from other aspects of our54 business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke thirdparties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. Governments of foreign countries may force us to license our patents to third parties on terms that are not commercially reasonableor acceptable to us. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercialadvantage from the intellectual property that we develop or license.Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining andenforcing patents in the biopharmaceutical industry involves both technological and legal complexity. Therefore, obtaining and enforcingbiopharmaceutical patents is costly, time consuming and inherently uncertain. In addition, the United States has recently enacted and is currentlyimplementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certaincircumstances and weakened the rights of patent owners in certain situations.In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty withrespect to the value of patents, once obtained. Depending on future actions by the United States Congress, the Federal Courts and the USPTO, the laws andregulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents andpatents that we might obtain in the future.If we are unable to maintain effective (non-patent) proprietary rights for our product candidates or any future product candidates, we may not be able tocompete effectively in our markets.While we have filed patent applications to protect certain aspects of our own proprietary formulation and process developments, we also rely on tradesecret protection and confidentiality agreements to protect proprietary scientific, business and technical information and know-how that is not or may not bepatentable or that we elect not to patent. However, confidential information and trade secrets can be difficult to protect. Moreover, the information embodiedin our trade secrets and confidential information may be independently and legitimately developed or discovered by third parties without any improper useof or reference to information or trade secrets. We seek to protect the scientific, technical and business information supporting our operations, as well as theconfidential information relating specifically to our product candidates by entering into confidentiality agreements with parties to whom we need to discloseour confidential information, for example, our employees, consultants, scientific advisors, board members, contractors, potential collaborators and investors.However, we cannot be certain that such agreements have been entered into with all relevant parties. We also seek to preserve the integrity andconfidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our informationtechnology systems, but it is possible that these security measures could be breached. While we have confidence in these individuals, organizations andsystems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Our confidential information and tradesecrets thus may become known by our competitors in ways we cannot prove or remedy.Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors and any thirdparties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurancesthat all such agreements have been duly executed. We cannot guarantee that our trade secrets and other confidential proprietary information will not bedisclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information andtechniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we maynot be able to obtain adequate remedies for such breaches. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitiveposition and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we mayhave insufficient recourse against third parties for misappropriating the trade secret. We cannot guarantee that our employees, former employees orconsultants will not file patent applications claiming our inventions. Because of the “first-to-file” laws in the United States, such unauthorized patentapplication filings may defeat our attempts to obtain patents on our own inventions.We may be subject to claims challenging the inventorship of our patent filings and other intellectual property.Although we are not currently aware of any claims challenging the inventorship of our patent applications or ownership of our intellectual property,we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patent applications or patents wemay be granted or other intellectual property as an inventor or co-inventor. For example, we may have inventorship or ownership disputes arise fromconflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against theseand other claims challenging inventorship55 or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such asexclusive ownership of or right to use valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we aresuccessful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwiseexperience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.We are a party to certain non-exclusive intellectual property license agreements with Genentech (pertaining to the production of monoclonalantibodies) and Selexis SA and other vendors (pertaining to cell lines for CHS-0214 and CHS-1420) that are important to our business, and we expect to enterinto additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, variousdiligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements or we are subject to abankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license or the licensor may have the right toterminate the license, in which event we would not be able to develop or market products covered by the license. Additionally, the milestone and otherpayments associated with these licenses will make it less profitable for us to develop our product candidates.In the event we breach any of our obligations related to such agreements, we may incur significant liability to our licensing partners. Disputes mayarise regarding intellectual property subject to a licensing agreement, including but not limited to: ·the scope of rights granted under the license agreement and other interpretation-related issues; ·the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; ·the sublicensing of patents and other rights; ·our diligence obligations under the license agreement and what activities satisfy those diligence obligations; ·the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and ourcollaborators; and ·the priority of invention of patented technology.If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensingarrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates and that could have amaterial adverse effect on our business.We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.We currently have rights to certain intellectual property, through licenses from third parties and under patent applications that we own, to developCHS-0214 and CHS-1420. Because we may find that our programs require the use of proprietary rights held by third parties, the growth of our business maydepend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license compositions, methods of use,processes or other third party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing andacquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to licenseor acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over usdue to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be acompetitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on termsthat would allow us to make an appropriate return on our investment.If we are unable to successfully obtain required third party intellectual property rights or maintain the existing intellectual property rights we have, wemay have to abandon development of that program and our business and financial condition could suffer.56 Our ability to market our products in the United States may be significantly delayed or prevented by the BPCIA patent dispute resolution mechanism.The Biologics Price Competition and Innovation Act of 2009, Title VII, Subtitle A of the Patent Protection and Affordable Care Act, Pub.L.No.111-148, 124 Stat.119, Sections 7001-02 signed into law March 23, 2010, and codified in 42 U.S.C. §262, or the BPCIA, created an elaborate and complex patentdispute resolution mechanism for biosimilars that, if we choose to implement it, could prevent us from launching our product candidates in the United Statesor could substantially delay such launches. The BPCIA establishes a patent disclosure and briefing process between the biosimilar applicant and the originator that is demanding and time-sensitive. While certain aspects of this process are still being tested in the federal courts, the Federal Circuit, as discussed further below, recently ruled thatthis process is not mandatory, such that a biosimilar applicant may elect to engage in this process, but is not required to do so. The following is an overviewof the patent exchange and patent briefing procedures established by the BPCIA for biosimilar applicants that elect to employ them: 1.Disclosure of the Biosimilar Application. Within 20 days after the FDA publishes a notice that its application has been accepted for review, a351(k) biosimilar applicant may elect to provide a copy of its application to the originator if it chooses to engage in the BPCIA patentexchange mechanism. 2.Identification of Pertinent Patents. Within 60 days of the date of receipt of the application the originator must identify patents owned orcontrolled by the originator which it believes could be asserted against the biosimilar applicant. 3.Statement by the Biosimilar Applicant. Following the receipt of the originator’s patent list, the biosimilar applicant must state either that it willnot market its product until the relevant patents have expired or alternatively provide its arguments that the patents are invalid, unenforceableor would not be infringed by the proposed biosimilar product candidate. The biosimilar applicant may also provide the originator with a list ofpatents it believes the brand-name firm could assert against the reference product. 4.Statement by the Originator. In the event the biosimilar applicant has asserted that the patents are invalid, unenforceable or would not beinfringed by the proposed follow-on product, the originator must provide the biosimilar applicant with a response within 60 days. The responsemust provide the legal and factual basis of the opinion that such patent will be infringed by the commercial marketing of the proposedbiosimilar. 5.Patent Resolution Negotiations. If the originator provides its detailed views that the proposed biosimilar would infringe valid and enforceablepatents, then the parties are required to engage in good faith negotiations to identify which of the discussed patents will be the subject of apatent infringement action. If the parties agree on the patents to be litigated, the brand-name firm must bring an action for patent infringementwithin 30 days. 6.Simultaneous Exchange of Patents. If those negotiations do not result in an agreement within 15 days, then the biosimilar applicant must notifythe originator of how many patents (but not the identity of those patents) that it wishes to litigate. Within five days, the parties are thenrequired to exchange lists identifying the patents to be litigated. The number of patents identified by the originator may not exceed the numberprovided by the biosimilar applicant. However, if the biosimilar applicant previously indicated that no patents should be litigated, then theoriginator may identify one patent. 7.Commencement of Patent Litigation. The originator must then commence patent infringement litigation within 30 days. That litigation willinvolve all of the patents on the originator’s list and all of the patents on the follow-on applicant’s list. The follow-on applicant must thennotify the FDA of the litigation. The FDA must then publish a notice of the litigation in the Federal Register. 8.Notice of Commercial Marketing. The BPCIA requires the biosimilar applicant to provide notice to the originator 180 days in advance of itsfirst commercial marketing of its proposed follow-on biologic. The originator is allowed to seek a preliminary injunction blocking suchmarketing based upon any patents that either party had preliminarily identified, but were not subject to the initial phase of patent litigation.The litigants are required to “reasonably cooperate to expedite such further discovery as is needed” with respect to the preliminary injunctionmotion. The federal courts have not yet settled the issue as to when, or under what circumstances, the biosimilar applicant must provide the180 notice of commercial marketing provided in the BPCIA.On July 21, 2015 the Federal Circuit court in litigation between Amgen and Sandoz ruled that the BPCIA patent exchange process is optional and thatapplicants that choose not to engage in it must comply with the BPCIA’s requirement to provide the originator180 days prior notice of commercialmarketing. The court also ruled that such notice is not effective unless given after FDA licensure. Thus, biosimilar applicants that opt out of the BPCIApatent exchange process must wait at least 180 days after licensure to launch their biosimilar products. On February 16, 2016 Sandoz filed a petition for writof certiorari to the United States Supreme Court, asking the Court to reverse the Federal Circuit court’s decision that the BPCIA 180 day pre-marketingnotification can only be given after FDA has approved the biosimilar product. The Supreme Court may or may not choose to review the Federal Circuit57 decision. Regardless of how the 180 day notice provision is applied by the courts, patent infringement lawsuits filed by originators could result inpreliminary or permanent injunctions extending beyond the 180 day notice period.On December 9, 2015, in litigation between Amgen and Apotex (relating to Apotex’s biosimilar for Neulasta (pegiflgrastim), the Florida District courtruled that although Apotex had engaged in the BPCIA patent exchange process voluntarily, it was nonetheless required to provide 180 days prior notice ofcommercial marketing to Amgen, and that it could only provide such notice upon regulatory approval. Apotex has appealed this decision to the FederalCircuit, where the matter is presently pending. Thus, despite the Florida District Court decision, the issue remains unsettled as to whether a party thatengages voluntarily in the BPCIA patent exchange process must nevertheless provide 180 days’ notice of commercial marketing to the originator. A furtheropen issue is whether such notice may be given before, or only after, FDA licensure of the biosimilar. If a panel of the Federal Circuit affirms the FloridaDistrict Court decision and such decision is not overturned upon reconsideration by a full panel of the Federal Circuit or by the US. Supreme Court, all351(k) biosimilar applicants will be required to refrain from launching an approved biosimilar product for 180 days following 351(k) regulatory approval,without regard to whether such applicants elected to participate in the BPCIA patent exchange process.A significant legal risk for a biosimilar applicants that pursue regulatory approval under the 351(k) regulatory approval route, and also elect to engagein the above-described BPCIA patent exchange mechanism, is that the process could result in the initiation of patent infringement litigation prior to FDAapproval of a 351(k) application, and such litigation could result in blocking the market entry of the biosimilar product. However, even if biosimilarapplicants opt out of the BPCIA patent exchange process, originators will still have the right to assert patent infringement as a basis to enjoin a biosimilarproduct launch. Thus, whether or not we engage in the BPCIA patent exchange process, there is risk that patent infringement litigation initiated byoriginators could prevent us indefinitely from launching our biosimilar products.The legal and strategic considerations weighing for or against a decision to voluntarily engage in the BPCIA patent exchange process are complexand will differ on a product-by-product basis. If we decide to engage in the BPCIA patent exchange process, preparing for and conducting the patentexchange, briefing and negotiation process outlined above will require extraordinarily sophisticated legal counseling and extensive planning, all underextremely tight deadlines. Moreover, it may be difficult for us to secure or retain such legal support if large, well-funded originators have already entered intoengagements with highly qualified law firms or if the most highly qualified law firms choose not to represent biosimilar applicants due to their long standingrelationships with originators.Furthermore, we could be at a serious disadvantage in this process, as an originator company such as Amgen (in the case of CHS-1420 or CHS-0214) orAbbVie (in the case of CHS-1420) may be able to apply substantially greater legal and financial resources to this process than we could.If we file a 351(k) regulatory approval application for one or more of our products, we may consider it necessary or advisable to adopt the strategy ofselecting one or more patents of the originator to litigate in the above described BPCIA process (for example in steps 3 and 7, of the process, as outlinedabove), either to assert our non-infringement of such patents or to challenge their validity, or both; but we may ultimately not be successful in that strategyand could be prevented, indefinitely, from marketing the product in the United States.Under the complex, and uncertain rules of the BPCIA patent provisions, coupled with the inherent uncertainty surrounding the legal interpretation ofany originator patents that might be asserted against us in this new process, we see substantial risk that the BPCIA process may significantly delay or defeatour ability to market our products in the United States.Risks Related to Our Business OperationsWe may not be successful in our efforts to identify, develop or commercialize additional product candidates.Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our existingproduct candidates, the success of our business also depends upon our ability to identify, develop and commercialize additional product candidates.Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resourceson potential programs or product candidates that ultimately prove to be unsuccessful. Our development efforts may fail to yield additional productcandidates suitable for clinical development and commercialization for a number of reasons, including but not limited to the following: ·we may not be successful in identifying potential product candidates that pass our strict screening criteria; ·we may not be able to overcome technological hurdles to development or a product candidate may not be capable of producing commercialquantities at an acceptable cost or at all;58 ·we may not be able to assemble sufficient resources to acquire or discover additional product candidates; ·our product candidates may not succeed in nonclinical or clinical testing; ·our potential product candidates may fail to show sufficient biosimilarity to originator molecules; and ·competitors may develop alternatives that render our product candidates obsolete or less attractive or the market for a product candidate maychange such that a product candidate may not justify further development.If any of these events occur, we may be forced to abandon our development efforts for a program or programs or we may not be able to identify,develop or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to ceaseoperations.We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time tocompliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002,which could result in sanctions or other penalties that would harm our business.We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligationsunder the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listingrequirements of The NASDAQ Global Market require that we satisfy certain corporate governance requirements relating to director independence,distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Ourmanagement and other personnel must devote a substantial amount of time to ensure that we maintain compliance with all of these requirements. Moreover,the reporting requirements, rules and regulations will increase our legal and financial compliance costs and make some activities more time consuming andcostly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timelybasis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a publiccompany, may also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve asexecutive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.We are subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, orSEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control overfinancial reporting. Under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we previously took advantage of certain exemptions from variousreporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required tocomply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to nolonger take advantage of the applicable exemption. Based on our non-affiliated market capitalization as of June 30, 2015, we ceased to be an emerginggrowth company under the JOBS Act on January 1, 2016 and therefore are now required to include an opinion from our independent registered publicaccounting firm on the effectiveness of our internal controls over financial reporting.Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may also lead tosubstantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate ourbusiness in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these complianceinitiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consumingand costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liabilityinsurance and we may be required to incur substantial costs to maintain our current levels of such coverage.We have experienced a material weakness in our internal controls over financial reporting.In connection with the audit of our financial statements from inception through December 31, 2013, we identified a material weakness in our internalcontrol over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such thatthere is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.The material weakness related to a deficiency in the design and operating effectiveness of our internal control related to the valuation of complex securities.We implemented changes to our disclosure controls and procedures and internal control over financial reporting to remediate the material weaknessidentified above. We strengthened the operation of our internal controls over the accounting for non-routine, complex equity transactions, includingincreasing the depth and experience within our accounting and finance organization, as well as designing and implementing improved processes and internalcontrols to identify such matters. We have hired additional personnel to59 build our financial management and reporting infrastructure, including the hiring of our Chief Financial Officer and Vice President of Finance, in the thirdand fourth quarter of 2014, respectively.Although we have taken steps that we believe have addressed the underlying causes of the material weakness described above and there were nomaterial weaknesses identified in connection with the reviews of our financial statements for the first, second and third quarters of 2015 and in connectionwith the audit of our financial statements for 2015, other material weaknesses or deficiencies in our control environment may be identified in the future andwe may be unable to accurately report our financial results, or report them within the time frames required by law or exchange regulations.Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010,the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or together, the PPACA, was passed, whichsubstantially changes the way health care is financed by both governmental and private insurers and significantly impacts the U.S. pharmaceutical industry.The PPACA, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program arecalculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under theMedicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, adds a provision to increasethe Medicaid rebate for line extensions or reformulated drugs, establishes annual fees and taxes on manufacturers of certain branded prescription drugs andpromotes a new Medicare Part D coverage gap discount program.In addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On August 2, 2011, theBudget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, therebytriggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2024 unless additional Congressional action is taken. On January 2,2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, further reduced Medicare payments to certainproviders, including physicians, hospitals and cancer treatment centers. We expect that additional state and federal healthcare reform measures will beadopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which couldresult in reduced demand for our product candidates or additional pricing pressures, such as a single reimbursement code for biosimilar products.We may be subject, directly or indirectly, to federal and state healthcare laws, including fraud and abuse, false claims, physician payment transparencyand health information privacy and security laws. If we are unable to comply or have not fully complied with such laws, we could face substantialpenalties.If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may bedirectly or indirectly through our customers subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales,marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which weconduct our business. The laws that may affect our ability to operate include: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering orpaying remuneration, directly or indirectly, in cash or in kind, to induce or in return for the purchase, recommendation, order or furnishing of anitem or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; ·federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities fromknowingly presenting or causing to be presented claims for payment from Medicare, Medicaid or other third-party payors that are false orfraudulent and which may apply to entities that provide coding and billing advice to customers; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibitexecuting a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;60 ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementingregulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable healthinformation; ·the federal physician “sunshine” requirements under the PPACA, which requires certain manufacturers of drugs, devices, biologics and medicalsupplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value madeby such manufacturers to physicians and teaching hospitals and ownership and investment interests held by physicians and their immediatefamily members and applicable group purchasing organizations; and ·state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items orservices reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply withthe pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal governmentor otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drugmanufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketingexpenditures and state laws governing the privacy and security of health information in certain circumstances, many of which differ from eachother in significant ways and may not have the same effect, thus complicating compliance efforts.Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our businessactivities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. Forexample, the PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person orentity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the PPACA provides that the government may assertthat a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes ofthe False Claims Act.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may besubject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such asMedicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate ourbusiness and our results of operations.The international aspects of our business expose us to business, regulatory, political, operational, financial and economic risks associated with doingbusiness outside of the United States.We currently have limited international operations of our own and have a number of international collaborations. Doing business internationallyinvolves a number of risks, including but not limited to: ·multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws,regulatory requirements and other governmental approvals, permits and licenses; ·failure by us or our collaboration partners to obtain and maintain regulatory approvals for the use of our products in various countries; ·additional potentially relevant third-party patent rights; ·complexities and difficulties in obtaining protection and enforcing our intellectual property; ·difficulties in staffing and managing foreign operations by us or our collaboration partners; ·complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems by ourcollaboration partners; ·limits in our or our collaboration partners’ ability to penetrate international markets; ·financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises ondemand and payment for our products and exposure to foreign currency exchange rate fluctuations; ·natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment oftrade and other business restrictions;61 ·certain expenses including, among others, expenses for travel, translation and insurance; and ·regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within thepurview of the U.S. Foreign Corrupt Practices Act its books and records provisions or its anti-bribery provisions.Sanctions against Russia, and Russia’s response to those sanctions, could materially adversely affect our business, financial condition and results ofoperations.Due to Russia’s recent military intervention in Ukraine, the United States and the E.U. have imposed sanctions on certain individuals and onefinancial institution in Russia and have proposed the use of broader economic sanctions. In response, Russia has imposed entry bans on certain U.S.lawmakers and officials. Our wholly owned subsidiary, InteKrin Therapeutics, Inc., or InteKrin, which we acquired in February 2014 is majority owner of aRussian pharmaceutical development entity, ZAO InteKrin, which holds $111,000 of cash in Russian banks as of December 31, 2015. This Russiansubsidiary of InteKrin conducts research and development activities for a product we acquired as part of our acquisition of InteKrin. The product is a smallmolecule peroxisome proliferator-activated receptor, or PPAR, gamma inhibitor that may hold promise in treatment of multiple sclerosis, or MS. While not abiosimilar, this PPAR gamma inhibitor compound may be complementary to biosimilar products for treatment of MS that we are currently evaluating forinclusion in our pipeline. If the United States and the E.U. were to impose sanctions on Russian businesses, or if Russia were to take retaliatory action againstU.S. companies operating in Russia, our research and development activities related to the InteKrin PPAR gamma inhibitor product could be materiallyadversely affected.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldhave a material adverse effect on the success of our business.Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal ofhazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers aresubject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardousmaterials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminatethe risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations,environmental damage resulting in costly cleanup and liabilities under applicable laws and regulations governing the use, storage, handling and disposal ofthese materials and specified waste products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handlingand disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case oreliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and suchliability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our businessoperations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predictthe impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disasterrecovery plans may not adequately protect us from a serious disaster.Our corporate headquarters and laboratory are located in the San Francisco Bay Area and in Southern California (Camarillo), respectively, and one ofour collaboration partners, Daiichi Sankyo, is located in Japan. These locations have in the past experienced severe earthquakes and other natural disasters.We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations or those of our collaboration partners andhave a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other eventoccurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure (such as the manufacturing facilitiesof our third-party contract manufacturers) or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue ourbusiness for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to proveadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery andbusiness continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on ourbusiness.62 Risks Related to Ownership of Our Common StockThe market price of our common stock may be highly volatile, and purchasers of our common stock could incur substantial losses.The market price of our common stock has been highly volatile since our IPO and the intraday sales price per share has ranged from $12.04 to $38.10per share during the period from November 6, 2014 through February 26, 2016 and could be subject to wide fluctuations in response to various factors, someof which are beyond our control. These factors include those discussed in this “Risk Factors” section of this Annual Report on Form 10-K and others such as: ·adverse results or delays in preclinical or clinical studies; ·any inability to obtain additional funding; ·any delay in filing an IND, NDA, BLA or other regulatory submission for any of our product candidates and any adverse development orperceived adverse development with respect to the applicable regulatory agency’s review of that IND, NDA, BLA or other regulatorysubmission; ·the perception of limited market sizes or pricing for our product candidates; ·failure to successfully develop and commercialize our product candidates; ·post-marketing safety issues relating to our product candidates or biosimilars generally; ·failure to maintain our existing strategic collaborations or enter into new collaborations; ·failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights; ·changes in laws or regulations applicable to our products; ·any inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices; ·adverse regulatory decisions; ·introduction of new products, services or technologies by our competitors; ·failure to meet or exceed financial projections we may provide to the public; ·failure to meet or exceed the financial projections of the investment community; ·the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community; ·announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic collaborationpartners or our competitors; ·disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection forour technologies; ·additions or departures of key scientific or management personnel; ·lawsuits, including stockholder litigation and litigation filed by us or filed against us pertaining to patent infringement or other violations ofintellectual property rights; ·the outcomes of any citizens petitions filed by parties seeking to restrict or limit the approval of biosimilar products; ·if securities or industry analysts do not publish research or reports about our business or if they issue an adverse or misleading opinionregarding our stock; ·changes in the market valuations of similar companies; ·general market or macroeconomic conditions; ·sales of our common stock by us or our stockholders in the future; ·trading volume of our common stock; ·issuance of patents to third parties that could prevent our ability to commercialize our product candidates; ·reductions in the prices of originator products that could reduce the overall market opportunity for our product candidates intended asbiosimilars to such originator products;63 ·the loss of one or more employees constituting our leadership team; and ·changes in biosimilar regulatory requirements that could make it more difficult for us to develop our product candidates.In addition, biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated ordisproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our commonstock, regardless of our actual operating performance.Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject tostockholder approval.As of December 31, 2015, our executive officers, directors, five percent stockholders and their affiliates beneficially owned approximately 58.5% ofour voting stock (assuming no exercise of outstanding options). These stockholders have the ability to influence us through their ownership positions, whichmay prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest as one of ourstockholders.Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.If our existing stockholders sell or indicate an intention to sell substantial amounts of our common stock in the public market after the lock-up andother legal restrictions on resale lapse, the market price of our common stock could decline. As of December 31, 2015, there were 39,005,589 shares ofcommon stock outstanding. Of these shares, the shares of our common stock sold in our IPO and our follow-on offering are currently freely tradable, withoutrestriction (except as otherwise applicable), in the public market.In addition, as of December 31, 2015, approximately 8.9 million shares of common stock that are either subject to outstanding options or reserved forfuture issuance under our equity incentive plans became eligible for sale in the public market to the extent permitted by the provisions of various vestingschedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold or if it is perceived that they will be soldin the public market, the market price of our common stock could decline.Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result inadditional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.We will need additional capital in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities,our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactionsat prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than onetransaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and newinvestors could gain rights superior to our existing stockholders.Pursuant to our 2014 Equity Incentive Award Plan, or the 2014 Plan, our management is authorized to grant stock options and other equity-basedawards to our employees, directors and consultants. Under the 2014 Plan, the number of shares of our common stock initially reserved for issuance is2,300,000 plus the number of shares remaining available for future awards under the 2010 Plan. The number of shares available for future grant under the2014 Plan will be increased by (i) the number of shares pursuant to outstanding awards under the 2010 Plan that are forfeited or lapse unexercised and whichfollowing the effective date are not issued under the 2010 Plan and (ii) an annual increase on the first day of each fiscal year beginning in 2015 and ending in2024, equal to 4% of the shares of stock outstanding as of the last day of the preceding fiscal year, or such smaller number of shares as determined by ourboard of directors. Pursuant to our 2014 Employee Stock Purchase Plan, or 2014 ESPP, eligible employees are able to acquire shares of our common stock at adiscount to the prevailing market price, and an aggregate of 320,000 shares are initially available for issuance under the 2014 ESPP. The number of sharesavailable for issuance under the 2014 ESPP will automatically increase on the first day of each fiscal year beginning in 2015 and ending in 2024, equal to1% of the shares of common stock outstanding on the last day of the immediately preceding fiscal year or such smaller number of shares as determined by ourboard of directors. If our board of directors elects to increase the number of shares available for future grant under the 2014 Plan or the 2014 ESPP, ourstockholders may experience additional dilution, which could cause our stock price to fall.Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieveprofitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until suchunused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,”generally defined as a greater than 50 percentage point change (by64 value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards,or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We have experiencedownership changes in the past and may experience ownership changes in the future as a result of shifts in our stock ownership (some of which shifts areoutside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income will be subject tolimitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may beperiods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even ifwe attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return tostockholders will therefore be limited to the appreciation of their stock.Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could makeit more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our currentmanagement.Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect ofdelaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws includeprovisions that: ·authorize “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may containvoting, liquidation, dividend and other rights superior to our common stock; ·create a classified board of directors whose members serve staggered three-year terms; ·specify that special meetings of our stockholders can be called only by our corporate secretary pursuant to a resolution adopted by a majorityof our board of directors; ·prohibit stockholder action by written consent; ·establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, includingproposed nominations of persons for election to our board of directors other than nominations made by or at the direction of the board ofdirectors or a committee of the board of directors; ·provide that our directors may be removed only for cause or without cause by the holders of 66 2/3% of the voting power of all thenoutstanding shares of voting stock; ·provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; ·specify that no stockholder is permitted to cumulate votes at any election of directors; ·expressly authorize our board of directors to modify, alter or repeal our amended and restated bylaws; and ·require holders of 66 2/3% of the voting power of all then outstanding shares of voting stock to amend specified provisions of our amendedand restated certificate of incorporation except for the provision making it possible for our board of directors to issue “blank check” preferredstock, and amended and restated bylaws.These provisions, alone or together, could delay, deter or prevent hostile takeovers and changes in control or changes in our management.In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delayingor deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could alsoaffect the price that some investors are willing to pay for our common stock. 65 Item 1B.Unresolved Staff CommentsNot applicable. Item 2.PropertiesOur headquarters are located in Redwood City, California, where we occupy office space under a lease that will expire in November 2022. Ouranalytical and process development laboratories are located in Camarillo, California under a lease that expires in June 2017 with a three year renewal option.We believe that our existing facilities are adequate for our current needs. When our leases expire, or if we need to hire more employees, we mayexercise our renewal option or look for additional or alternate space for our operations and we believe that suitable additional or alternative space will beavailable in the future on commercially reasonable terms. Item 3.Legal ProceedingsWe are not currently a party to any material litigation or legal proceedings.On November 9, 2015 and December 7, 2015, we filed in the United States Patent and Trademark Office, pursuant to 35 U.S.C. §§ 311–319 AND 37C.F.R. § 42, petitions for Inter Partes Review (“IPR”) of AbbVie’s United States Patent Nos. 8,889,135 (Case No. IPR2016-00172, filed December 7, 2015);9,017,680 (Case No. IPR2016-00188, filed December 7, 2015); and 9,073,987 (Case No. IPR 2016-00189, filed December 7, 2015), each entitled “Methodsof Administering Anti-TNFα antibodies” directed to treating rheumatoid arthritis in a human subject via subcutaneous administration, every 13-15 days, of40 mg of a human anti-TNFα antibody. Item 4.Mine Safety DisclosuresNot applicable. 66 PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock has been listed on The NASDAQ Global Market under the symbol “CHRS” since November 6, 2014. Prior to that there was nopublic trading market for our common stock. The high and low closing sales price of our common stock for the period from November 6, 2014 toDecember 31, 2015 was $37.46 and $12.61, respectively.On January 29, 2016, the closing sale price of our common stock was $13.26.Common StockholdersAs of January 29, 2016, there were approximately 59 stockholders of record of our common stock. The actual number of stockholders is greater thanthis number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.Dividend PolicyWe have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future.Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including ourfinancial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deemrelevant. In February 2016, we entered into senior convertible notes which preclude the Company, directly or indirectly, to declare dividends so long as anyof the notes are outstanding.67 Stock Performance GraphThe following graph shows the total stockholder’s return on an investment of $100 in cash at market close on November 6, 2014 (the first day oftrading of our common stock), through December 31, 2015 for (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQBiotechnology Index. Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of the full amount of all dividends,however, no dividends have been declared on our common stock to date. The stockholder return shown on the graph below is not necessarily indicative offuture performance, and we do not make or endorse any predictions as to future stockholder return. This graph shall not be deemed “soliciting material” or bedeemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to beincorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any generalincorporation language in any such filing. Securities Authorized for Issuance Under Equity Compensation PlansThe information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in PART IIIItem 12 of this Annual Report on Form 10-K.Use of Proceeds from Registered SecuritiesOn March 23, 2015, we filed our registration statement on Form S-1 (File No. 333-202936) relating to our follow-on offering of our common stock andit was declared effective by the SEC on March 31, 2015. The price of the shares sold in the follow-on offering was $29.00 per share. The follow-on offeringclosed on April 7, 2015, pursuant to which we sold 4,137,931 shares of common stock. We received total gross proceeds from the offering of $120.0 million.After deducting underwriting discounts and commissions of $7.2 million and offering expenses of $0.6 million, the net proceeds were $112.2 million.68 The net proceeds from the follow-on offering described above have been used primarily to fund the development of one or more biosimilar candidatescurrently in the preclinical stage and to fund the proof-of-concept Phase 2 study of CHS-131.Recent Sales of Unregistered Equity SecuritiesFrom January 1, 2015 through December 31, 2015, we sold and issued the following unregistered securities:On September 10, 2015, we completed a private placement under a Stock Purchase Agreement with Baxalta and sold an aggregate of 390,167 shares ofcommon stock for aggregate gross proceeds of approximately $10.0 million. The purchase price for each share was $25.63, which is equal to the closingtrading price of our common stock on the NASDAQ Global Market on the day of pricing, September 9, 2015. The securities sold and issued in connectionwith the private placement were initially unregistered under the Securities Act or any state securities laws and could not be offered or sold in the UnitedStates absent registration with the SEC or an applicable exemption from the registration requirements. In connection with the Purchase Agreement, weentered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Baxalta GmbH. Pursuant to the Registration Rights Agreement, wefiled a registration statement on Form S-3 (File No. 333-208625) to register the securities sold and issued in connection with the private placement with theSEC on December 18, 2015 and declared effective by the SEC on January 21, 2016.The net proceeds from the private placement described above have been used and will be used to fund clinical and manufacturing development,working capital and other general corporate purposes.Issuer Purchases of Equity SecuritiesWe did not repurchase any of our equity securities during the fourth quarter of the fiscal year ended December 31, 2015.Item 6.Selected Financial DataYou should read the following selected consolidated financial data together with the information under “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in this Form 10-K. Theconsolidated statement of operations data for each of the years ended December 31, 2015, 2014 and 2013, and the consolidated balance sheet data as ofDecember 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The selectedconsolidated statement of operations data for the year ended December 31, 2012 and the consolidated balance sheet data as of December 31, 2013 and 2012are derived from our audited financial statements which are not included in this Annual Report on Form 10-K. The selected consolidated statement ofoperations data for the year ended December 31, 2011 and the consolidated balance sheet data as of December 31, 2011 are derived from our unauditedfinancial statements which are not included in this Annual Report on Form 10-K.69 Consolidated Statement of Operations Data: Year Ended December 31, (in thousands, except share and per share data) 2015 2014 2013 2012 2011 Revenue: (unaudited) Collaboration and license revenue $30,041 $28,481 $726 $1,899 $— Collaboration and license revenue - related party (1) - 1,893 2,025 — — Other revenue - 732 — — — Total revenue 30,041 31,106 2,751 1,899 — Operating expenses: Research and development (2) 213,062 78,224 31,279 34,886 2,451 General and administrative (2) 36,046 17,564 7,465 5,531 2,559 Total operating expenses 249,108 95,788 38,744 40,417 5,010 Loss from operations (219,067) (64,682) (35,993) (38,518) (5,010)Interest expense (33) (3,900) (5,293) (1,514) (2,583)Other income (expense), net (4,838) (18,595) (12,349) 7,014 (40)Net loss (223,938) (87,177) (53,635) (33,018) (7,633)Net loss attributable to non-controlling interest 678 44 — — — Net loss attributable to Coherus $(223,260) $(87,133) $(53,635) $(33,018) $(7,633)Net loss per share attributable to Coherus, basic and diluted (3) $(6.01) $(10.64) $(16.10) $(15.85) $(9.33)Weighted-average number of shares used in computing net loss per share attributable to Coherus, basic and diluted (3) 37,122,008 8,186,529 3,332,020 2,082,622 818,234 (1)Represents revenue from Daiichi Sankyo through November 12, 2014 as a related party, a holder of more than 10% of our common stock for theperiods presented until the closing of our IPO.(2)Includes stock-based compensation expense as follows: Year Ended December 31, (in thousands) 2015 2014 2013 2012 2011 (unaudited) Research and development $8,038 $5,625 $682 $268 $143 General and administrative 8,683 5,437 1,363 175 120 Total stock-based compensation $16,721 $11,062 $2,045 $443 $263 (3)See Note 14 to our audited consolidated financial statements for an explanation of the method used to calculate basic and diluted net loss per shareattributable to Coherus and the weighted-average shares outstanding used to calculate the per share amounts.Consolidated Balance Sheet Data: December 31, (in thousands) 2015 2014 2013 2012 2011 (unaudited) Cash and cash equivalents $158,226 $150,392 $39,554 $14,548 $7,694 Working capital (deficit) 91,368 127,353 (8,024) 13,546 (1,460)Total assets 212,384 187,221 47,447 26,533 8,482 Convertible notes — — 1,111 — 2,591 Convertible notes - related party — — 3,092 — 2,264 Convertible preferred stock warrant liability — — 24,251 1,738 2,777 Convertible preferred stock — — 54,695 54,695 1,191 Accumulated deficit (409,985) (186,725) (99,592) (45,957) (7,966)Total stockholder's equity (deficit) (6,929) 66,757 (97,077) (45,503) (1,117) 70 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form 10-K,including the following sections, contains forward-looking statements within the meaning of the federal securities laws. These statements are subject torisks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements.For a detailed discussion of these risks and uncertainties, see the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K. We caution thereader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Form 10-K. Weundertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Form 10-K.OverviewWe are a late-stage clinical biologics platform company focused on the global biosimilar market. Biosimilars are an emerging class of protein-basedtherapeutics with high similarity to approved originator products on the basis of various physicochemical and structural properties, as well as in terms ofsafety, purity and potency. Our goal is to become a global leader in the biosimilar market by leveraging our team’s collective expertise in key areas such asprocess science, analytical characterization, protein production and clinical-regulatory development.Our clinical-stage biosimilar pipeline includes the following three product candidates: ·CHS-1701 (our pegfilgrastim (Neulasta) biosimilar candidate). Our long-acting G-CSF product candidate, CHS-1701, is being developed as apegfilgrastim (Neulasta) biosimilar. In October 2015, we completed a pivotal pharmacokinetic (PK) and pharmacodynamics (PD) study forCHS-1701 in the United States (U.S.). Although it did not meet the PK AUC bioequivalence endpoint due to low, anomalous PK profile in theNeulasta first period group, we believe this study will support the planned filing of a biologics license application (BLA) in the U.S. as it metall the other co-primary endpoints including the PD endpoints. An immunogenicity study in healthy volunteers pursuant to this BLA met itsprimary endpoints. In February 2016, we initiated a follow-on PK/PD study, which is expected to read-out late in the first half of 2016. Weexpect to file a BLA in the United States directly thereafter. ·CHS-0214 (our etanercept (Enbrel) biosimilar candidate). CHS-0214 is a product candidate for which we have partnered with BaxaltaIncorporated, Baxalta US Inc., and Baxalta GmbH, (collectively “Baxalta”) and Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), todevelop and commercialize in key markets outside of the United States. In October 2015, we completed part 1 of a Phase 3 clinical study inpsoriasis comparing CHS-0214 to Enbrel. This study is on-going but has met all its primary efficacy endpoints at 12 weeks. There were noclinically important safety issues noted in either treatment group. We are currently conducting a Phase 3 clinical study in rheumatoid arthritis.This study met the primary endpoint at 24 weeks. We expect that results from these studies, combined with data from our Phase 1 studies willsupport the expected filing of a marketing application in Europe and Japan in 2016. We have retained the development and commercial rightsto this product in the U.S. However, the therapeutic protein in etanercept is subject to certain originator-controlled U.S. patents expiring in2028 and 2029. Assuming these patents are valid and enforceable, and that we would be unable to obtain a license to them, we do not expect tocommercialize CHS-0214 in the U.S. prior to their expiration. ·CHS-1420 (our adalimumab (Humira) biosimilar candidate). Our second anti-TNF product candidate, CHS-1420, is being developed as anadalimumab (Humira) biosimilar. This product successfully completed a pivotal Phase 1 PK study in August 2014 by meeting the primary PKbioequivalence endpoint. We initiated a Phase 3 study in psoriasis in August 2015 to support the planned filing of a marketing application inthe U.S. in 2016 and the E.U. in 2017. We initiated a bridging PK study comparing the Phase 3 CHS-1420 material to U.S. manufacturedadalimumab (Humira) during the first quarter of 2016 and we plan to initiate a bridging PK study comparing the Phase 3 CHS-1420 material toE.U. manufactured adalimumab (Humira) in mid-2016.Our revenue to date has been generated primarily from collaboration and license payments pursuant to our license agreements with Daiichi Sankyoand Baxalta. We have not generated any commercial product revenue. We have incurred significant losses in the past and expect to incur significant andincreasing losses in the foreseeable future as we advance our product candidates into later stages of development and, if approved, commercialization. Ournet losses were $223.9 million, $87.2 million and $53.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31,2015, we had an accumulated deficit of $410.0 million.In March 2015, our registration statement on Form S-1 (File No. 333-202936) relating to the follow-on offering of our common stock was declaredeffective by the SEC. The price of the shares sold in the follow-on offering was $29.00 per share. The follow-on offering closed on April 7, 2015, pursuant towhich we sold 4,137,931 shares of common stock. We received total gross proceeds from71 the offering of $120.0 million. After deducting underwriting discounts and commissions of $7.2 million and offering expenses of $0.6 million, the netproceeds were $112.2 million.In April 2015, we entered into a second amendment to the license agreement with Baxalta. Under the terms of the second amendment, a revisedmilestone payment structure totaling $130.0 million replaced certain existing milestone and funding obligations under the license agreement as originallyexecuted. Therefore, we are eligible to receive up to $335.3 million in contingent payments comprised of $215.3 million in clinical development payments,and $120.0 million in regulatory milestone payments. Pursuant to the second amendment, we received a total of $100.0 million in milestone payments in2015 which are subject to the 50% claw-back feature.We lease office spaces for our corporate headquarters in Redwood City, California and for laboratory facilities in Camarillo, California underoperating lease agreements. In July 2015, we entered into a new office lease with Hudson 333 Twin Dolphin Plaza, LLC to lease approximately 27,532 squarefeet of office space located in Redwood City, California for our new corporate headquarters. The New Lease commenced and we moved into the new facilityin December 2015.In September 2015, we completed a private placement with Baxalta, in which we sold an aggregate of 390,167 shares of common stock for aggregategross proceeds of approximately $10.0 million. In December 2015, we filed our registration statement on Form S-3 (File No. 333-208625) relating to theprivate placement of our common stock and was declared effective by the SEC on January 21, 2016.In February 2016, we issued and sold $100.0 million aggregate principal amount of our 8.2% senior convertible notes due 2022 (“the Notes”). TheseNotes require quarterly interest distributions at a fixed coupon rate of 8.2% until maturity, redemption or conversion, which will be no later than March 31,2022. The Notes are convertible into shares of common stock at an initial conversion rate of 44.7387 shares of common stock per $1,000 principal amount ofthe Notes (equivalent to a conversion price of approximately $22.35 per share of common stock, representing a 60% premium over the average last reportedsale price of our common stock over the 15 trading days preceding the date the notes were issued), subject to adjustment in certain events. After March 31,2020, the full amount of the Notes not previously converted are redeemable for cash at our option if the last reported sale price per share of our common stockexceeds 160% of the conversion price on 20 or more trading days during the 30 consecutive trading days preceding the date on which we send notice of suchredemption to the holders of the Notes. Upon conversion of the Notes by a holder, the holder will receive shares of our common stock, together, if applicable,with cash in lieu of any fractional share. At maturity or redemption, if not earlier converted, we will pay 109% of the par value of the Notes, together withaccrued and unpaid interest, in cash. The holders of the Notes are Healthcare Royalty Partners III, L.P., which holds $75.0 million in aggregate principalamount, and three related party investors, KKR Biosimilar L.P., which holds $20.0 million, MX II Associates LLC, which holds $4.0 million, and KMGCapital Partners, LLC, which holds $1.0 million.Financial Operations OverviewRevenueWe have not generated any revenue from commercial product sales to date. Our revenue has been generated from license and collaborationagreements, which is composed of license payments and milestone and other contingent payments under our license agreements.Research and Development ExpensesResearch and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates.We recognize all research and development costs as they are incurred. We currently track only the external research and development costs incurred for eachof our product candidates. Our external research and development expenses consist primarily of: ·expenses incurred under agreements with consultants, third-party contract research organizations, or CROs, and investigative sites where asubstantial portion of our preclinical studies and all of our clinical trials are conducted; ·costs of acquiring originator comparator materials and manufacturing preclinical study and clinical trial supplies and other materials fromcontract manufacturing organizations, or CMOs, and related costs associated with release and stability testing; and ·costs associated with manufacturing process development activities.72 Internal costs are associated with activities performed by our research and development organization and generally benefit multiple programs. Thesecosts are not separately allocated by product candidate. Unallocated, internal research and development costs consist primarily of: ·personnel-related expenses, which include salaries, benefits and stock-based compensation; and ·facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation andamortization of leasehold improvements and equipment and laboratory and other supplies.The largest component of our total operating expenses has historically been our investment in research and development activities, including theclinical development of our product candidates. We expect these expenses to increase in absolute dollars in the future as we continue to invest in researchand development activities related to our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval iscostly and time consuming. Furthermore, in the past we have entered into collaborations with third parties to participate in the development andcommercialization of our product candidates, and we may enter into additional collaborations in the future. In situations in which third parties havesubstantial influence over the development activities for product candidates, the estimated completion dates are not fully under our control. For example,pursuant to our collaboration agreements with respect to CHS-0214, our partners in licensed territories may exert considerable influence on the regulatoryfiling process globally. Therefore, we cannot forecast with any degree of certainty the duration and completion costs of these or other current or futureclinical trials of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. In addition, we may enterinto other collaboration arrangements for our other product candidates, which could affect our development plans or capital requirements.The following table summarizes our research and development expenses incurred during the respective periods: Phase of Development as of Year ended December 31, December 31, 2015 2015 2014 2013 (in thousands) External costs incurred by product candidate: CHS-0214 (6) Phase 3 (1) $83,377 $35,726 $10,011 CHS-1420 Phase 3 (2) 37,611 12,581 6,603 CHS-1701 BLA-enabling (3) 46,872 8,436 4,902 CHS-131 Phase 2 (4) 3,694 1,707 — Other research and development expenses (5) 5,311 435 2,058 Internal costs 36,197 19,339 7,705 Total research and development expenses (6) $213,062 $78,224 $31,279 (1)CHS-0214 entered into Phase 3 clinical trials in June and July 2014.(2)CHS-1420 initiated a Phase 3 study in psoriasis in August 2015 to support the planned filing of a marketing application in the U.S. in 2016 and in theE.U. in 2017. We initiated a bridging PK study comparing the Phase 3 CHS-1420 material to U.S. manufactured adalimumab (Humira) during the firstquarter of 2016 and we plan to initiate a bridging PK study comparing the Phase 3 CHS-1420 material to E.U. manufactured adalimumab (Humira) inmid-2016.(3)We met with the FDA on October 9, 2014 and informed the agency of our decision to transition from a 351(a) (novel biologic) approval pathway to a351(k) (biosimilar) approval pathway. In March 2015, we received written feedback from the FDA on our development plan for CHS-1701 and weinitiated a pivotal pharmacokinetic and pharmacodynamic study for CHS-1701inhealthy volunteers, and an additional immunogenicity study inhealthy volunteers in May 2015, both pursuant to this BLA. We continue to believe it may be possible to advance CHS-1701 to a 351(k) (biosimilar)approval application without a collaboration or licensing partner.(4)CHS-131 (previously designated as INT-131, a small molecule PPARgamma partial agonist) currently in a Phase 2 trial in multiple sclerosis in Russia.(5)Amount consists of costs for other pipeline candidates.(6)Our research and development expenses have been reduced by reimbursements of certain research and development expenses pursuant to the cost-sharing provision of our licensing agreement with Daiichi Sankyo. Reimbursement of research and development expenses under the Baxalta licensingagreement was recognized as revenue pursuant to the revenue recognition accounting policy applicable to that agreement.General and Administrative ExpensesGeneral and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professionalservices, including legal, human resources, audit and accounting services. Personnel costs consist of salaries,73 benefits and stock-based compensation. We incurred increased expenses in 2015 and expect future expenses to increase as a result of operating as a publiccompany, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, or The NASDAQGlobal Market, or NASDAQ, additional insurance expenses, investor relations activities and other administration and professional services.Interest ExpenseInterest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debtdiscount associated with our various debt agreements outstanding during the years ended December 31, 2014 and 2013. The convertible notes issued in 2013were converted into shares of our Series C convertible preferred stock in May 2014.Other Expense, NetOther income (expense), net for the year ended December 31, 2015 consists primarily of losses resulting from the remeasurement of our contingentconsideration and foreign exchange gains and losses resulting from currency fluctuations. Additionally, for the year ended December 31, 2014, other income(expense), net includes gains and losses resulting from the remeasurement of the fair value of our convertible preferred stock warrant liability, derivativeliability associated with our convertible notes, and the gain on the extinguishment of our convertible notes issued in 2013. In November 2014, in connectionwith the closing of our IPO all of our outstanding warrants for convertible preferred stock were exercised, for cash or on a net basis, and the convertiblepreferred stock warrant liability was reclassified to equity. As such, we no longer record adjustments to reflect the remeasurement of the fair values. In March2015, the contingent consideration related to the Earn-Out Payment was settled for shares and cash, and the contingent liability related to the Earn-OutPayment was reclassified to equity. As such, we ceased recording adjustments to reflect the remeasurement of the Earn-Out Payment to fair value. We willstill continue to record adjustments to the estimated fair value of our contingent consideration related to the Compound Transaction Payment until thecontingency settles or expires. Critical Accounting Policies and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these consolidatedfinancial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reportingperiods. On an on-going basis, we evaluate our critical accounting policies and estimates. Our estimates are based on our historical experience and on variousother factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value ofassets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.Revenue RecognitionWe recognize revenue when persuasive evidence of an arrangement exists; transfer of technology has been completed, services have been performedor products have been delivered; the fee is fixed and determinable; and collection is reasonably assured.Our collaboration and license agreements may provide for reimbursement by our collaborators of a portion of our research and development expenses,and we make judgments that affect how these reimbursements are recorded. In collaborations where we and our partner are actively and jointly engaged in theresearch activities and for which both parties are sharing costs, amounts reimbursed by our partner are recognized as a reduction of research and developmentexpense. For example, Daiichi Sankyo reimburses certain of our research and development costs in quarterly advance payments pursuant to the cost-sharingprovision of our collaboration and license agreement with them. Because Daiichi Sankyo is an active participant in the research and development activities,we account for these reimbursements as reductions in our research and development expense when the applicable research and development activity has beenperformed. Under our collaboration agreement with (Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH (collectively “Baxalta”), on the other hand,we recognize reimbursement of our research and development expenses thereunder as revenue because Baxalta is not actively participating in research anddevelopment activities.For revenue agreements with multiple-elements, we identify the deliverables included within the agreement and evaluate which deliverables representseparate units of accounting based on the achievement of certain criteria including whether the deliverable has stand-alone value to the collaborator. Upfrontpayments received in connection with licenses of our technology rights are deferred if facts and circumstances dictate that the license does not have stand-alone value and are recognized as license revenue over the estimated period of performance that is generally consistent with the terms of the research anddevelopment obligations contained in74 the specific collaboration and license agreement. We periodically review our estimated periods of performance based on the progress under each arrangementand account for the impact of any changes in estimated periods of performance on a prospective basis.At the inception of each agreement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties onthe basis of the contingent nature of the milestone. We evaluate factors such as the scientific, regulatory, commercial and other risks that must be overcome toachieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration isreasonable relative to all deliverables and payment terms in the arrangement in making this assessment. Non-refundable payments that are contingent uponachievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved, assuming all other revenuerecognition criteria are met. Other contingent payments in which a portion of the milestone consideration is refundable or adjusts based on futureperformance or non-performance (e.g., through a penalty or claw-back provision) are not considered to relate solely to past performance, and therefore, notconsidered substantive. Amounts that are not recognized as revenue due to the uncertainty as to whether they will be retained or because they are expected tobe refunded are recorded as a liability. We recognize non-substantive milestone payments over the remaining estimated period of performance once themilestone is achieved. Contingent payments associated with the achievement of specific objectives in certain contracts that are not considered substantivebecause we do not contribute effort to the achievement of such milestones are recognized as revenue upon achievement of the objective, as long as there areno undelivered elements remaining and no continuing performance obligations by us, assuming all other revenue recognition criteria are met.Contingent payments associated with the achievement of specific objectives in certain contracts that are not considered substantive because we do notcontribute effort to the achievement of such milestones are recognized as revenue upon achievement of the objective, as long as there are no undeliveredelements remaining and no continuing performance obligations by us, assuming all other revenue recognition criteria are met.We also generate revenue from a Russian government contract. The government contract is an agreement that provides us with payments for certaintypes of expenditures in return for research and development activities over a contractually defined period. Revenue from the government contract isrecognized as other revenue in the consolidated statement of operations in the period during which the related costs are incurred and the related services arerendered, provided that the funds received are not refundable and applicable conditions under the government contract have been met. Funds received inadvance are recorded as deferred revenue.Accrued Research and Development ExpensesAs part of the process of preparing financial statements, we are required to estimate and accrue expenses, the largest of which are research anddevelopment expenses. This process involves the following: ·communicating with appropriate internal personnel to identify services that have been performed on our behalf and estimating the level ofservice performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost; ·estimating and accruing expenses in our consolidated financial statements as of each balance sheet date based on facts and circumstancesknown to us at the time; and ·periodically confirming the accuracy of our estimates with service providers and making adjustments, if necessary.Examples of estimated research and development expenses that we accrue include: ·fees paid to CROs in connection with preclinical and toxicology studies and clinical trials; ·fees paid to investigative sites in connection with clinical trials; ·fees paid to CMOs in connection with the production of clinical trial materials; and ·professional service fees for consulting and related services.We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts withmultiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract tocontract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patientsand the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level ofeffort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of servicesperformed or the costs of these services, our actual expenses could differ from our estimates.75 Due to the nature of these estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware ofadditional information about the status or conduct of our clinical trials and other research activities.Derivative LiabilitiesThere were two contingent payments associated with the acquisition of InteKrin: (i) the completion of the first dosing of a human subject in the firstPhase 2 clinical trial for InteKrin, or the Earn-Out Payment and (ii) upon the execution of any license, sublicense, development, collaboration, joint venture,partnering or similar agreement between us and the third-party, or the Compound Transaction Payment. The contingent consideration is accounted for as aliability and remeasured to estimated fair value as of each balance sheet date and the related remeasurement adjustment is recognized as other income(expense), net in the consolidated statement of operations. We determined the fair value of the two contingent consideration scenarios (the Earn-Out Paymentand the Compound Transaction Payment) using a probability-weighted discounted cash flow approach. A probability-weighted value was determined bysumming the probability of achieving a contingent payment threshold by the respective contingent payment. The expected cash flows were discounted at arate selected to capture the risk of achieving the contingent payment thresholds and earning the contingent payment. This risk is comprised of InteKrin’scontinued development, a specific risk factor associated with meeting the contingent consideration threshold and related payout and counterparty riskassociated with the payment of the contingent consideration.Stock-Based CompensationCommon Stock OptionsStock-based compensation expense related to stock options granted to employees is measured at the date of grant, based on the estimated fair value ofthe award and recognized as an expense over the employee’s requisite service period on a straight-line basis. We estimate the grant date fair value and theresulting stock-based compensation expense using the Black-Scholes option-pricing model.We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measuredusing the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than theexpected life, which is assumed to be the remaining contractual life of the option. The fair value of the unvested options under these arrangements is subjectto remeasurement over the vesting terms as earned.We recorded non-cash stock-based compensation expense related to options granted to employees and non-employees of $16.7 million, $6.8 millionand $764,000 for the years ended December 31, 2015, 2014 and 2013, respectively.The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards.These assumptions include: ·Expected term. The expected term represents the period that stock-based awards are expected to be outstanding and is based on the options’vesting term, contractual term and industry peers. We do not have sufficient historical information to develop reasonable expectations aboutfuture exercise patterns and post-vesting employment termination behavior. ·Expected volatility. We use an average historical stock price volatility of industry peers to be representative of future stock price volatility aswe do not have any trading history for our common stock. ·Risk-free interest rate. The risk free interest rate is based on the U.S. Treasury constant maturity rate in effect at the time of the grant for periodscorresponding with the expected term. ·Expected dividends. We have not paid and do not anticipate paying any dividends in the near future, and therefore we used an expecteddividend yield of zero in the valuation model.In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue toevaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact fromany forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from our estimates,we might be required to record adjustments to stock-based compensation in future periods.Historically, for all periods prior to our IPO, the fair values of the shares of common stock underlying our share-based awards were estimated on eachgrant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered,among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by theAmerican Institute of Certified Public Accountants Practice76 Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for our common stock,our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fairvalue of our common stock, including our stage of development; progress of our research and development efforts; the rights, preferences and privileges ofour preferred stock relative to those of our common stock; equity market conditions affecting comparable public companies; and the lack of marketability ofour common stock.Founders’ SharesIn October 2010 and January 2011, we issued 4,130,173 shares and 968,804 shares of common stock, respectively, at $0.0083 per share to ourfounders under the founder stock agreements. These founders’ shares are subject to a repurchase option in our favor that lapses over time subject to continuedservice. As such, we recorded stock-based compensation based on the fair value of the common stock on the date of issuance. One of the holders of thefounders’ shares is a consultant, therefore the fair value of the consultant’s founder shares is measured using the Black-Scholes option-pricing modelreflecting the same assumptions as applied to employee options in each of the reported years, other than the expected life, which is assumed to be theremaining contractual life of the vesting period. We recorded non-cash stock-based compensation expense related to the founders’ shares of $9,000, $1.6million and $1.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there were no shares subject torepurchase.Common Stock WarrantsIn March 2014, we issued warrants to purchase 553,274 shares of common stock with an exercise price of $1.667 per share to two employees and amember of our board of directors in his capacity as a consultant to us for past services. We valued the warrants at $2.7 million using the Black-Scholesoption-pricing model on the date of grant. Due to the immediate exercisability of the warrants upon issuance, we immediately recognized $1.3 million and$1.4 million in research and development expense and general and administrative expense, respectively, in the consolidated statement of operations. Inconnection with the closing of our IPO, all outstanding warrants for common stock were exercised on a net basis into 491,580 shares of common stock.Income TaxesWe file U.S. federal and state income tax with varying statutes of limitations. The tax years from 2011 forward remain open to examination due to thecarryover of unused net operating losses and tax credits. To date, we have not been audited by the Internal Revenue Service or any state income tax authority.We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on thedifferences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be ineffect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance isprovided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.As of December 31, 2015, our total net deferred tax assets, net of gross deferred tax liabilities, were $134.8 million. Due to our lack of earnings history,the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax netoperating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due tohistorical or future ownership percentage change rules provided by the Internal Review Code of 1986, and similar state provisions. The annual limitationmay result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contractswith Customers (“ASU 2014-09”), which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas ofrevenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses,time value of money, contract costs and disclosures. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of theEffective Date (“ASU 2015-14”). Under the amendments in ASU 2015-14, the FASB deferred the effective date of this standards update to fiscal yearsbeginning after December 15, 2017, including interim reporting periods within that reporting period, with early adoption permitted on the original effectivedate of fiscal years beginning after December 15, 2016. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on ourconsolidated financial statements and related disclosures.77 In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU2014-15 is effective for our annual reporting period ending December 31, 2016 and all annual and interim reporting periods thereafter, with early adoptionpermitted. We elected to not early adopt this standard. When adopted, ASU 2014-15 will require management to evaluate whether there is substantial doubtabout our ability to continue as a going concern for at least 12 months from the issuance date of the financial statements and to provide related footnotedisclosures.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. To simplify the presentation of deferredincome taxes, the amendments in ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financialposition. ASU 2015-17 is effective for our interim and annual reporting periods during the year ending December 31, 2017 and all annual and interimreporting periods thereafter, with early adoption permitted. We have elected to early adopt ASU 2015-17 prospectively. Such adoption did not have amaterial impact on our consolidated balance sheet and related disclosures as of December 31, 2015, and did not adjust prior periods presented.In January 2016, the FASB issued ASU No. 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1 makesamendments to the classification and measurement of financial instruments and revises the accounting related to: (1) the classification and measurement ofinvestments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. In addition, the updatealso amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-1 is effective for our interim and annualreporting periods during the year ending December 31, 2018, and all annual and interim reporting periods thereafter. Early adoptions of certain amendmentswithin the update are permitted. We are currently evaluating the impact that the adoption of ASU 2016-1 will have on our consolidated financial statementsand related disclosures.In February 2016, the FASB issued ASU No. 2016-2, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable, andrequires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leasescurrently accounted for as operating leases. ASU 2016-2 is effective for our interim and annual reporting periods during the year ending December 31, 2019,and all annual and interim reporting periods thereafter. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-2will have on our consolidated financial statements and related disclosures.We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or no material effect isexpected on the consolidated financial statements as a result of future adoptions.Comparison of Years Ended December 31, 2015 and 2014Revenue Year Ended December 31, 2015 2014 Change (in thousands) Revenue: Collaboration and license revenue $30,041 $28,481 $1,560 Collaboration and license revenue - related party (1) — 1,893 (1,893)Other revenue — 732 (732)Total revenue $30,041 $31,106 $(1,065) (1)Represents revenue from Daiichi Sankyo through November 12, 2014 as a related party, a holder of more than 10% of our common stock until theclosing of our IPO.Total revenue for the year ended December 31, 2015 was $30.0 million compared to $31.1 million for the same period in 2014, a decrease of $1.1million. The decrease was primarily due to the $10.0 million receipt received for the achievement of a substantive milestone in the third quarter of 2014under our license agreement with Baxalta. The decrease was partially offset by increased revenue recognized in connection with the amortization of deferredrevenue under our license agreement with Baxalta.78 Research and Development Expenses Year Ended December 31, 2015 2014 Change (in thousands) Research and development $213,062 $78,224 $134,838 Research and development expenses for the year ended December 31, 2015 was $213.1 million compared to $78.2 million for the same period in2014, an increase of $134.8 million. The increase in research and development expenses was primarily due to: ·an increase of $47.7 million in costs incurred for CHS-0214 due to the fully enrolling and completing Phase 3 clinical studies, which is net ofan increase of $9.0 million in cost reimbursements from Daiichi Sankyo that were recognized as a reduction of research and developmentexpense; ·an increase of $38.4 million related to initiating and completing two BLA-enabling studies for CHS-1701; ·an increase of $25.0 million to start and enroll subjects into a Phase 3 clinical study in psoriasis for CHS-1420; ·an increase of $9.8 million in personnel, consulting and other related expenses and $2.4 million in stock-based compensation due to a netincrease of approximately 31 employees, annual salaries increases and additional stock options granted during 2015, partially offset bycommon stock warrant issued during 2014 and none in 2015, and higher stock-based compensation expense related to consultants during 2014than during 2015; ·an increase of $4.8 million in facilities, supplies and materials and other infrastructure to support our research and development growth; ·an increase of $4.4 million to advance other product candidates in our pipeline; and ·an increase of $2.3 million to initiate and enroll a proof-of concept Phase 2 clinical study for CHS-131 (formerly INT-131).General and Administrative Expenses Year Ended December 31, 2015 2014 Change (in thousands) General and administrative $36,046 $17,564 $18,482 General and administrative expenses for year ended December 31, 2015 was $36.0 million compared to $17.6 million for the same period in 2014, anincrease of $18.5 million. The increase was primarily due to an increase of $6.9 million in personnel, consulting and other related expenses and $3.2 millionin stock-based compensation as a result of an increase in headcount, annual salaries increases, and costs associated with stock options granted in 2015. Theincrease in stock-based compensation was driven primarily from additional stock options granted during 2015, partially offset by common stock warrantsissued during 2014. In addition, the increase in general and administrative expenses was due to an increase of $6.7 million in legal, accounting, recruitingand other professional services and $1.7 million in facilities, supplies and materials to support our growing infrastructure as we expanded our operations as apublic company.Interest Expense Year Ended December 31, 2015 2014 Change (in thousands) Interest expense $33 $3,900 $(3,867) Interest expense for the year ended December 31, 2015 was $33,000, compared to $3.9 million for the same period in 2014, a decrease of $3.9million. The decrease was due to the conversion of our 2013 convertible notes into shares of our Series C convertible preferred stock in May 2014 resultingin no interest expense during 2015 related to this debt compared to the recognition of non-cash interest expense and amortization of the debt discount during2014.79 Other Expense, Net Year Ended December 31, 2015 2014 Change (in thousands) Other expense, net $4,838 $18,595 $(13,757) Other expense, net for the year ended December 31, 2015 was $4.8 million compared to $18.6 million for the same period in 2014, a decrease of $13.8million. The decrease is primarily due to the change of $15.9 million in fair value of our convertible preferred stock warrant liability during 2014 whichconverted into equity contemporaneously with the closing of our IPO on November 12, 2014, therefore no remeasurement expense in 2015 and a decrease inthe change in fair value of our contingent consideration related to the InteKrin acquisition of $0.6 million during 2015 when compared to 2014 as the fairvalue of the Earn-Out Payment portion of the contingent consideration was settled in May 2015. The decrease was partially offset by the gain onextinguishment of our convertible notes issued in 2013 of $2.0 million in May 2014 and the net expense increase of $1.1 million during 2015 whencompared to 2014 due to foreign exchange fluctuations.Comparison of Years Ended December 31, 2014 and 2013Collaboration and License Revenue Year Ended December 31, 2014 2013 Change (in thousands) Revenue: Collaboration and license revenue $28,481 $726 $27,755 Collaboration and license revenue - related party (1) 1,893 2,025 (132)Other revenue 732 — 732 Total revenue $31,106 $2,751 $28,355 (1)Represents revenue from Daiichi Sankyo, a holder of more than 10% of our common stock for the periods presented until the closing of our IPO onNovember 12, 2014.Collaboration and license revenue for the year ended December 31, 2014 was $30.4 million, compared to $2.8 million for the same period in 2013, anincrease of $27.6 million. The increase was primarily due to $20.3 million of revenue recognized in connection with the amortization of deferred revenue anda$10.0 million receipt for achievement of a substantive milestone in the third quarter of 2014 under our license agreement with Baxalta, which we enteredinto in August 2013.Other revenue for the year ended December 31, 2014 was $0.7 million. The other revenue is related to the government contract received from theRussian government in connection with the clinical development of the CHS-131 drug candidate.Research and Development Expenses Year Ended December 31, 2014 2013 Change (in thousands) Research and development $78,224 $31,279 $46,945 Research and development expenses for the year ended December 31, 2014 was $78.2 million compared to $31.3 million for the same period in 2013,an increase of $46.9 million. The increase in research and development expenses was primarily due to the following: ·an increase of $25.6 million in costs incurred for CHS-0214 due to the ongoing Phase 3 clinical trial, which is net of an increase of $5.8 millionin cost reimbursements from Daiichi Sankyo that was recognized as a reduction of research and development expense; ·an increase of $6.0 million to complete CHS-1420 to a Phase 1 study and to advance to Phase 3 clinical trial; ·an increase of $3.5 million to advance CHS-1701 to a 351 (k) approval pathway; ·an increase of $1.7 million to advance CHS-131 to a Phase 2 clinical trial;80 ·an increase of $9.9 million in personnel and consulting related expenses due to an increase in stock-based compensation expense related tocommon stock warrants and options granted in 2014, and an increase of 21 employees; and ·an increase of $1.6 million in facilities, supplies and materials and other infrastructure to support our research and development growth.These increases were partly offset by a decrease of $1.4 million in costs for other pipeline biosimilars.General and Administrative Expenses Year Ended December 31, 2014 2013 Change (in thousands) General and administrative $17,564 $7,465 $10,099 General and administrative expenses for the year ended December 31, 2014 was $17.6 million compared to $7.5 million for the same period in 2013,an increase of $10.1 million. The increase was primarily due to a $7.2 million increase in personnel and consulting related expenses associated with anincrease in stock-based compensation related to the common stock warrants and options granted in 2014, and an increase of nine employees. Additionally,the increase was due to increased costs of $2.3 million in legal, accounting and recruiting services, and increased costs of $0.7 million in insurance andfacilities to support our growing infrastructure and our operations as a public company.Interest Expense Year Ended December 31, 2014 2013 Change (in thousands) Interest expense $3,900 $5,293 $(1,393) Interest expense for the year ended December 31, 2014 was $3.9 million compared to $5.3 million for the same period in 2013, a decrease of $1.4million. The decrease of $0.9 million was due to the recognition of approximately four months in 2014 compared to approximately five months in 2013 ofnon-cash amortization of the debt discount and interest expense related to our convertible notes entered into during the third quarter of 2013 whichconverted into shares of our series C convertible preferred stock in May 2014. The additional $0.5 million decrease was due to the extended paymentarrangement with one of our vendors in 2013.Other Expense, Net Year Ended December 31, 2014 2013 Change (in thousands) Other expense, net $18,595 $12,349 $6,246 Other expense, net for the year ended December 31, 2014 was $18.6 million compared to $12.3 million for the same period in 2013, an increase of$6.2 million. The increase is primarily due to a change in the fair value of our convertible preferred stock warrant liability of $3.3 million when compared to2013 and the change in fair value of our contingent consideration of $5.2 million related to and as a result of the acquisition of InteKrin in February 2014.The increase was partly offset by the gain on extinguishment of our convertible notes issued in 2013 of $2.0 million in May 2014 and foreign currency gainof $0.7 million primarily due to the increase in the exchange rate of the U.S. Dollar against the Russian Ruble on U.S. Dollar denominated cash accounts heldby InteKrin Russia whose functional currency is the Ruble.Liquidity and Capital ResourcesDue to our significant research and development expenditures, we have generated significant operating losses since our inception. We have fundedour operations primarily through the issuance of debt, equity financing, sales of our convertible preferred stock and payments received under ourcollaboration and license agreements.81 In May 2014, we completed our Series C convertible preferred stock financing, which resulted in aggregate net cash proceeds of $54.7 million. Inaddition, our outstanding convertible notes and accrued interest of $10.6 million were contemporaneously converted into shares of our Series C convertiblepreferred stock.In November 2014, we completed our IPO and raised net proceeds of $80.2 million, after deducting underwriting discounts and commissions andoffering expenses.In April 2015, we completed a follow-on offering of common stock and raised net proceeds of $112.2 million, after deducting underwriting discountsand commissions and offering expenses. Additionally, in September 2015 we completed a private placement with Baxalta which raised net proceeds ofapproximately $10.0 million.In February 2016, we issued and sold $100.0 million aggregate principal amount of 8.2% senior convertible notes due March 31, 2022.As of December 31, 2015, we had an accumulated deficit of $410.0 million and cash and cash equivalents of $158.2 million. We believe that ourcurrent available cash and cash equivalents, together with the proceeds from the Notes issued in February 2016 and funding we expect to receive under ourlicense agreement with Daiichi Sankyo and Baxalta, will be sufficient to fund our planned expenditures and meet our obligations through at least the nexttwelve months. We will need to raise additional funds in the future; however, there can be no assurance that such efforts will be successful or that, in the eventthat they are successful, the terms and conditions of such financing will be favorable.Summary Statement of Cash FlowsThe following table summarizes our cash flows for the periods presented: Year Ended December 31, 2015 2014 2013 (in thousands) Net cash (used in) provided by operating activities $(107,990) $(23,927) $15,423 Net cash used in investing activities (6,949) (525) (373)Net cash provided by financing activities 122,689 135,956 9,956 Effect of exchange rate changes in cash and cash equivalents 84 (666) — Net increase in cash and cash equivalents $7,834 $110,838 $25,006 Net cash provided by (used in) operating activitiesCash used in operating activities was $108.0 million for the year ended December 31, 2015, reflecting a net loss of $223.9 million and an increase inprepaid and other assets of $15.9 million as a result of initiating clinical activities and timing of vendor payments. Cash used in operating activities waspartially offset by non-cash charges of $4.6 million for the remeasurement of our contingent consideration obligations, $16.7 million for stock-basedcompensation, $2.3 million for depreciation and amortization and impairment of property and equipment, and $1.3 million related to a reserve for otherreceivables. Cash used in operating activities was also offset by an increase of $32.8 million in accounts payable, accounts payable-related parties, andaccrued liabilities as a result of the increase in clinical activities and timing of vendor payments, an increase of $32.3 million in deferred revenue and $38.6million in contingent liability to collaborator both related to $100.0 million milestone payments received from Baxalta under our license agreement, adecrease of $1.9 million in notes receivable as it was settled, and a decrease of $0.9 million in receivables from collaboration and license agreements. Cash used in operating activities was $23.9 million for the year ended December 31, 2014 reflecting a net loss of $87.2 million, an increase in prepaidassets of $14.7 million as a result of the increase in clinical activities and expenses associated with becoming a public company, an increase in receivablefrom collaboration and license agreement of $2.1 million with Daiichi Sankyo, an increase in notes receivable of $1.8 million, and an increase in other assetsof $2.1 million. The cash used in operating activities was partly offset by non-cash charges of $15.9 million for the remeasurement of our convertiblepreferred stock warrant liability and embedded derivative liabilities, $5.2 million for remeasurement of our contingent consideration obligations,$3.9 million of non-cash interest expense and amortization of debt discount, $11.1 million for stock-based compensation and $0.7 million for depreciationand amortization, partially offset by the gain on the extinguishment of our convertible notes issued in 2013 of $2.0 million. Cash used in operating activitieswas also offset by an increase in deferred revenue of $19.8 million and an increase in contingent liability to collaborator of $20.2 million both related to theadditional payments received from Baxalta under our license agreement. In addition,82 accounts payable and accounts payable-related parties increased by $5.3 million, and accrued liabilities increased by $3.9 million as a result of the increasein clinical activities and timing of vendor payments.Cash provided by operating activities was $15.4 million for the year ended December 31, 2013 reflecting non-cash charges of $7.6 million inpreferred stock issued in exchange for services received, $7.8 million for the fair value of warrants and embedded derivatives issued in excess of debtproceeds, $5.3 million of non-cash interest expense, $2.0 million for stock-based compensation, $0.4 million for depreciation and amortization and a non-cash gain of $4.6 million for the remeasurement of our convertible preferred stock warrant liability and embedded derivatives. Cash provided by operatingactivities also reflected an increase in deferred revenue of $34.7 million, an increase in contingent liability to collaborator of $7.5 million both related to thepayments received from Baxalta and an increase in accrued liabilities of $2.8 million related to an increase in the accrual for clinical development activities.The cash provided by operating activities were partially offset by a net loss of $53.6 million, and an increase in prepaid and other current assets of$3.2 million related to an increase in prepaid clinical, material and manufacturing costs.Net cash used in investing activitiesCash used in investing activities of $6.9 million for the year ended December 31, 2015 was due primarily to the purchase of capital equipment andleasehold improvements of $6.2 million, and an increase in restricted cash of $0.8 million as a result of the new headquarters lease requirement. Cash used in investing activities of $525,000 for the year ended December 31, 2014 was due primarily to the purchases of capital equipment andleasehold improvements of $2.8 million, partially offset by the net cash acquired from the acquisition of InteKrin in February 2014 of $2.3 million.Cash used in investing activities of $0.4 million for the year ended December 31, 2013 was related to capital equipment purchases.Net cash provided by financing activitiesCash provided by financing activities of $122.7 million for the year ended December 31, 2015 was primarily related to the net proceeds of $112.8million from the issuance of our common stock in connection with our follow-on offering, net proceeds of approximately $10.0 million from the privateplacement with Baxalta, and proceeds from the exercise of stock options of $1.4 million, partially offset by our payments of IPO and follow-on offering costsof $1.5 million.Cash provided by financing activities of $136.0 million for the year ended December 31, 2014 was primarily related to the net proceeds from theissuance of our Series C convertible preferred stock of $54.7 million and the completion of our IPO in November 2014 resulting in net proceeds of $80.2million.Cash provided by financing activities of $10.0 million for the year ended December 31, 2013 was primarily related to proceeds from the issuance ofconvertible notes.Funding RequirementsWe believe that our current available cash and cash equivalents, together with the proceeds from the Notes issued in February 2016 and funding weexpect to receive under our license agreements with Daiichi Sankyo and Baxalta, will be sufficient to fund our planned expenditures under our 2016 budgetand meet our obligations through at least December 31, 2016. We have based this estimate on assumptions that may prove to be wrong, and we could utilizeour available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meetoperational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility orcommitted sources of capital although we may receive milestone and other contingent payments under our current license and collaboration agreements.Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to whichwe may enter into additional agreements with third parties to participate in their development and commercialization, we are unable to estimate the amountsof increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements willdepend on many factors, including the following: ·the scope, rate of progress, results and cost of our clinical trials, preclinical testing and other related activities; ·the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any products that we maydevelop;83 ·the costs of acquiring originator comparator materials and manufacturing preclinical study and clinical trial supplies and other materials fromCMOs and related costs associated with release and stability testing; ·the receipt of any collaboration payments; ·the number and characteristics of product candidates that we pursue; ·the cost, timing and outcomes of regulatory approvals; ·the terms and timing of any other collaborative, licensing and other arrangements that we may establish; ·the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products; ·the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and ·the extent to which we acquire or invest in businesses, products or technologies.We will need to raise additional capital to fund our operations in the near future. Funding may not be available to us on acceptable terms, or at all. Ifwe are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical trials, research anddevelopment programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equityofferings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We anticipatereceiving up to $62 million in 2016 under our collaborations, and we will seek to enter into strategic partnerships to commercialize our biosimilar candidatesin ex-US territories or globally for certain therapeutic areas. To the extent that we raise additional capital through marketing and distribution arrangements orother collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates,future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capitalthrough public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may includeliquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject tocovenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.Off-Balance Sheet ArrangementsSince our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.Contractual ObligationsOur future contractual obligations as of December 31, 2015 were as follows: Payments Due by Period Less than 1 to 3 4 to 5 More than Contractual Obligations: Total 1 year years years 5 years (in thousands) Purchase commitments $14,518 $14,518 $— $— $— Operating lease obligations 11,671 1,692 2,945 3,491 3,543 Contingent payments to InteKrin stockholders 1,245 1,245 — — — Total contractual obligations $27,434 $17,455 $2,945 $3,491 $3,543 We enter into contracts in the normal course of business with contract research organizations, or CROs, for preclinical studies and clinical trials andcontract manufacturing organizations, or CMOs, for the manufacture of clinical trial materials. As of December 31, 2015, we had commitments of $14.5million with CMOs for the manufacture of clinical trial material due within a year. We also have an agreement with a CRO vendor which provides for aminimum fee commitment of $35.0 million for clinical trial services. As of December 31, 2015, we have fulfilled the minimum fee commitment related to thisagreement. Item 7A.Quantitative and Qualitative Disclosures about Market RiskAs of December 31, 2015, we had cash and cash equivalents of $158.2 million. A portion of our cash equivalents, which are in money market funds,may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our84 cash equivalents are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in marketinterest rates would not have a significant impact on the total value of our portfolio.We are exposed to market risk related to changes in foreign exchange rates. We contract with CROs and contract manufacturers globally and thus weface foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expectedpayments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at thetime such payments are made. An adverse movement in foreign exchange rates could have a material effect on payments made to foreign suppliers and forlicense agreements. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on ourfinancial statements.We acquired InteKrin in February 2014, which has a subsidiary based in Russia and thus subjects us to foreign currency rate fluctuations against theRussian Ruble. As of December 31, 2015, we had 8.1 million Rubles in cash, which was equal to $111,000 at that date. This cash is located in Russia. 85 Item 8.Consolidated Financial Statements and Supplementary Data COHERUS BIOSCIENCES, INC.ANNUAL REPORT ON FORM 10-KINDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm 87Consolidated Financial Statements Consolidated Balance Sheets 88Consolidated Statements of Operations 89Consolidated Statements of Comprehensive Loss 90Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 91Consolidated Statements of Cash Flows 93Notes to Consolidated Financial Statements 94 86 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersCoherus BioSciences, Inc.We have audited the accompanying consolidated balance sheets of Coherus BioSciences, Inc. (the “Company”) as of December 31, 2015 and 2014,and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows foreach of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company atDecember 31, 2015 and 2014, and the consolidated results of its operations, comprehensive loss and its cash flows for each of the three years in the periodended December 31, 2015, in conformity with U.S. generally accepted accounting principles.We have also audited, in accordance with the standards of the Public Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 29, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young LLPRedwood City, CaliforniaFebruary 29, 2016 87 Coherus BioSciences, Inc.Consolidated Balance Sheets(in thousands, except share and per share data) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $158,226 $150,392 Restricted cash 60 60 Receivables from collaboration and license agreement 1,560 2,417 Notes receivable — 1,815 Prepaid assets (includes related parties of $10,901 and $5,990 as of December 31, 2015 and 2014, respectively) 34,743 20,485 Other assets 2,797 2,276 Other assets - related party — 1,691 Total current assets 197,386 179,136 Property and equipment, net 10,504 4,472 Intangible assets 2,620 2,620 Goodwill 943 943 Restricted cash, non-current 785 — Other assets, non-current 146 50 Total assets $212,384 $187,221 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $25,948 $8,778 Accounts payable - related parties 3,548 2,020 Accrued liabilities (includes related parties of $6,122 and $2,997 as of December 31, 2015 and 2014, respectively) 24,133 11,231 Advance payments under license agreement 1,330 1,192 Deferred revenue 49,621 22,800 Contingent consideration 1,245 5,710 Other liabilities 193 52 Total current liabilities 106,018 51,783 Deferred revenue, non-current 45,338 39,899 Contingent liability to collaborator 66,255 27,650 Contingent consideration, non-current — 785 Other liabilities, non-current 1,702 347 Total liabilities 219,313 120,464 Commitments and contingencies (Note 8) Stockholders’ equity (deficit): Preferred stock, $0.0001 par value; Shares authorized: 5,000,000; Shares issued and outstanding: no shares at December 31, 2015 and 2014. — — Common stock, $0.0001 par value; Shares authorized: 300,000,000; Shares issued and outstanding: 39,005,589 and 33,257,978 at December 31, 2015 and 2014, respectively 4 3 Additional paid-in capital 404,175 254,048 Accumulated other comprehensive loss (401) (525)Accumulated deficit (409,985) (186,725)Total Coherus stockholders' equity (deficit) (6,207) 66,801 Non-controlling interest (722) (44)Total stockholders' equity (deficit) (6,929) 66,757 Total liabilities and stockholders’ equity (deficit) $212,384 $187,221 See accompanying notes to consolidated financial statements. 88 Coherus BioSciences, Inc.Consolidated Statements of Operations(in thousands, except share and per share data) Year Ended December 31, 2015 2014 2013 Revenue: Collaboration and license revenue $30,041 $28,481 $726 Collaboration and license revenue - related party (1) — 1,893 2,025 Other revenue — 732 — Total revenue 30,041 31,106 2,751 Operating expenses: Research and development (includes related party of $42,768, $21,723 and $9,471 for the years ended December 31, 2015, 2014 and 2013, respectively) 213,062 78,224 31,279 General and administrative (includes related party of $559, $597 and $18 for the years ended December 31, 2015, 2014 and 2013, respectively) 36,046 17,564 7,465 Total operating expenses 249,108 95,788 38,744 Loss from operations (219,067) (64,682) (35,993)Interest expense (includes related party of $2,687 and $4,026 for the years ended December 31, 2014 and 2013, respectively) (33) (3,900) (5,293)Other expense, net (4,838) (18,595) (12,349)Net loss (223,938) (87,177) (53,635)Net loss attributable to non-controlling interest 678 44 — Net loss attributable to Coherus $(223,260) $(87,133) $(53,635)Net loss per share attributable to Coherus, basic and diluted $(6.01) $(10.64) $(16.10)Weighted-average number of shares used in computing net loss per share attributable to Coherus, basic and diluted 37,122,008 8,186,529 3,332,020 (1)Represents revenue from Daiichi Sankyo through November 12, 2014 as a related party, a holder of more than 10% of our common stock until theclosing of our initial public offering (“IPO”).See accompanying notes to consolidated financial statements. 89 Coherus BioSciences, Inc.Consolidated Statements of Comprehensive Loss(in thousands) Year Ended December 31, 2015 2014 2013 Net loss $(223,938) $(87,177) $(53,635)Other comprehensive loss: Foreign currency translation adjustments, net of tax 124 (525) — Comprehensive loss (223,814) (87,702) (53,635)Comprehensive loss attributable to non-controlling interest 678 44 — Comprehensive loss attributable to Coherus $(223,136) $(87,658) $(53,635) See accompanying notes to consolidated financial statements. 90 Coherus BioSciences, Inc.Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)(in thousands, except share and per share data) Series A Series B Series C Accumulated Total Coherus Total Convertible Convertible Convertible Additional Other Stockholders' Stockholders' Preferred Stock Preferred Stock Preferred Stock Common Stock Paid-In Comprehensive Accumulated Equity Noncontrolling Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit (Deficit) Interest (Deficit) Balances at December31, 2012 972,330 $1,191 8,181,576 $53,504 — $— 4,834,467 $1 $453 $— $(45,957) $(45,503) $— $(45,503)Issuance of commonstock upon exercise of stock options — — — — — — 3,248 — 6 — — 6 — 6 Vesting of restrictedcommon stock issuedto founders — — — — — — — — 10 — — 10 — 10 Stock-basedcompensation expense — — — — — — — — 2,045 — — 2,045 — 2,045 Net loss — — — — — — — — — — (53,635) (53,635) — (53,635)Balances at December31, 2013 972,330 1,191 8,181,576 53,504 — — 4,837,715 1 2,514 — (99,592) (97,077) — (97,077)Beneficial conversionfeature related to convertible notesissued in 2013 — — — — — — — — (3,939) — — (3,939) — (3,939)Issuance of Series Bconvertible preferred stock for InteKrinacquisition — — 960,486 3,667 — — — — — — — — — — Issuance of Series Bconvertible preferred stock in exchangefor services 8,185 57 — — — — — Issuance of Series Cconvertible preferred stock at $6.00 pershare, net — — — — 5,488,892 54,660 — — — — — — — — Issuance of Series Cconvertible preferred stock at $6.00 pershare upon conversionof convertible notesissued in 2013 — — — — 1,058,089 10,583 — — — — — — — — Issuance of Series Cconvertible preferred stock at $6.00 pershare in exchange for services — — — — 9,997 100 — — — — — — — — Issuance of Series Aand B convertible preferred stock uponexercise of warrants and reclassificationof convertible preferred stock warrantliability 62,251 1,004 4,574,713 39,277 — — — — — — — — — — Issuance of commonstock in connectionwith initial publicoffering, net — — — — — — 6,803,702 — 80,209 — — 80,209 — 80,209 Conversion ofconvertible preferredstock to common stock inconnection with initial public offering (1,034,581) (2,195) (13,724,960) (96,505) (6,556,978) (65,343) 21,316,519 2 164,041 — — 164,043 — 164,043 Conversion ofcommon stockwarrants to common stock inconnection with initial public offering — — — — — — 491,580 — — — — — — — Issuance of commonstock options in exchange forservices — — — — — — — — 48 — — 48 — 48 Issuance of commonstock upon exercise of stock options — — — — — — 48,414 — 55 — — 55 — 55 Repurchase ofcommon stock (239,952) — (2) (2) (2)Vesting of restrictedcommon stock issuedto founders — — — — — — — — 5 — — 5 — 5 Stock-basedcompensation expense — — — — — — — — 11,117 — — 11,117 — 11,117 Cumulativetranslation adjustment — — — — — — — — — (525) — (525) — (525)Distributions to non-controlling interest — — — — — — — — — — — — (44) (44)Net loss — — — — — — — — — — (87,133) (87,133) — (87,133)Balances at December31, 2014 — — — — — — 33,257,978 3 254,048 (525) (186,725) 66,801 (44) 66,757 Issuance of commonstock upon payment of InteKrin Earn Outcontingency — — — — — — 358,384 — 9,849 — 9,849 9,849 91 Series A Series B Series C Accumulated Total Coherus Total Convertible Convertible Convertible Additional Other Stockholders' Stockholders' Preferred Stock Preferred Stock Preferred Stock Common Stock Paid-In Comprehensive Accumulated Equity Noncontrolling Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit (Deficit) Interest (Deficit) Retired sharesresulting fromInteKrin escrow distributionin cash — — — — — — (8) — — — — — — — Issuance of commonstock in connectionwith follow-on publicoffering, net — — — — — — 4,137,931 1 112,198 — — 112,199 — 112,199 Issuance of commonstock in connectionwith private placement,net — — — — — — 390,167 — 9,930 — — 9,930 — 9,930 Issuance of commonstock upon exercise of stock options — — — — — — 861,137 — 1,429 — — 1,429 — 1,429 Vesting of restrictedcommon stock issuedto founders — — — — — — — — 9 — — 9 — 9 Stock-basedcompensation expense — — — — — — — — 16,712 — — 16,712 — 16,712 Cumulativetranslation adjustment — — — — — — — — — 124 — 124 — 124 Distributions to non-controlling interest — — — — — — — — — — — - (678) (678)Net loss — — — — — — — — — — (223,260) (223,260) — (223,260)Balances at December31, 2015 — $— — $— — $— 39,005,589 $4 $404,175 $(401) $(409,985) $(6,207) $(722) $(6,929) See accompanying notes to consolidated financial statements. 92 Coherus BioSciences, Inc.Consolidated Statements of Cash Flows(in thousands) Years Ended December 31, 2015 2014 2013 Operating activities Net loss $(223,938) $(87,177) $(53,635)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 1,869 674 404 Remeasurement of contingent consideration 4,599 5,185 — Remeasurement of convertible preferred stock warrant and embedded derivative liabilities — 15,899 4,557 Fair value of warrants in excess of debt proceeds recognized at issuance — — 3,669 Fair value of embedded derivative in excess of debt proceeds recognized at issuance — — 4,096 Preferred stock issued in exchange for services — 147 7,579 Non-cash interest (income) expense and amortization of (receivable) debt discount (38) 3,897 5,293 Gain on extinguishment of 2013 Notes — (2,048) — Impairment of property and equipment 382 — — Provision for other receivables 1,300 — — Stock-based compensation expense 16,721 11,062 2,045 Changes in operating assets and liabilities: Receivables from collaboration and license agreement 857 (2,139) (120)Notes receivable 1,853 (1,815) — Notes receivable from related parties — 107 16 Prepaid assets (14,288) (14,692) (3,284)Other assets (3,329) (2,046) 60 Other assets - related party 1,691 (1,691) — Other assets, non-current 42 (25) (21)Accounts payable 18,404 3,629 924 Accounts payable, related parties 1,528 1,637 (1,310)Accrued liabilities 12,832 3,949 2,847 Other liabilities (28) 31 (2)Deferred revenue 32,294 19,848 34,749 Advance payments under license agreements 138 1,192 — Contingent liability to collaborator 38,605 20,150 7,500 Other liabilities, non-current 516 299 56 Net cash (used in) provided by operating activities (107,990) (23,927) 15,423 Investing activities Net cash acquired from acquisition of InteKrin Therapeutics Inc. — 2,334 — Purchases of property and equipment (6,164) (2,849) (373)Increase in restricted cash (785) (10) — Net cash used in investing activities (6,949) (525) (373)Financing activities Proceeds from issuance of convertible preferred stock, net of issuance costs — 54,660 — Proceeds from issuance of convertible notes — — 2,900 Proceeds from issuance of convertible notes - related parties — — 7,050 Proceeds from issuance of convertible preferred stock upon exercise of warrants — 131 — Proceeds from initial public offering, net of underwriters discounts and commissions — 85,419 — Proceeds from follow-on offering, net of underwriters discounts and commissions 112,800 — — Proceeds from private placement 10,000 — — Payments of initial public offering costs (855) (4,307) — Payments of follow-on offering costs and private placement (672) — — Payment of costs related to future offerings (13) — — Proceeds from issuances of common stock upon exercise of stock options 1,429 55 6 Repurchase of restricted common stock — (2) — Net cash provided by financing activities 122,689 135,956 9,956 Effect of exchange rate changes in cash and cash equivalents 84 (666) — Net increase in cash and cash equivalents 7,834 110,838 25,006 Cash and cash equivalents at beginning of period 150,392 39,554 14,548 Cash and cash equivalents at end of period $158,226 $150,392 $39,554 Supplemental disclosures of noncash investing and financing activities Issuance of Series B Preferred stock for acquisition $— $3,667 $— Contingent consideration accrued in connection with acquisition — 1,310 — Conversion of 2013 Notes and accrued interest into Series C convertible preferred stock — 10,583 — Reclassification of fair value of convertible preferred stock warrants to preferred stock upon exercise — 40,150 — Vesting of restricted common stock 9 5 10 Purchase of property and equipment in accounts payable and accrued liabilities 1,684 726 169 Leasehold improvements allowance from landlord 1,239 — — Initial public offering costs in accounts payable — 855 — Costs related to future offerings in accounts payable and accrued liabilities 124 — — Accrued expenses settled in common stock warrants — 55 — Accrued expenses settled in preferred stock — 10 — Fair value of contingent consideration settled in common stock 9,849 — —See accompanying notes to consolidated financial statements. 93Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 1.Organization and Operations Description of the BusinessThe Company is a late-stage clinical biologics platform company, focused on the global biosimilar market. The Company’s headquarters andlaboratories are located in Redwood City, California and in Camarillo, California, respectively. The Company operates in one segment.The Company’s clinical stage pipeline consists of a long-acting form of granulocyte colony-stimulating factor (“G-CSF”), and two anti-inflammatoryagents targeting tumor necrosis factor (“TNF”): ·The Company’s long-acting G-CSF product candidate, CHS-1701, is being developed as a pegfilgrastim (Neulasta) biosimilar. In October2015, the Company has completed a pivotal pharmacokinetic (PK) and pharmacodynamics (PD) study for CHS-1701 in the United States (U.S.).Although it did not meet the PK AUC bioequivalence endpoint due to low, anomalous PK profile in the first period Neulasta group, theCompany believes this study will support the planned filing of a biologics license application (BLA) in the U.S. as it met all the other co-primary endpoints including the PD endpoints. An immunogenicity study in healthy volunteers pursuant to this BLA met its primaryendpoints. In February 2016, the Company initiated a follow-on PK/PD study, which is expected to read-out late in the first half of 2016. TheCompany expects to file a BLA in the United States directly thereafter. ·The Company’s most clinically advanced anti-TNF product candidate, CHS-0214, is being developed as an etanercept (Enbrel) biosimilar thatthe Company has partnered with Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH, (collectively “Baxalta”) and Daiichi SankyoCompany, Limited (“Daiichi Sankyo”) to develop and commercialize in key markets outside of the U.S. In October 2015, the Companycompleted part 1 of a Phase 3 clinical study in psoriasis comparing CHS-0214 to Enbrel. The Company is currently conducting a Phase 3clinical study in rheumatoid arthritis. This study met the primary endpoint at 24 weeks. The Company expects that results from these studies,combined with data from its Phase 1 studies will support the expected filing of a marketing application in Europe and Japan in 2016. TheCompany has retained the development and commercial rights to this product in the U.S. However, the therapeutic protein in etanercept issubject to certain originator-controlled U.S. patents expiring in 2028 and 2029. Assuming these patents are valid and enforceable, and that theCompany would be unable to obtain a license to them, the Company does not expect to commercialize CHS-0214 in the U.S. prior to theirexpiration. ·The Company’s second anti-TNF product candidate, CHS-1420, is being developed as an adalimumab (Humira) biosimilar. This productsuccessfully completed a pivotal Phase 1 PK study in August 2014 by meeting the primary PK bioequivalence endpoint. The Companyinitiated a Phase 3 study in psoriasis in August 2015 to support the planned filing of a marketing application in the U.S. in 2016 and the E.U. in2017. The Company initiated a bridging PK study comparing the Phase 3 CHS-1420 material to U.S. manufactured adalimumab (Humira)during the first quarter of 2016 and the Company plans to initiate a bridging PK study comparing the Phase 3 CHS-1420 material to E.U.manufactured adalimumab (Humira) in mid-2016.Need to Raise Additional CapitalAs of December 31, 2015, the Company had an accumulated deficit of $410.0 million and cash and cash equivalents of $158.2 million. In February2016, we issued and sold $100.0 million aggregate principal amount of 8.2% senior convertible notes (“Notes”) due March 31, 2022 (see Note 16). TheCompany believes that its current available cash and cash equivalents, together with proceeds from the issuance of the Notes and funding it expects toreceive under its license agreements with Daiichi Sankyo and Baxalta, will be sufficient to fund its planned expenditures under its 2016 budget and meet theCompany’s obligations through at least December 31, 2016. The Company will need to raise additional funds in the future, however there can be noassurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will be favorable. If theCompany is unable to obtain adequate financing when needed, it may have to delay, reduce the scope of or suspend one or more of its clinical trials, researchand development programs or commercialization efforts. 94Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 2.Basis of Presentation and Summary of Significant Accounting Policies Basis of ConsolidationThe accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.GAAP”). The accompanying consolidated financial statements include the accounts of Coherus and its wholly owned subsidiaries as of December 31, 2015:Coherus Intermediate Corp, Coherus Oncology, Inc., InteKrin Therapeutics Inc. (“InteKrin”), and InteKrin’s 82.5% majority owned subsidiary of InteKrinRussia. Unless otherwise specified, references to the Company are references to Coherus and its consolidated subsidiaries. All intercompany transactions andbalances have been eliminated upon consolidation.ReclassificationTo maintain comparability among the periods presented, the Company reclassified certain prior period amounts to a separate line item that was notincluded in the prior period presentation. Within Note 4, Accrued Liabilities, in the Notes to the Consolidated Financial Statements for the year endedDecember 31, 2014, the Company reclassified amounts that were recorded within accrued other to accrued clinical and manufacturing. The reclassificationhad no impact on the total current accrued liabilities for the periods presented.Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect theamounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its stock-basedcompensation, valuation of deferred tax assets, impairment of goodwill and long-lived assets, the valuation of acquired intangible assets, clinical trialaccruals, revenue recognition period, as well as certain accrued liabilities; and in prior years, common stock valuation, the valuations of the convertiblepreferred stock warrant liability and embedded derivative instruments. Management bases its estimates on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Foreign CurrencyThe functional currency of InteKrin Russia, which the Company acquired in February 2014, is the Russian Ruble. Accordingly, the financialstatements of this subsidiary are translated into U.S. dollars using appropriate exchange rates. Unrealized gains or losses on translation are recognized inaccumulated other comprehensive loss in the consolidated balance sheet.For the years ended December 31, 2015, 2014 and 2013, the foreign exchange gains and losses recorded in other expense, net in the consolidatedstatements of operations were a net loss of $386,000, a net gain of $671,000 and a net loss of $34,000, respectively.Segment Reporting and Customer ConcentrationThe Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializingbiosimilar products, and, as part of the InteKrin acquisition, small molecules (see Note 6). The Company’s chief executive officer, who is the chief operatingdecision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Long-livedassets are primarily maintained in the United States of America.The following table summarizes revenue by geographic region (in thousands): Year Ended December 31, 2015 2014 2013 United States $27,802 $28,481 $726 Rest of world 2,239 2,625 2,025 Total revenue $30,041 $31,106 $2,75195Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Customer ConcentrationCustomers whose collaboration and license revenue accounted for 10% or more of total revenues were as follows: Year Ended December 31, 2015 2014 2013 Daiichi Sankyo - related party (1) * * 74%Baxalta 93% 92% 26% *less than 10%(1)Represents revenue from Daiichi Sankyo through November 12, 2014 as a related party, a holder of more than 10% of our common stock until theclosing of our IPO.Deferred Offering CostsDeferred offering costs, which primarily consist of direct incremental legal and accounting fee, are capitalized in other assets until the completion ofthe offering. These deferred offering costs will be reclassified to additional paid-in capital upon the closing of the offering. There was $137,000 in deferredoffering costs capitalized as of December 31, 2015 and none capitalized as of December 31, 2014.Cash and Cash EquivalentsThe Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cashequivalents.Restricted CashRestricted cash consists of cash held in money market accounts with a bank. The restricted cash that is used as collateral against the Company’scorporate credit cards is classified as current and the restricted cash to cover the standby letter of credit issued for the Company’s landlord to drawdown on ifthe facility lease is breached, is classified as non-current (see Note 8).Concentration of Credit RiskThe Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents. The Companymaintains its cash in bank accounts which at times exceed federally insured limits. The Company attempts to minimize the risks related to cash and cashequivalents by investing in money markets with a broad and diverse range of financial instruments. The investment portfolio is maintained in accordancewith the Company’s investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any singleissuer. The Company also maintains restricted cash in money market funds that invest primarily in U.S. Treasury securities. The Company has not recognizedany losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on its cashand money market funds.Fair Value of Financial InstrumentsFair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fairvalue in the financial statements on a recurring basis.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense asincurred, and costs of improvements are capitalized. Depreciation and amortization is recognized using the straight-line method over the following estimateduseful lives: Computer equipment and software 3 yearsFurniture and fixtures 5 yearsMachinery and equipment 5 yearsLeasehold improvements Shorter of lease term or useful life96Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Impairment of Long Lived Assets and Acquired Intangible AssetThe Company reviews long-lived assets, including property and equipment, and indefinite-lived intangible, for impairment whenever events orchanges in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when theestimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment,if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. For the year ended December 31, 2015, theCompany recorded a $382,000 impairment of property and equipment in research and development within the statement of operations. Acquired in-process research and development (“IPR&D”) represents the fair value assigned to research and development assets that have not reachedtechnological feasibility. The Company reviews amounts capitalized as acquired IPR&D for impairment at least annually, and whenever events or changes incircumstances indicate that the carrying value of the assets might not be recoverable. If the carrying value of the acquired IPR&D exceeds its fair value, thenthe intangible asset is written-down to its fair value. As of December 31, 2015, there have been no such impairments. Once the product candidate derivedfrom the indefinite-lived intangible asset has been developed and commercialized, the useful life will be determined, and the carrying value of the finite-lived asset will be amortized prospectively over that estimated useful life. Alternatively, if the product candidate is abandoned, the carrying value of theintangible will be charged to research and development expense.GoodwillGoodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The Company tests goodwillfor impairment at least annually or more frequently if events or changes in circumstances indicate that this asset may be impaired. The goodwill test is basedon our single operating segment and reporting unit structure.The Company compares the fair value of its reporting unit to its carrying value. If the carrying value of the net assets assigned to thereporting unit exceeds the fair value of the reporting unit, then the Company would need to determine the implied fair value of the reporting unit’sgoodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment lossequal to the difference. No goodwill impairment was identified through December 31, 2015.Convertible Preferred Stock Warrant LiabilityThe Company classified warrants exercisable for shares of the Company’s Series A and Series B convertible preferred stock as derivative liabilities andadjusted their carrying value to fair value at the end of each reporting period as long as such warrants were outstanding. At the end of each reporting period,changes in the fair value of the convertible preferred stock warrant liability during the period were recorded as a component of other expense, net, in theconsolidated statements of operations.Derivative LiabilityThe Company has a derivative liability related to the contingent consideration associated with the acquisition of InteKrin. There were two contingentpayments payable upon the achievement of certain events: (i) the completion of the first dosing of a human subject in the first Phase 2 clinical trial forInteKrin, (“Earn-Out Payment”) and (ii) upon the execution of any license, sublicense, development, collaboration, joint venture, partnering or similaragreement between the Company and the third party (“Compound Transaction Payment”). The derivative related to the contingent consideration isaccounted for as a liability and remeasured to fair value as of each balance sheet date and the related remeasurement adjustment is recognized as other income(expense), net in the consolidated statements of operations. The Company determined the fair value of the two contingent consideration scenarios (the Earn-Out Payment and the Compound Transaction Payment) using a probability-weighted discounted cash flow approach. A probability-weighted value wasdetermined by summing the probability of achieving a contingent payment threshold by the respective contingent payments. The expected cash flows werediscounted at a rate selected to capture the risk of achieving the contingent payment thresholds and earning the contingent payment. This risk is comprisedof InteKrin’s continued development, a specific risk factor associated with meeting the contingent consideration threshold and related payout, andcounterparty risk associated with the payment of the contingent consideration.97Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Embedded Derivative LiabilityThe Company recorded derivative instruments related to redemption features embedded within the convertible notes when such notes wereoutstanding. The embedded derivatives were accounted for as a liability and were remeasured to fair value as of each balance sheet date when such notes wereoutstanding, with the related remeasurement adjustment being recognized as a component of other income (expense), net in the consolidated statements ofoperations.Accrued Research and Development ExpensesClinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed bythird parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. TheCompany determines the actual costs through monitoring patient enrollment, discussions with internal personnel and external service providers as to theprogress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.Revenue RecognitionThe Company recognizes revenue when persuasive evidence of an arrangement exists; transfer of technology has been completed, services have beenperformed or products have been delivered; the fee is fixed and determinable; and collection is reasonably assured.For revenue agreements with multiple elements, the Company identifies the deliverables included within the agreement and evaluates whichdeliverables may represent separate units of accounting based on the achievement of certain criteria, including whether the delivered element has stand-alonevalue to the collaborator. Deliverables under the arrangement are a separate unit of accounting if (i) the delivered item has value to the customer on astandalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivereditems are considered probable and substantially within the Company’s control.The Company determines how to allocate arrangement consideration to identified units of accounting based on the selling price hierarchy providedunder the relevant guidance. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third partyevidence if vendor-specific objective evidence is not available or estimated selling price if neither vendor-specific nor third-party evidence is available.Management may be required to exercise considerable judgment in determining whether a deliverable is a separate unit of accounting and in estimating theselling prices of identified units of accounting under its agreements.Upfront payments received in connection with licenses of the Company’s technology rights are deferred if facts and circumstances dictate that thelicense does not have stand-alone value. Such payments are recognized as license revenue over the estimated period of performance that is generallyconsistent with the terms of the research and development obligations contained in the specific collaboration and license agreement. The Company regularlyreviews the estimated period of performance based on the progress made under each arrangement. Amounts received as funding of research and developmentactivities are recognized as revenue if the collaboration arrangement involves the sale of the Company’s research or development services. However, suchfunding is recognized as a reduction in research and development expense when the Company engages in a research and development project jointly withanother entity, with both entities participating in project activities and sharing costs and potential benefits of the arrangement.Payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone isachieved, assuming all other revenue recognition criteria are met. A milestones is defined as an event that can only be achieved based on the Company’sperformance where there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingentonly on the passage of time or only on counterparty performance are not considered milestones under accounting guidance. The Company’s evaluationincludes an assessment of whether (a) the consideration is commensurate with either (1) the Company’s performance to achieve the milestone, or (2) theenhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone,(b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within thearrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respectivemilestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to alldeliverables and payment terms in the arrangement in making this assessment.98Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Other contingent payments in which a portion of the payment is refundable or adjusts based on future performance or non-performance (e.g., through apenalty or claw-back provision) are not considered to relate solely to the Company’s past performance, and therefore, not considered substantive. Non-substantive contingent payments are classified as deferred revenue if they are ultimately expected to result in revenue recognition. The Company recognizesnon-substantive contingent payments over the remaining estimated period of performance once the specific objective is achieved. Any portion of the non-substantive contingent payments which may be required to be refunded to the collaborator are not included in deferred revenue and instead are reflected ascontingent liability to collaborator on the consolidated balance sheets.Contingent payments associated with the achievement of specific objectives in certain contracts that are not considered substantive because theCompany does not contribute effort to the achievement of such milestones are recognized as revenue upon achievement of the objective, as long as there areno undelivered elements remaining and no continuing performance obligations by the Company, assuming all other revenue recognition criteria are met.Revenue from a government contract is recognized in the period during which the related costs are incurred and the related services are rendered,provided that the funds received are not refundable and applicable conditions under the government contract have been met. Funds received in advance arerecorded as deferred revenue.Research and Development ExpensesResearch and development costs are charged to expenses as incurred. Research and development expenses include, among other costs, salaries andother personnel-related costs, consultant fees, preclinical costs, cost to manufacture drug candidates and clinical supplies, laboratory supplies costs andfacility-related costs. Costs incurred under agreements with third parties are charged to expense as incurred in accordance with the specific contractualperformance terms of such agreements. Costs of third parties include costs associated with preclinical and clinical support activities. In certain cases, amountsreceived as reimbursement of research and development activities from the Company’s collaborators are recognized as a reduction in research anddevelopment expense when the Company engages in a research and development project jointly with another party, with both parties incurring costs whileactively participating in project activities and both parties sharing costs and potential benefits of the arrangement. Costs incurred under the arrangementswhere the Company provides research services approximate the amount of revenues recorded. Advance payments for goods or services to be received in thefuture to be utilized in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods aredelivered or the services are received.Stock-Based CompensationThe Company measures the cost of equity-based service awards based on the grant-date fair value of the award, and recognizes the cost of such awardsstraight-line over the vesting period. Because non-cash stock compensation expense is based on awards ultimately expected to vest, it is reduced by anestimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ fromestimates.The Company accounts for equity instruments issued to nonemployees using the fair value approach. These equity instruments consist of stockoptions and restricted common stock, which are valued using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized asthe equity instruments are earned. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instrumentsvest.The Company utilizes the Black-Scholes option-pricing model for estimating fair value of its stock options and restricted stock granted. Optionvaluation models, including the Black-Scholes option-pricing model, require the input of highly subjective assumptions, and changes in the assumptionsused can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expectedvolatility, the expected life of the award, and estimated forfeitures.Income TaxesThe Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based onthe differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be ineffect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. Avaluation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s lackof earnings history, the net deferred tax assets have been fully offset by a valuation allowance.99Coherus BioSciences, Inc.Notes to Consolidated Financial Statements The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevanttaxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company does notexpect its unrecognized tax benefits to change significantly over the next twelve months.The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had accrued noamounts for interest and penalties related to income tax matters in the Company’s consolidated balance sheets at December 31, 2015 and 2014.Comprehensive LossComprehensive loss is composed of two components: net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses thatunder U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. The Company’s other comprehensive loss includedforeign currency translation adjustments for the years ended December 31, 2015 and 2014.Net Loss per Share Attributable to CoherusBasic net loss per share attributable to Coherus is calculated by dividing the net loss attributable to Coherus by the weighted-average number ofshares of common stock outstanding for the period, without consideration for potential dilutive common shares. Since the Company was in a loss position forall periods presented, basic net loss per share attributable to Coherus is the same as diluted net loss per share attributable to Coherus as the inclusion of allpotential dilutive common shares would have been anti-dilutive for all periods presented. Shares of founders’ common stock subject to repurchase areexcluded from the calculation of weighted average shares as the vesting of such shares is contingent upon continued services being rendered by such holders.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contractswith Customers (“ASU 2014-09”), which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Areas ofrevenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses,time value of money, contract costs and disclosures. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of theEffective Date (“ASU 2015-14”). Under the amendments in ASU 2015-14, the FASB deferred the effective date of ASU 2014-09 for public business entities tofiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period, with early adoption permitted on theoriginal effective date of fiscal years beginning after December 15, 2016. The Company may adopt the new standard under the full retrospective method orthe modified retrospective method. The Company is currently evaluating the impact that the adoption of ASU 2014-09 will have on its consolidatedfinancial statements and related disclosures.In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU2014-15 is effective for the Company’s annual reporting period ending December 31, 2016 and all annual and interim reporting periods thereafter, with earlyadoption permitted. The Company has not elected to early adopt this standard. When adopted, ASU 2014-15 will require management to evaluate whetherthere is substantial doubt about the Company’s ability to continue as a going concern for at least 12 months from the issuance date of the financial statementsand to provide related footnote disclosures.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. To simplify the presentation of deferredincome taxes, the amendments in ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financialposition. ASU 2015-17 is effective for our interim and annual reporting periods during the year ending December 31, 2017 and all annual and interimreporting periods thereafter, with early adoption permitted. The Company has elected to early adopt ASU 2015-17 prospectively. Such adoption did nothave a material impact on the Company’s consolidated balance sheet and related disclosures as of December 31, 2015, and did not adjust prior periodspresented.In January 2016, the FASB issued ASU No. 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1 makesamendments to the classification and measurement of financial instruments and revises the accounting related to: (1) the classification and measurement ofinvestments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. In addition, the updatealso amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-1 is effective for the Company’s interim andannual reporting periods during the year ending December 31, 2018, and all annual and interim reporting periods thereafter. Early adoptions of certainamendments within the update are permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-1 will have on its consolidatedfinancial statements and related disclosures.100Coherus BioSciences, Inc.Notes to Consolidated Financial Statements In February 2016, the FASB issued ASU No. 2016-2, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable, andrequires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leasescurrently accounted for as operating leases. ASU 2016-2 is effective for the Company’s interim and annual reporting periods during the year endingDecember 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact thatthe adoption of ASU 2016-2 will have on its consolidated financial statements and related disclosures.The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or no material effectis expected on the consolidated financial statements as a result of future adoption. 3.Fair Value MeasurementsFinancial assets and liabilities are recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash andcash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair value due to their short maturities. Fair value is theprice that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accountingguidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are consideredobservable and the last is considered unobservable. These levels of inputs are the following:Level 1 — Quoted prices in active markets for identical assets or liabilities.Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quotedprices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full termof the assets or liabilities.Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The Company’s financial instruments consist of Level 1 assets and Level 3 liabilities. Where quoted prices are available in an active market, securitiesare classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash and cash equivalents, and restricted cash. Therewere no unrealized gains and losses in the Company’s investments in these money market funds.In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilitiesconsist of the contingent consideration.Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements are as follows(in thousands): Fair Value Measurements December 31, 2015 Total Level 1 Level 2 Level 3 Assets: Money market funds $157,784 $157,784 $— $— Restricted cash (money market funds) 845 845 — — Total financial assets $158,629 $158,629 $— $— Liabilities: Contingent consideration $1,245 $— $— $1,245101Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Fair Value Measurements December 31, 2014 Total Level 1 Level 2 Level 3 Assets: Money market funds $147,952 $147,952 $— $— Restricted cash (money market funds) 60 60 — — Total financial assets $148,012 $148,012 $— $— Liabilities: Contingent consideration $6,495 $— $— $6,495 There were no transfers between Level 1 and Level 3 during the periods presented.Contingent ConsiderationAs part of the InteKrin acquisition, the Company recognized contingent consideration associated with potential payments to be made to the formerInteKrin stockholders upon the achievement of certain events specified in the agreements (see Note 6). This fair value measurement is based on significantinputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The InteKrin purchase agreement provides forcontingent consideration to be paid upon (i) the first dosing of a human subject in the first Phase 2 Clinical Trial for CHS-131 (formerly INT-131) ("Earn-OutPayment") and (ii) per a compound transaction agreement as defined in the purchase agreement (the “Compound Transaction Payment”). The Companyvalued the two contingent consideration scenarios (the Earn-Out Payment and the Compound Transaction Payment) using a probability-weighted discountedcash flow approach. A probability of reaching each contingent consideration threshold was estimated by Company’s management. As of December 31, 2014,the Earn-Out Payment was expected to occur in January 2015 with a 98% probability of occurrence. As part of that analysis, a 25% risk-adjusted discount ratewas used to measure a present value. A separate credit spread was not applied to the Earn-Out Payment fair value since the consideration was to be made incommon stock shares. The size of the contingent consideration was a fixed number of common stock shares, but the value fluctuated with the value of acommon stock share. The Compound Transaction applied the same 25% risk-adjusted discount rate and also captured an additional 6% credit spread forcounterparty credit risk given the cash payment. The Company’s management estimates of probability of occurrence and timing were used to formulate anexpected cash flow. The size of the consideration is tiered based on the size of a license or similar agreement with a third party and the timing of suchagreement. The change in the fair value of the contingent consideration liability is recognized in other expense, net within the consolidated statement ofoperations.On March 6, 2015, the Company achieved the first dosing of a human subject in a phase 2 clinical trial for CHS-131 in multiple sclerosis patients,triggering the obligation to settle the first contingent Earn-Out Payment to former InteKrin stockholders. As a result, the Company issued 358,384 shares ofits common stock valued at $27.48 per share and cash of $1,000 for the aggregate amount value of $9.8 million to former InteKrin stockholders.Contemporaneously, the Company recognized the additional fair value of the Earn-Out Payment of $4.1 million to other expense, net, in the consolidatedstatement of operations on March 6, 2015 and reclassified the contingent consideration liability balance to equity in the consolidated balance sheet. For theyears ended December 31, 2015 and 2014, the Company recognized $4.1 million and $5.0 million, respectively, in other expense, net in the consolidatedstatement of operations for the change in the fair value of the Earn-Out Payment.The fair value measurement of the Compound Transaction Payment uses a probability-weighted discounted cash flow approach based on significantinputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The Compound Transaction analysis applied a25% risk-adjusted discount rate to measure present value and also captured an additional 6% credit spread for counterparty credit risk given the cashpayment. The Company’s management estimates of probability of occurrence and timing were used to formulate an expected cash flow. The value of theconsideration is tiered based on the value of a license or similar agreement with a third party and the timing of such agreement. The change in the fair valueof the Compound Transaction Payment was recognized in other expense, net in the consolidated statement of operations of $460,000 and $235,000 for theyears ended December 31, 2015 and 2014, respectively.102Coherus BioSciences, Inc.Notes to Consolidated Financial Statements The following table sets forth a summary of changes in the estimated fair value of the contingent consideration (in thousands): Balance as of February 12, 2014 (acquisition date) $1,310 Change in fair value of the contingent consideration liability 5,185 Balance as of December 31, 2014 6,495 Change in fair value of the contingent consideration liability 4,599 Fair value of Earn-Out Payment settled in common stock on March 6, 2015 (9,849)Balance as of December 31, 2015 $1,245 4.Balance Sheet ComponentsPrepaid AssetsPrepaid assets are as follows (in thousands): December 31, December 31, 2015 2014 Prepaid clinical, material, manufacturing and other - related parties (see Note 15) $10,901 $5,990 Prepaid clinical, material and manufacturing 21,191 12,149 Prepaid other 2,651 2,346 Prepaid assets $34,743 $20,485 Property and Equipment, NetProperty and equipment, net are as follows (in thousands): December 31, December 31, 2015 2014 Machinery and equipment $7,809 $4,317 Computer equipment and software 1,276 286 Furniture and fixtures 596 288 Leasehold improvements 4,343 399 Construction in progress — 474 Total property and equipment 14,024 5,764 Accumulated depreciation and amortization (3,520) (1,292)Property and equipment, net $10,504 $4,472 Depreciation expense was $1.9 million, $674,000 and $404,000 for the years ended December 31, 2015, 2014 and 2013, respectively.In July 2015, the Company entered into a new lease agreement with its landlord for its new headquarters facility in Redwood City, California (seeNote 6). The Company moved into the new facility in December 2015 and recorded $3.1 million in leasehold improvements related to the new headquarters.103Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Accrued LiabilitiesAccrued liabilities are as follows (in thousands): December 31, December 31, 2015 2014 Accrued clinical, manufacturing and other - related parties (see Note 15) $6,122 $2,997 Accrued clinical and manufacturing 11,681 2,396 Accrued compensation 4,666 3,435 Accrued professional and consulting fees 446 252 Accrued other 1,218 2,151 Accrued liabilities $24,133 $11,231 5.Collaboration and License AgreementThe Company recognized revenue related to the collaboration and license agreements for the periods presented as follows (in thousands): Year Ended December 31, 2015 2014 2013 Baxalta $27,802 $28,481 $726 Daiichi Sankyo - related party (1) 2,239 1,893 2,025 Total collaboration and license revenue $30,041 $30,374 $2,751 (1)Represents revenue from Daiichi Sankyo through November 12, 2014 as a related party, a holder of more than 10% of our common stock until theclosing of our initial public offering (“IPO”). Daiichi SankyoIn January 2012, the Company entered into a license agreement with Daiichi Sankyo, under which the Company granted certain licenses to DaiichiSankyo to develop and commercialize biosimilar forms of etanercept and rituximab in Japan, Taiwan, and South Korea with an option to develop in China.Under the terms of the agreement, the Company will be responsible for the manufacturing and supply of the products during the development activities andDaiichi Sankyo will conduct the development, regulatory approval filings, and commercialization activities of the biosimilar form of etanercept andrituximab products in Japan. Once the biosimilar forms of etanercept and rituximab are commercialized, the Company is entitled to royalties based on netsales by Daiichi Sankyo on a product-by-product basis in the licensed territories ranging from the low double digits to high teens, on a product-by-productbasis. If the Company is manufacturing product, the Company is eligible to receive an incremental royalty reflecting the manufacturing costs for eachlicensed product which, when combined with the base royalty, will result in royalties equal to a percentage of net sales of licensed products ranging from thelow to high-twenties, on a product-by-product basis.Upon execution of the agreement, Daiichi Sankyo paid a non-refundable, upfront license fee of $10.0 million and purchased 2,867,426 shares ofSeries B convertible preferred stock at a price of $6.9749 per share, or $18.1 million in net cash proceeds. The Company concluded that there was nopremium or discount associated with the purchase of the Series B convertible preferred stock since Daiichi Sankyo paid the same price paid by other investorsat the close of the Series B convertible preferred stock offering. As such the Company recorded the $18.1 million as a convertible preferred stock transactionseparate from the license agreement. The agreement has an initial term of ten years and contains provisions allowing Daiichi Sankyo to renew the agreementfor an additional three years with respect to particular countries. Daiichi Sankyo also has the right to terminate the agreement, in its entirety or on a country-by country basis, at any time if the development and/or commercialization is deemed to not be commercially viable, there are material safety, efficacy orpatient tolerability issues that cannot be remedied or overcome, or during the opt-out window after the achievement of specified objectives in the agreement.In May 2012, Daiichi Sankyo opted out of the development and commercialization of etanercept in Taiwan and South Korea, and in August 2012, DaiichiSankyo chose not to exercise their option with respect to the development and commercialization of etanercept and rituximab in China.104Coherus BioSciences, Inc.Notes to Consolidated Financial Statements The Company identified the following deliverables under the agreement: (1) the transfer of intellectual property rights (license), and (2) themanufacture of drug materials for clinical development purposes. The Company considered the provisions of the multiple-element arrangement guidance indetermining how to recognize the total consideration of the agreement. The Company has concluded that the license is not a separate unit of accountingbecause Daiichi Sankyo cannot obtain benefit from the use of the license rights for their intended purpose without the products manufactured by theCompany. Daiichi Sankyo must rely upon the Company to manufacture and supply the products necessary for Daiichi Sankyo’s development because therelated manufacturing know-how specific to the products is proprietary to the Company and Daiichi Sankyo does not have the right to manufacture thelicensed product. The Company determined that neither of the deliverables have standalone value and, therefore, the deliverables are accounted for as asingle unit of accounting with the upfront fee recognized as revenue on a straight-line basis over its estimated period of performance of approximately threeyears. The Company determined that there is no other method that is more appropriate than the straight-line method of revenue recognition for this agreementgiven there is no discernable pattern of its performance under the arrangement. The Company regularly evaluates the reasonableness of the estimated periodof performance and revises the amortization of deferred revenue as deemed appropriate on a prospective basis. On September 30, 2014 and December 31,2014, the Company extended the period of performance for two quarters and one quarter, respectively, through the fourth quarter of 2017. On September2015, the Company revised the period of performance extending the period to November 2017.In June 2013, the Company and Daiichi entered into a Memorandum of Understanding No. 1 (the “MOU 1”) in which both parties agreed to cooperateand share costs to conduct a global Phase 1 study of a biosimilar form of etanercept. This program was not originally contemplated in the license agreement.Under the MOU 1, the Company will gather all clinical data, format it into a case study report, and conduct the final analysis. The Company will transfer theclinical data and other regulatory approval application documents for the product and post marketing to Daiichi Sankyo within 90 days after such documentsare finalized. Under the MOU 1, Daiichi’s Sankyo’s overall cost sharing responsibility include (i) 33% of the total budgeted cost and (ii) 100% of the cost ofthe comparator drug (Enbrel) used for the Japanese volunteers. The amounts received from Daiichi Sankyo under this cost sharing responsibility arerecognized as a reduction in research and development expense as the Company engages in a research and development project jointly with Daiichi Sankyo,with both parties incurring costs while actively participating in development activities and both parties sharing costs and potential benefits of thearrangement. The Company accounted for the MOU 1 as a separate arrangement which was not deemed to be a material modification of the original licenseagreement with Daiichi Sankyo.In January 2014, the Company and Daiichi Sankyo entered into the Memorandum of Understanding No. 2 (the “MOU 2”) in which both parties agreedto cooperate to conduct a global Phase 3 clinical trial in rheumatoid arthritis and that Daiichi Sankyo will be responsible for a minimum of 20% of the cost ofthe clinical trial. Also, both parties entered into a clinical supply agreement contemporaneously with the MOU 2 in which the Company will supply finishedstudy drug and study comparator drug for Daiichi Sankyo’s use in the Japanese portion of the product’s clinical trial. Daiichi Sankyo reimburses theseresearch and development costs in quarterly advance payments, for which the Company recorded $1.3 million and $1.2 million as advance payments underlicense agreement in the consolidated balance sheet as of December 31, 2015 and 2014, respectively. The Company will recognize the advance payment as areduction in the research and development expense when the research and development activity has been performed. In June 2015, the Company and Daiichi Sankyo entered into the Memorandum of Understanding No. 3 (the “MOU 3”) in which both parties agreed tocooperate further on a global Phase 3 clinical trial in rheumatoid arthritis. Under the MOU 3, Daiichi Sankyo will be responsible for a minimum of 20% of thecost of an open label, safety extension study (“OLSES”) in rheumatoid arthritis. The Company also entered into a clinical supply agreement as part of theMOU 3 in which the Company will supply finished study drug and study comparator drug for Daiichi Sankyo’s use in the Japanese portion of the clinicaltrial. Daiichi Sankyo will pre-pay these research and development costs quarterly, and they are recorded by the Company as advance payments in theconsolidated balance sheet. The Company recognizes the advance payments as a reduction of research and development expense when the research anddevelopment activity has been performed.As of December 31, 2015, $2.8 million of revenue was deferred under all arrangements with Daiichi Sankyo, of which $1.5 million was included incurrent liabilities and $1.3 million was included in non-current liabilities in the consolidated balance sheet. As of December 31, 2014, $4.3 million ofrevenue was deferred under all arrangements with Daiichi Sankyo, of which $1.6 million was included in current liabilities and $2.7 million was included innon-current liabilities in the consolidated balance sheet.The Company recognized in its consolidated statements of operations a reduction of research and development expense related to the costsreimbursed by Daiichi Sankyo of $16.1 million, $7.1 million and $1.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.105Coherus BioSciences, Inc.Notes to Consolidated Financial Statements BaxaltaIn August 2013, the Company entered into a license agreement with Baxter, to develop and commercialize an etanercept biosimilar molecule, CHS-0214, worldwide, excluding the United States, Japan, Taiwan, South Korea, China and most of the Caribbean and South American nations. In the secondquarter of 2015, Baxter assigned its rights and obligations under the license agreement to affiliated entities that are under common control of Baxalta. Underthe terms of the license agreement, the Company will conduct the development and the regulatory activities, and Baxalta will conduct the commercializationof the etanercept biosimilar product.Under the terms of the agreement, the Company will conduct the development and the regulatory activities, and Baxalta will conduct thecommercialization of the etanercept biosimilar product. In consideration of the exclusive, royalty-bearing license to develop, commercialize and use theetanercept biosimilar product, Baxalta made an upfront payment of $30.0 million to the Company. Additionally, the Company is eligible to receive up to$216.0 million in contingent payments composed of $96.0 million in clinical development payments and up to $120.0 million in regulatory milestonepayments. If the cumulative development costs exceed the cumulative contingent payments, Baxalta will reimburse the Company for the excess cost as setforth in the agreement up to predetermined limits. Once the etanercept biosimilar product is commercialized, the Company is entitled to tiered royalties,based on the manufacturing cost as a percentage of net sales of licensed products, ranging from the mid-single digits to the high teens on a country-by-country basis. These royalties are subject to certain offsets and reductions.The agreement has an initial term of ten years and contains provisions allowing Baxalta to renew the agreement for another three years on a country-by-country basis. Baxalta also has the right to terminate the agreement, in its entirety or on a country-by country basis, at any time if the development and/orcommercialization is deemed to not be commercially viable, there are material safety, efficacy or patient tolerability issues that cannot be remedied orovercome, if aggregate expenses exceed certain thresholds or after the first commercial sale upon 18 month prior written notice.The Company identified the following deliverables under the license agreement with Baxalta: 1) the transfer of intellectual property rights (license),(2) the obligation to provide research and development services including the manufacturing and supply of clinical product, and (3) the obligation toparticipate on various committees.The Company considered the provisions of the multiple-element arrangement guidance in determining how to recognize the total consideration of theagreement. The Company determined that the license does not have standalone value to Baxalta without the Company’s technical expertise as it relates tothe development of the product candidate and committee participation. Additionally, the license to Baxalta does not include the right to manufacture, orhave manufactured the product during the development stage, or to conduct any process development activities. Therefore, the Company concluded thatthese deliverables represent a single unit of accounting under the multiple-element arrangement guidance.The upfront payment of $30.0 million and clinical development payments of up to $96.0 million include $56.0 million of contingent payments thatare intended to cover development related expenses incurred by the Company, but potentially reimbursable, in part, to Baxalta under certain limitedcircumstances. The Company concluded that the contingent payments that contain potentially reimbursable amounts to Baxalta are not substantivemilestones under the relevant accounting guidance, since the guidance does not allow the substantive milestone components of a payment to be bifurcatedfrom non-substantive milestone components. The amounts that are contingent payments also contain a claw-back feature that, in the event that the Companycommercializes the etanercept biosimilar molecule in the U.S. without Baxalta, fifty percent (50%) of those contingent payments are refundable to Baxalta.Therefore, the Company will record the portion of the non-substantive contingent payment that contains the claw-back feature as a liability for the potentialreimbursement of such funds to Baxalta until the earlier of: (1) expiration or termination of the license agreement, which is ten years, or (2) the determinationof the party to commercialize the molecule in the U.S. These amounts are included in the contingent liability to collaborator on the consolidated balancesheets. The portion of the non-substantive milestone payment that does not contain the claw-back feature will be recorded as deferred revenue andrecognized as license revenue on a straight-line basis over the remaining estimated performance period of approximately three years. The Companydetermined that there is no other method that is more appropriate than the straight-line method of revenue recognition for this agreement given there is nodiscernable pattern of performance under the arrangement. The Company regularly evaluates the reasonableness of the estimated period of performance andrevises the amortization of deferred revenue as deemed appropriate on a prospective basis. On September 30, 2014 and December 31, 2014, the Companyrevised the period of performance extending the period of performance for two quarters and one quarter, respectively. On September 2015, the Companyrevised the period of performance extending the period to November 2017.106Coherus BioSciences, Inc.Notes to Consolidated Financial Statements The $120.0 million of regulatory milestone payments are considered substantive as the achievement is subject to the significant uncertainty as to theoutcome of the development efforts, by the Company, over an extended period of time, and the Company’s substantive performance obligation under thelicense agreement which includes efforts associated with the clinical trials and filing and approval of drug applications by regulatory authorities in variouscountries. Therefore, the Company will recognize revenue associated with these respective contingent payments when each of the specific events is achieved.In February 2014, the agreement was amended to increase the payment by $5.3 million therefore the Company is eligible to receive up to $221.3million in contingent payments comprised of $101.3 million in clinical development payments, and up to $120.0 million in regulatory milestone payments.In April 2015, the Company and Baxalta, entered into a second amendment (the “Second Amendment”) to the license agreement. Under the terms ofthe Second Amendment, a revised milestone payment structure totaling $130.0 million replaced certain existing milestone and funding obligations under thelicense agreement as originally executed. Therefore the Company is eligible to receive up to $335.3 million in contingent payments comprised of $215.3million in clinical development payments, and up to $120.0 million in regulatory milestone payments.The Second Amendment does not provide for any change in the contracted deliverables set forth in the license agreement. As a result, the originalassessment of the standalone value for the deliverables remains unchanged and the deferred revenue previously recorded prior to the Second Amendmentcontinues to be recognized as revenue on a straight-line basis over the remaining expected performance period. Likewise, the contingent liability from theincremental milestones received under the license agreement prior to Second Amendment has not been adjusted. If the Company commercializes CHS-0214, its etanercept biosimilar product, in the United States, the Company will be required to refund a portion ofthe milestone payments received from Baxalta as specified in the Second Amendment. A portion of each of the $130.0 million milestones would be subject torefund. The Company concluded that the payments that contain potentially reimbursable amounts to Baxalta are not substantive milestones under therelevant accounting guidance, since the guidance does not allow the substantive milestone components of a payment to be bifurcated from non-substantivemilestone components. Therefore, the Company will record the portion of the contingent payment that contains the claw-back feature as a liability for thepotential reimbursement of such funds to Baxalta until the earlier to occur of: (1) expiration of the license agreement pursuant to its terms in August 2023, (2)the earlier termination of the license agreement, or (3) the determination, pursuant to the terms of the license agreement, of the third party to commercializeCHS-0214 in the U.S. This liability is included in the contingent liability to collaborator on the consolidated balance sheets. The portion of the milestonepayment that does not contain the claw-back feature will be recorded as deferred revenue and recognized as license revenue on a straight-line basis over theremaining estimated performance period as there is no discernable pattern of performance under the arrangement.Pursuant to the Second Amendment, the Company received a total of $100 million in milestone payments in 2015 which are subject to the 50% claw-back feature. Therefore, the Company recorded $38.6 million as contingent liability to collaborator and $61.4 million as deferred revenue which is beingamortized over the remaining estimated performance period using the straight line method.The Second Amendment provides that Baxalta would purchase $10.0 million of the Company’s common stock. As a result, on September 10, 2015,the Company sold Baxalta an aggregate of 390,167 shares of common stock at $25.63 per share (the fair value of the common stock on the day of pricing,September 9, 2015) for aggregate gross proceeds of approximately $10.0 million (see Note 11).As of December 31, 2015, $92.0 million of revenue was deferred under the arrangements with Baxalta, of which $48.0 million was included in currentliabilities and $44.0 million was included in non-current liabilities in the consolidated balance sheet. As of December 31, 2015, $66.3 million was recordedas contingent liability to collaborator in the consolidated balance sheet due to the potential refund to Baxalta.As of December 31, 2014, $58.4 million of revenue was deferred under the arrangements with Baxalta, of which $21.2 million was included in currentliabilities and $37.2 million was included in non-current liabilities in the consolidated balance sheet. As of December 31, 2014, $27.7 million was recordedas contingent liability to collaborator due to the potential refund of such amount to Baxalta in the future. Additionally in 2014, the Company received $10.0million for the achievement of a substantive milestone pursuant to the license agreement and accordingly recognized the entire amount as collaboration andlicense revenue in its consolidated statements of operations in the third quarter of 2014. 107Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 6.Acquisition of InteKrin Therapeutics Inc. On January 8, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire all of the outstanding shares ofInteKrin and its 82.5% majority owned subsidiary, InteKrin Russia. On February 12, 2014, the Company completed the acquisition of InteKrin (the “Merger”)for total consideration of $5.0 million. The acquisition was a related party transaction (see Note 15).Prior to the Merger, InteKrin was a privately held, clinical-stage biopharmaceutical company focused on the development and commercialization ofnovel drugs for the treatment of immune diseases such as multiple sclerosis. InteKrin’s primary product candidate is CHS-131, which is in the clinical stage ofdevelopment. Although CHS-131 is a small molecule and not a protein, its therapeutic focus area was complementary to the Company’s emerging multiplesclerosis biosimilar product pipeline which consists of broader level, central nervous system anti-inflammatory drug candidates. This in turn wascomplementary to the Company’s systemic focus on anti-inflammatory drug candidates with the anti-tumor necrosis factor (TNF) portfolio composed ofetanercept and adalimumab biosimilars. Additionally, the acquisition of InteKrin was a strategic transaction to obtain funding from new investors.The Company accounted for the InteKrin acquisition as the purchase of a business. The Company expensed the related acquisition costs, consistingprimarily of legal expenses in the amount of $134,000. These legal expenses are recorded in general and administrative expense in the consolidatedstatement of operations for the year ended December 31, 2014. The total consideration of $5.0 million consists of: (a) issuance of 716,645 shares of Series Bpreferred stock with a fair value of $2.7 million, (b) assumption of InteKrin’s convertible promissory note payable to an InteKrin stockholder, which wasconcurrently paid off by issuing 243,841 shares of the Company’s Series B convertible preferred stock with a fair value of $1.0 million (c) cash payment of$1,485, and (d) contingent consideration of $1.3 million. The Company determined the fair value of the Series B convertible preferred stock of $3.8174 pershare using the PWERM. The non-controlling interest was not deemed to be significant at acquisition.Pro forma results of operations for this acquisition have not been presented as such results are not material to the Company’s results of operations forthe years ended December 31, 2014 and 2013.The following table summarizes the original fair value of the assets acquired and liabilities assumed (in thousands): Cash $2,335 Prepaid and other assets 107 Accounts payable and other current liabilities (1,027)In-process research and development 2,620 Goodwill 943 Total $4,978 In connection with the acquisition of InteKrin, the Company recorded a deferred tax liability related to the acquired in-process research anddevelopment. This deferred tax liability represents a new source of future taxable income, which required the release of a portion of InteKrin’s deferred taxasset valuation allowance equal to the deferred tax liability recorded. The deferred tax asset and liability are both classified as long term for purposes of thebalance sheet presentation.Intangible Asset — In-process Research and DevelopmentThe in-process research and development (“IPR&D”) consists of InteKrin’s CHS-131. The Company determined the fair value of the IPR&D based onthe cost to recreate the asset to its current stage as the fair value is not determinable as a result of the lack of financial projections for this asset due to its earlydevelopment stage. By applying this method, management estimated that $2.6 million of the acquisition consideration represents the fair value of theIPR&D. The IPR&D acquired through the InteKrin acquisition is treated as an indefinite-lived intangible asset and an annual impairment review is performedby management. As of December 31, 2015, there has been no impairment of this IPR&D.Contingent ConsiderationThe contingent consideration is made up of two potential payments as discussed below.Contingent Consideration — Earn-Out Payment: Upon completion of the first dosing of a human subject in the first Phase 2 clinical trial for InteKrin,InteKrin’s stockholders could earn a minimal cash payment and 358,384 shares of the Company’s Series B convertible preferred stock upon the successfulachievement of this objective. At the acquisition date, the Company expected the first108Coherus BioSciences, Inc.Notes to Consolidated Financial Statements dosing to be completed in September 2014 and assigned a 75% success probability to the achievement and timing of this event. As such, at the acquisitiondate, the fair value of the contingent consideration related to this earn-out payment was determined to be $0.8 million. As of the consummation of the IPO inNovember 2014, such contingent consideration was payable by issuing shares of common stock rather than shares of Series B convertible preferred stock.Contingent Consideration — Compound Transaction Payment: Upon the execution of any license, sublicense, development, collaboration, jointventure, partnering or similar agreement between the Company and a third-party or any agreement between the Company and such third-party to sell all ofthe assets related to the acquired InteKrin compound to such third-party, the Company will pay former InteKrin’s stockholders cash based on a certainpercentage of fees received pursuant to such compound transaction. That payment ranges from 60% of the fees received within one year to 10% after the thirdanniversary of the date of the final dose administered to the final patient in Phase 2 clinical trial.At the time of the acquisition, the Company estimated that the probability of achieving the compound transaction agreement event was 7.5% of thefair value of this contingent consideration based on a probability weighted determination of both the range of the amount and the likelihood of achieving theestimated payouts. At the acquisition date, the fair value of this contingent consideration from the compound transaction payment was determined to be $0.5million.At the acquisition date, the Company valued the two contingent consideration scenarios using a probability-weighted discounted cash flow approach.A probability of reaching each contingent consideration threshold was estimated by management. A probability-weighted value was determined bymultiplying the probability of achieving a contingent payment threshold by the respective contingent payment. The expected cash flows were discounted ata rate selected to capture the risk of achieving the contingent payment thresholds and earning the contingent payment. This risk is composed of InteKrin’scontinued development, a specific risk factor associated with meeting the contingent consideration threshold and related payout and counterparty riskassociated with the payment of the contingent consideration.As of December 31, 2014, the fair value of this contingent consideration liability increased to $6.5 million to reflect the updated fair value estimate ofthe liability and accordingly $5.2 million was recognized as an expense in the consolidated statement of operations during year ended December 31, 2014.The increase in the updated fair value of the contingent consideration is due to changes in the Company’s estimate of reaching each contingent considerationthreshold and the increase in the fair value of the Company’s common stock (see Note 3).On March 6, 2015, the Company achieved the first dosing of a human subject in a phase 2 clinical trial for CHS-131 in multiple sclerosis patients,triggering the obligation to settle the contingent Earn-Out Payment to former InteKrin stockholders. As a result, the Company issued 358,384 shares of itscommon stock valued at $27.48 per share and cash of $1,000 for the aggregate amount value of $9.8 million to former InteKrin stockholders (see Note 3).As of December 31, 2015, the fair value of this contingent consideration liability decreased to $1.2 million to reflect the Earn-Out Payment settlementin March 2015 and the updated fair value estimate of the Compound Transaction Payment. Accordingly $4.6 million was recognized as an expense in theconsolidated statement of operations during the year ended December 31, 2015 (see Note 3).GoodwillGoodwill resulting from this acquisition comprises the excess of the purchase price over the fair value of the underlying net assets acquired andprimarily represents the strategic relationship acquired with InteKrin’s investors. None of this goodwill will be deductible for tax purposes. Under theapplicable accounting guidance, goodwill will not be amortized but will be tested for impairment on an annual basis or more frequently if certain indicatorsare present. As of December 31, 2015, there have been no such impairments.Government Contract with the Russian GovernmentIn 2012, InteKrin Russia, a subsidiary of InteKrin, was awarded a contract by the Ministry of Industry and Trade of the Russian Federation to performscientific research and experimental development work for the treatment of multiple sclerosis and conducting its preclinical and clinical studies for a totalaggregate amount of 147.9 million RUB ($2.6 million in US dollars as of December 31, 2014) which was expanded multiple years from 2012 to 2015. Thecontract amount related to the 2014 research period was expected to be 40.0 million RUB. Subsequent to the Company’s acquisition of InteKrin in February2014, the Company received 12.0 million RUB and 28.0 million RUB in the first and fourth quarter of 2014, respectively. These advance receipts of fundingwere deferred109Coherus BioSciences, Inc.Notes to Consolidated Financial Statements until the Company met all the revenue recognition criteria in 2014. The Company recognized revenue of 40.0 million RUB ($732,000 based on theexchange rate on the date the revenue was recognized) as other revenue in the consolidated statement of operations for the year ended December 31, 2014.The remaining amount available under the government contract for 2015 is 39.4 million RUB, of which 11.8 million RUB ($162,000) was received in thefirst quarter of 2015 and reflected as deferred revenue in the consolidated balance sheet as of December 31, 2015. 7.Debt ObligationsFrom July 2013 to September 2013, the Company entered into convertible note agreements (the “Bridge Loans”) with various stockholders,employees and institutions for an aggregate principal amount of $10.0 million. The Bridge Loans accrued interest of 8% per annum and would mature onJuly 15, 2014. The principal and the accrued interest on the Bridge Loans were converted into 5,488,892 shares of Series C convertible preferred stock inMay 2014 (see note 11).In connection with the Bridge Loans, the Company also issued warrants to purchase shares of its convertible preferred stock at an exercise price of$0.0167 per share. The determination of the number of shares issuable pursuant to the 2013 warrants was determined based on 300% of the principal amountof the Bridge Loans divided by the conversion price. In addition, at the issuance date of the notes, there was a beneficial conversion feature. The totalaggregate Bridge Loans of $10.0 million were less than the initial fair value of the warrants of $13.6 million at the issuance date. Therefore $10.0 million wasrecognized as debt discount, and the difference of $3.6 million was immediately charged to other income (expense), net in the consolidated statement ofoperations and comprehensive loss as the carrying value of the debt could not be reduced to less than zero. No value was recorded initially for the beneficialconversion feature since the carrying value of the debt was zero. The debt discount of $10.0 million was accreted using the effective interest method as anadditional interest expense over the term of the Bridge Loans.The Bridge Loans redemption features were determined to be embedded derivatives requiring bifurcation and separate accounting. The fair value ofthe embedded derivative liability at issuance was determined to be $4.1 million. As a result of the fair value of the warrant debt discount reducing the debt tozero at the time of the issuance as discussed above, the estimated fair value of the derivative liability of $4.1 million was recognized within other income(expense), net, in the consolidated statement of operations and comprehensive loss and as a derivative liability on the consolidated balance sheet uponissuance. Changes in the fair value of the embedded derivative have also been recorded within other income (expense), net, in the consolidated statement ofoperations and comprehensive loss. The Company periodically remeasured the derivative liability to fair value.In December 2013, following the receipt of the upfront license payment from Baxalta license agreement (see Note 5), the Company met the qualifiedlicensing threshold (“QLT”). As a result, upon a change of control, a redemption feature related to the holders’ option to receive a cash payment in lieu ofconversion into Series B convertible preferred stock was reduced from 400% to 100% of the outstanding principal, plus accrued interest and the associatedembedded derivative liability was reduced to zero.The Bridge Loans were collateralized by a security interest in all assets, tangible and intangible, of the Company, subject to a prior security interest ofCook on the Company’s property and equipment in Camarillo, California. Upon the issuance of Series C convertible preferred stock in May 2014, all securityinterests to the Company’s asserts, tangible and intangible, were released.In May 2014, the Company completed an equity financing of Series C convertible preferred stock and, as a result, the Bridge Loans and relatedaccrued interest of $10.6 million automatically converted into 1,058,089 shares of Series C convertible preferred stock based on the price per share paid byother investors in the financing. In connection with the extinguishment of the Bridge Loans, the Company reacquired the beneficial conversion feature. Theintrinsic value of the beneficial conversion feature at the date of the Bridge Loans extinguishment was $3.9 million. This amount is reflected in additionalpaid in capital. The Company recorded a gain from the extinguishment of the debt in the amount of $2.0 million which is reflected in other income (expense),net in the consolidated statement of operations in the year ended December 31, 2014.In addition, as the warrants could be exercised for Series B convertible preferred stock any time after achieving a QLT, which was met on December 9,2013 and before the Series C convertible preferred stock financing, in April and May 2014, all holders of these warrants elected to fully exercise warrants for4,279,620 shares of Series B convertible preferred stock.During the years ended December 31, 2014 and 2013, the Company recognized total interest expense of $3.9 million and 4.8 million, respectively,related to the accrued interest and amortization of the debt discount. 110Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 8.Commitments and Contingencies Purchase CommitmentsThe Company enters into contracts in the normal course of business with contract research organizations for preclinical studies and clinical trials andcontract manufacturing organizations (“CMOs”) for the manufacture of drug materials. As of December 31, 2015, the Company had a commitment of $14.5million with CMOs for the manufacture of clinical trial material due within a year. The Company has an agreement with Medpace, Inc. (“Medpace”), a relatedparty (see Note 15) and, a CRO, which provides for a minimum fee commitment of $35.0 million in the aggregate for clinical trial services; however, theagreement is cancelable without cause by either party upon 30 days prior notification. As of December 31, 2015, the Company has fulfilled the minimum feecommitment related to this agreement.Facility LeasesThe Company leases office spaces for its corporate headquarters in Redwood City, California and for laboratory facilities in Camarillo, Californiaunder operating lease agreements. On July 6, 2015, the Company entered into a new office lease (the “New Lease”) with Hudson 333 Twin Dolphin Plaza,LLC (the “Landlord”) to lease approximately 27,532 square feet of office space located in Redwood City, California (the “Premises”) for the Company’s newcorporate headquarters. The Company leased office space located in Redwood City, California, pursuant to a lease dated September 26, 2011 (as amended,the “Current Lease”), which expired pursuant to the terms described below under “Amendment to Current Lease.” The New Lease commenced on December1, 2015 and the Company moved into the new facility in December 2015.The Company entered into the Seventh Amendment to the Current Lease (the “Seventh Amendment”) with its current landlord when the New Leasewas entered into. The Seventh Amendment provided early termination of the Current Lease which was effective in December 2015 when the New Leasedcommenced.The New Lease provides for annual base rent of approximately $1.6 million in the first year of the Lease Term, which increases on an annual basis upto approximately $1.9 million for the final year of the Lease Term. The New Lease also provides for certain limited rent abatements in the second year of theLease Term. The Company will be entitled to a one-time improvement allowance of approximately $1.2 million for costs related to the design andconstruction of Company improvements that are permanently affixed to the Premises. See the future minimum lease payment schedule for all facility leasesbelow.In addition, the Company obtained a standby letter of credit (the “Letter of Credit”) in an amount of approximately $0.8 million, which may be drawndown by the Landlord to be applied for certain purposes upon the Company’s breach of any provisions under the New Lease. Provided that no default occursunder the terms of the New Lease, the Company will be entitled to periodically reduce the amount of the Letter of Credit down to approximately $0.3 millionas of the last day of the sixtieth full calendar month of the Lease Term. The Company has recorded the $0.8 million Letter of Credit in restricted cash, non-current within its consolidated balance sheet at December 31, 2015.Rent expense is recognized on a straight-line basis over the term of the leases and accordingly, the Company records the difference between cash rentpayments and the recognition of rent expense as a deferred rent liability. The corporate headquarters new lease expires in November 2022, and the Camarillolaboratory lease expires in June 2017 with an option to extend for three years. The future minimum lease payments for these facilities as of December 31, 2015 are as follows (in thousands): Year ending December 31, 2016 $1,692 2017 1,276 2018 1,669 2019 1,719 2020 and thereafter 5,315 Total minimum lease payments $11,671 Rent expense was $1.8 million, $0.8 million and $0.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.111Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Guarantees and IndemnificationsIn the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties andprovide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against theCompany in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to itsindemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company wouldassess the likelihood of any adverse judgments or related claims, as well as ranges of probable losses. In the cases where the Company believes that areasonably possible or probable loss exists, it will disclose the facts and circumstances of the claims, including an estimate range, if possible. As of December31, 2015, the Company is subject to one claim that is probable or reasonably possible and consequently has recorded a related liability of $50,000. 9.Convertible Preferred Stock Warrants2011 Warrants AIn January 2011, in conjunction with the issuance of the 2011 convertible note agreements, the Company issued warrants to purchase shares of itsnewly authorized shares of preferred stock upon a financing event (“2011 Warrants A”). In March 2011, as a result of the Series A convertible preferred stockfinancing event, the 2011 Warrants A became exercisable warrants to purchase 63,923 shares of Series A convertible preferred stock with an exercise price of$1.2503 per share. Immediately prior to the closing of the Company’s IPO in November 2014, all of the outstanding warrants were exercised, for cash or on anet cash basis for 62,251 shares of Series A convertible preferred stock resulting in cash proceeds of $55,000.2011 Warrants BFrom July to December 2011, the Company issued the 2011 Warrants B with an exercise price of $0.0167 per share in conjunction with the issuance ofthe 2011 convertible not agreements. In January 2012, as a result of the Series B convertible preferred stock financing event, the 2011 Warrants B becameexercisable warrants to purchase 352,448 shares of Series B convertible preferred stock. In June 2012, warrants to purchase 57,347 of Series B preferred stockwere exercised, resulting in cash proceeds of approximately $1,000. During April and May 2014, warrants to purchase 172,042 shares of Series B convertiblepreferred stock were cash exercised for $3,000 and the remaining outstanding warrants were exercised, for cash or on a net basis resulting in the issuance of123,051 shares of Series B convertible preferred stock for $2,000 immediately prior to the closing of the Company’s IPO in November 2014.2013 WarrantsFrom July to September 2013, the Company issued the 2013 Warrants with the exercise price of $0.0167 per share in conjunction with the issuance ofthe Bridge Loans (see Note 7). The estimated fair value of the 2013 Warrants at issuance was $13.6 million based on probability-weighted values of thewarrants under the qualifying event scenarios. The Company recognized the fair value of the 2013 Warrants up to the total aggregate Bridge Loans of $10.0million as the debt cannot be reduced to less than zero. The remaining $3.6 million of the total fair value of the 2013 Warrants was recognized immediatelywithin other income (expense), net, in the consolidated statement of operations. In December 2013, following the receipt of the upfront license payment fromthe Baxalta license agreement (see Note 5), the Company met the QLT criteria. As a result, the 2013 Warrants became exercisable to purchase 4,279,620shares of Series B convertible preferred stock. During April and May 2014, warrants to purchase 4,279,620 shares of Series B convertible preferred stock wereexercised for $71,000.The 2011 Warrants A, 2011 Warrants B and 2013 Warrants were classified as convertible preferred stock warrant liabilities and subject toremeasurement at each balance sheet date. The fair value of the convertible preferred stock warrants was determined based on Level 3 inputs. The Companydetermined the fair value of the warrants by allocating the Company’s equity value using a combination of the Probability-Weighted Expected ReturnMethod (“PWERM”) and the Option-Pricing Method (“OPM”). The Company’s equity value was allocated among preferred stock, common stock, warrantsand stock options expected to be outstanding at the expected future liquidity events based on the rights and preferences of each class. The OPM considers adistribution of future equity values based on the time to liquidity and the expected volatility in the total equity value. Inputs to the OPM includeassumptions related to the fair value of the shares, the exercise price, expected volatility, expected term, risk-free interest rate, and the expected dividendyield. The estimated expected volatility was based on the volatility of common stock of a group of comparable, publicly-traded companies. The estimatedexpected term was based on the estimated time to liquidity event. The risk-free interest rate was based on the U.S. Treasury yield for a term consistent with theestimated expected term. The significant unobservable input used in the fair value measurement of the convertible preferred stock warrant liability is the fairvalue of the underlying preferred stock at112Coherus BioSciences, Inc.Notes to Consolidated Financial Statements the valuation remeasurement date. The PWERM considers specific future equity values based on knowledge of a potential transaction or IPO. The range offuture equity values is probability-weighted and discounted at a risk-adjusted rate. Some of the valuations applied a combination of the two allocationmethods to capture the fair value of the warrants. During 2014, the warrants were valued using the PWERM exclusively based on the expectation for an IPOin November 2014. The size of the IPO and the implied pre-money total equity values were used to support the warrants value. Generally, increases(decreases) in the fair value of the underlying preferred stock would result in a directionally similar impact to the fair value measurement.The change in the fair value of the convertible preferred stock warrant liability was recognized in other expense, net within the consolidatedstatements of operations. The net change in the fair value of the warrant liability was an increase of $15.9 million and an increase of $8.9 million for the yearsended December 31, 2014 and 2013, respectively. The Company adjusted the liability for changes in fair value at the time of the exercise and thenreclassified the liability to the respective series of preferred stock. Any remaining warrants outstanding immediately prior to the Company’s IPO in November2014 were exercised, for cash or on a net basis, and the fair value of the warrants were recorded to the respective series of convertible preferred. As the result ofall of the outstanding warrant exercises during 2014, the Company reclassified $1.0 million and $39.3 million to Series A and Series B preferred stock,respectively, reducing the preferred stock warrant liability to zero by December 31, 2014. The following table sets forth a summary of the changes in the estimated fair value of the convertible preferred stock warrants for the year endedDecember 31, 2014 (in thousands): December 31, 2014 Balance, beginning of year $24,251 Warrants issued in connection with notes payable — Initial fair value of the warrants issued in excess of debt proceeds recognized in other income (expense), net — Warrants exercised (40,150)Change in fair value of convertible preferred stock warrant liability 15,899 Balance, end of year $— 10.Common Stock WarrantsIn March 2014, the Company issued warrants to purchase 553,274 shares of common stock with the exercise price of $1.667 per share to twoemployees and one consultant for past services. The warrants were vested and exercisable upon issuance and would have expired at the earlier of:(i) March 28, 2024, (ii) an IPO or (iii) the consummation of a liquidation event. If the holders had not exercised these warrants prior to the closing of aliquidation event or the IPO, these warrants would have automatically been net exercised. The Company valued the warrants at $2.7 million using the Black-Scholes option-pricing model with the following assumptions on the date of grant: exercise price of $1.667 per share, fair value of the common stock of $5.73per share, expected volatility of 93% and 96% for the employee and consultant warrants, respectively, risk-free interest rate of 1.74% and 2.73% for theemployee and consultant warrants, respectively, expected terms of 5 and 10 years for the employee and consultant warrants, respectively, and dividend yieldof zero. The grant date fair value per warrant share was $4.95 for employees and $5.42 for the consultant, resulting in warrant valuations of $2.6 million and$144,000 for the employees and consultant, respectively. Due to the immediate vesting and exercisability of the warrants upon issuance, the Companyimmediately recognized $1.3 million and $1.4 million of stock-based compensation in research and development expense and general and administrativeexpense, respectively, in the consolidated statement of operations. In November 2014, all of the warrants outstanding to purchase common stock were netexercised, which resulted in the issuance of 491,580 shares of common stock upon the closing of the IPO. 11.Stockholders’ Equity (Deficit)Common StockIn October 2014, the Company’s board of directors and stockholders approved the amendment and restatement of the Company’s certificate ofincorporation to be effective immediately prior to the consummation of the IPO. The Amended and Restated Certificate of Incorporation was filed onNovember 12, 2014, which provides for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 5,000,000 authorizedshares of preferred stock with a par value of $0.0001 per share.113Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Initial Public OfferingOn November 6, 2014, the Company’s registration statement on Form S-1 (File No. 333-198936) relating to the IPO of its common stock was declaredeffective by the Securities and Exchange Commission (“SEC”) and the shares began trading on The NASDAQ Global Market on November 6, 2014. The priceof the shares sold in the IPO was $13.50 per share. The IPO closed on November 12, 2014, pursuant to which the Company sold 6,803,702 shares of commonstock, including the sale of 507,402 shares of common stock to the underwriters upon their partial exercise of their over-allotment option. The Companyreceived total gross proceeds from the offering of $91.8 million, after deducting underwriting discounts and commissions of $6.4 million and offeringexpenses of $5.2 million, the net proceeds were $80.2 million. In connection with the closing of the IPO, all shares of convertible preferred stock thenoutstanding converted into 21,316,519 shares of common stock, including 185,302 outstanding convertible preferred stock warrants were exercised, for cashor on a net basis. Also, all outstanding warrants for common stock were exercised, on a net basis, into 491,580 shares of common stock in connection with theIPO.Follow-on OfferingIn March 2015, the Company’s registration statement on Form S-1 (File No. 333-202936) relating to its follow-on offering of its common stock wasdeclared effective by the SEC. The price of the shares sold in the follow-on offering was $29.00 per share. The follow-on offering closed on April 7, 2015,pursuant to which the Company sold 4,137,931 shares of common stock. The Company received total gross proceeds from the offering of $120.0 million.After deducting underwriting discounts and commissions of $7.2 million and offering expenses of $0.6 million, the net proceeds were $112.2 million.Private Placement with BaxaltaOn September 10, 2015, the Company completed a private placement and entered into a Purchase Agreement with Baxalta. Pursuant to the PurchaseAgreement, the Company sold Baxalta an aggregate of 390,167 shares of common stock for aggregate gross proceeds of approximately $10 million. Thepurchase price for each share was $25.63, which was equal to the closing trading price of the Company's common stock on the NASDAQ Global Market onthe day of pricing, September 9, 2015. The securities sold and issued in connection with the private placement are not registered under the Securities Act orany state securities laws and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from the registrationrequirements. In connection with the Purchase Agreement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”)with Baxalta GmbH. Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-3 (File No. 333-208625) with theSEC on December 18, 2015 for purposes of registering the resale of the shares. The Registration Statement on Form S-3 was declared effective by the SEC onJanuary 21, 2016.Convertible Preferred StockIn May 2014, the Company completed a financing resulting in the issuance of 5,488,892 shares of Series C convertible preferred stock, for net cashproceeds of $54.7 million. In conjunction with the Series C convertible preferred stock financing, the Bridge Loans and the related accrued interest wereautomatically converted into 1,058,089 shares of Series C convertible preferred stock at the price per share of such financing, and the collateralized securityinterest of the Company’s assets, tangible and intangible, under the Bridge Loans was released. In addition, the Company issued 9,997 shares of Series Cconvertible preferred stock in exchange for consulting services.The Company recorded the convertible preferred stock at fair value on the dates of issuance. The Company classified the convertible preferred stockoutside of stockholders’ deficit because the shares contained liquidation features that were not solely within the Company’s control.During April and May 2014, warrants to purchase 4,451,662 shares of Series B convertible preferred stock were exercised into Series B convertiblepreferred stock for $74,000, which included the 4,279,620 shares of Series B convertible preferred stock warrants related to the Bridge Loan (see Note 9). ). InNovember 2014, in connection with the closing of the IPO, warrants to purchase 62,251 shares and 123,051 shares of Series A and B convertible preferredstock, respectively, were exercised on a cash or net basis for $57,000.In connection with the closing of the IPO in November 2014, all outstanding shares of Series A, Series B and Series C convertible preferred stockshares were converted into 21,316,519 shares of common stock on a one-for-one basis. As such, no convertible preferred stock shares were outstanding as ofDecember 31, 2014. 114Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 12.Stock Option Plans and Stock-Based Compensation Restricted Common Stock (“Founders Shares”)In October 2010 and January 2011, the Company issued 4,130,173 shares and 968,804 shares of common stock, respectively, with a purchase price of$0.0083 per share to its founders under the Founder Shares agreements. Under the Founders Shares agreements, the Company has the right to repurchase thecommon stock which right lapses monthly in equal installments over four years. In order to vest, the holders are required to provide continued service to theCompany. Upon vesting, the appropriate amounts are transferred from liabilities to additional paid in capital. If the holder of any unvested restricted commonstock is terminated for any reason, the Company has the right to repurchase the unvested shares at the stockholder’s original purchase price. As such, theshares subject to future vesting were not deemed outstanding for accounting purposes until the shares vested. In July 2012 and March 2014, the Companyrepurchased 286,817 and 239,952 shares of founders’ common stock from founders at $0.0083 per share, respectively.A summary of the Company’s non-vested restricted stock for the periods is as follows: Number ofShares Non-vested as of December 31, 2014 21,245 Vested (21,245)Non-vested as of December 31, 2015 — The Company recognized stock-based compensation over the vesting term of four years based on the fair value of the common stock on the dates ofissuance. The restricted common stock granted to an employee is valued using the Black-Scholes options pricing model based on the common stock fairvalue at the time of the grant. For restricted common stock issued to consultants, the Company remeasured the fair value of the restricted shares as they vest ateach reporting period using the Black-Scholes option-pricing model reflecting the remaining vesting period.The stock-based compensation expense recorded related to the founder’s shares was as follows (in thousands): Year Ended December 31, 2015 2014 2013 Research and development $9 $1,547 $227 General and administrative — 4 1,054 $9 $1,551 $1,2812010 Stock PlanIn 2010, the Company adopted the 2010 Stock Plan (the “2010 Plan”) and granted options under this plan until November 2014 which is when it wasterminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2010 Plan. The 2010 Plan provided forthe Company to grant shares and/or options to purchase shares of common stock to employees, directors, consultants, and other service providers at prices notless than the fair value at the date of grant for incentive stock options and nonstatutory options. These options were granted to generally vest over four years,expire ten years from the date of grant, and are generally exercisable after vesting. Unvested options exercised are subject to the Company’s repurchase rightthat lapses as the options vest. As of December 31, 2015 and 2014, no shares were subject to repurchase under the 2010 Plan.In November 2014, the board of directors adopted the Company’s 2014 Equity Incentive Award Plan (the “2014 Plan”) and any remaining unissuedshares available under the 2010 Plan were transferred into the 2014 Plan. As such, no more options may be issued under the 2010 Plan.As of December 31, 2015, a total of 4,560,904 shares of common stock are subject to options outstanding under the 2010 plan, which shares willbecome available under the 2014 Plan to the extent the options are forfeited or lapse unexercised.115Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 2014 Equity Incentive Award PlanIn October 2014, the Company’s board of directors and its stockholders approved the establishment of the 2014 Equity Incentive Plan (the “2014Plan”), effective upon the date upon which the registration statement for the IPO was declared effective, which was November 6, 2014. As of the date of theIPO, the Company reserved for issuance under the 2014 Plan a total of 2,300,000 shares of its common stock, plus any additional shares that would otherwisereturn to the 2010 Plan as a result of forfeiture, termination or expiration of awards previously granted under the 2010 Plan. In addition, the 2014 Planprovides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015,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 bythe Company’s board of directors.Employee Stock Purchase PlanIn October 2014, the Company’s board of directors and its stockholders approved the establishment of the 2014 Employee Stock Purchase Plan(“ESPP”). The Company will reserve for issuance 320,000 shares of its common stock and provide for annual increases in the number of shares available forissuance on the first business day of each fiscal year, beginning with the Company’s fiscal year following the year of this offering, equal to the lesser of onepercent (1%) of the number of shares of the Company’s common stock outstanding as of such date, 320,000 shares of common stock, or a number of shares asdetermined by the Company’s board of directors.The following table sets forth the summary of option activities under the 2014 and 2010 Plans: Options Outstanding Shares Availablefor Grant Number ofOptions Weighted-AverageExercise Price Balances at December 31, 2014 2,652,500 5,770,307 $2.909 Authorized 1,330,319 — — Granted - at fair value (3,217,313) 3,217,313 28.020 Exercised — (861,137) 1.660 Forfeited 317,641 (317,641) 15.066 Balances at December 31, 2015 1,083,147 7,808,842 $12.898 Additional information related to the status of options as of December 31, 2015 is summarized as follows: Number ofOptions Weighted-AverageExercisePrice Weighted-AverageContractualTerms(Years) AggregateIntrinsicValue(in thousands) Options outstanding 7,808,842 $12.898 8.27 $94,220 Options vested and expected to vest 7,747,817 $12.839 8.26 $93,860 Options vested and exercisable 3,054,854 $4.956 7.34 $56,696 Valuation of Awards Granted to EmployeesThe Company estimated the fair value of each stock award on the date of grant using the Black-Scholes option-pricing model. The weighted averageassumptions used to value options granted to employees under the Plan during the years ended December 31, 2015, 2014 and 2013 were as follows: Year Ended December 31, 2015 2014 2013 Expected term (years) 6.00 6.50 5.51 Expected volatility 78% 99% 108%Risk-free interest rate 1.62% 2.05% 1.23%Expected dividend yield 0% 0% 0% 116Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Expected TermThe expected term represents the period for which the stock-based awards are expected to be outstanding and is based on the options’ vesting term,contractual term and industry peers. The Company did not have sufficient historical information to develop reasonable expectations about future exercisepatterns and post vesting employment termination behavior.Expected VolatilityThe Company used an average historical stock price volatility of industry peers as representative of future stock price volatility since the Companydoes not have any trading history for its common stock.Risk-Free Interest RateThe Company based the risk-free interest rate by using an equivalent to the expected term based on the U.S. Treasury constant maturity rate as of thedate of grant.Expected DividendsThe Company has not paid and does not anticipate paying any dividends in the near future, and therefore used an expected dividend yield of zero inthe valuation model.The stock-based compensation expense recorded related to options granted to employees was as follows (in thousands): Year Ended December 31, 2015 2014 2013 Research and development $6,460 $1,580 $431 General and administrative 8,289 3,934 309 $14,749 $5,514 $740 During the years ended December 31, 2015, 2014 and 2013, the total estimated fair value of the options vested was $14.6 million, $4.2 million and$0.7 million, respectively and the estimated weighted-average grant-date fair value of options granted was $18.42, $6.65 and $1.88 per share, respectively.The aggregate intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $1.4 million, $0.4 million and $0,respectively.As of December 31, 2015, total unrecognized stock-based compensation expenses related to unvested employee stock options was $55.2 million,which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 3.15 years.In November 2014, the Company entered into a separation agreement with its former CFO and granted accelerated vesting of options and extended theexercise period for those vested options. In connection with the option modification, the Company recognized stock-based compensation expense of $1.2million to general and administrative expense in its consolidated statements of operations for the year ended December 31, 2014, which is included in the$3.9 million in the above stock-based compensation table.Nonemployees Stock-Based CompensationThe Company granted 198,750, 113,913 and 74,983 stock options to purchase shares of common stock to nonemployees during the years endedDecember 31, 2015, 2014 and 2013. The weighted-average exercise price of the options granted in 2015, 2014 and 2013 was $ 26.51, $4.42 and $1.42 pershare, respectively. For the years ended December 31, 2015, 2014 and 2013, the Company recorded stock-based compensation expense related to optionsgranted to nonemployees of $2.0 million, $1.3 million and $24,000, respectively. The Company remeasures the fair value of the unvested nonemployeeoptions at each period using the Black-Scholes option-pricing model reflecting the same assumptions as applied to employee options in each of the reportedyears, other than the expected life, which is assumed to be the remaining contractual life of the options. 117Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 13.Income Taxes The Company utilizes the liability method of accounting for deferred income taxes. Under this method, deferred tax liabilities and assets arerecognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Avaluation allowance is established against deferred tax assets because, based on the weight of available evidence, it is more likely than not that some or all ofthe deferred tax assets will not be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense.A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2015 2014 2013 Percent of pre-tax income: U.S. federal statutory income tax rate 34.00% 34.00% 34.00%State taxes, net of federal benefit 0.70 (1.65) 3.97 Permanent items (1.25) (10.80) (12.40)Research and development credit 2.46 3.11 4.53 Net operating loss (0.01) 0.01 — InteKrin purchase price allocation — 0.73 — Other 0.09 0.02 — Change in valuation allowance (35.99) (25.42) (30.10)Effective income tax rate —% —% —% Significant components of the Company’s net deferred tax assets as of December 31, 2015 and 2014 consist of the following (in thousands): December 31, 2015 2014 Net operating loss carryforwards $91,334 $34,463 Research and development credits 12,980 6,032 Depreciation and amortization 778 854 Stock-based compensation 5,111 1,428 Other accruals 2,236 940 Deferred revenue 23,237 12,762 Gross deferred tax assets 135,676 56,479 In-process research and development (891) (892)Gross deferred tax liabilities (891) (892)Total net deferred tax asset 134,785 55,587 Less valuation allowance (134,785) (55,587)Net deferred tax assets $— $— The valuation allowance increased $79.2 million, $22.1 million and $16.1 million during the years ended December 31, 2015, 2014 and 2013,respectively.As of December 31, 2015, the Company had federal net operating loss carryforwards of approximately $281.6 million, which will start to expirebeginning in 2031, and various state net operating loss carryforwards of approximately $94.8 million, which have various expiration dates beginning in2031. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitationsprovided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expirationof net operating losses and credits before utilization.As of December 31, 2015, the Company had federal research and development credit carryforwards of approximately $15.1 million, which will start toexpire in 2031, and state research and development credit carryforwards of approximately $5.2 million, which can be carried forward indefinitely.118Coherus BioSciences, Inc.Notes to Consolidated Financial Statements In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferredtax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods inwhich the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses, and lack of otherpositive evidence, the Company has determined that it is more likely than not that its deferred tax assets will not be realized, and therefore, the deferred taxassets are fully offset by a valuation allowance at December 31, 2015 and 2014.At December 31, 2015, the portion of the federal net operating loss carryforwards related to stock option deductions is approximately $21.7 million,which is not included in the Company’s gross or net deferred tax assets. Pursuant to ASC 718-740-25-10, the tax effect of the stock option benefit ofapproximately $7.4 million will be recorded to equity when they reduce cash taxes payable in the future.The Company files U.S, California, and other state income tax returns with varying statutes of limitations. The tax years from 2011 forward remainopen to examination due to the carryover of unused net operating losses and tax credits.A reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2015 and 2014 is as follows (in thousands): Year Ended December 31, 2015 2014 2013 Balance at beginning of year $3,816 $749 $73 Additions based on tax positions related to current year 3,633 861 319 Additions for tax positions of prior years 3,156 2,206 357 Balance at end of year $10,605 $3,816 $749 As of December 31, 2015 and 2014, the Company had approximately $10.6 million and $3.8 million, respectively, of unrecognized benefits, none ofwhich would currently affect the Company’s effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuationallowance. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months. During theyears ended December 31, 2015, 2014 and 2013, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. TheCompany does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months. 14.Net Loss Per Share Attributable to CoherusThe following table sets forth the computation of the basic and diluted net loss per share attributable to Coherus (in thousands, except share and pershare data): Years Ended December 31, 2015 2014 2013 Numerator: Net loss attributable to Coherus $(223,260) $(87,133) $(53,635)Denominator: Weighted-average common shares outstanding 37,125,617 8,520,100 4,828,214 Less: weighted-average unvested common shares subject to repurchase (1) (3,609) (333,571) (1,496,194)Weighted-average number of shares used in computing net loss per share attributable to Coherus, basic and diluted 37,122,008 8,186,529 3,332,020 Net loss per share attributable to Coherus, basic and diluted $(6.01) $(10.64) $(16.10) (1)Shares were excluded as such shares represent restricted common stock (founders’ shares) which is vesting contingently upon the holders’ continuedservices to the Company.119Coherus BioSciences, Inc.Notes to Consolidated Financial Statements The following outstanding dilutive potential shares have been excluded from the calculation of diluted net loss per share attributable to Coherus dueto their anti-dilutive effect: Outstanding as of December 31, 2015 2014 2013 Stock options outstanding 7,808,842 5,770,307 3,047,396 Convertible preferred stock — — 9,153,906 Convertible preferred stock warrants — — 4,638,644 Total 7,808,842 5,770,307 16,839,946 In addition, 358,384 shares of common stock contingently issuable upon the successful achievement of an objective associated with contingentconsideration payable to former InteKrin stockholders have been excluded from the calculation of diluted net loss per share attributable to Coherus for theyear ended December 31, 2014. On March 6, 2015, the contingent issuable shares were settled (see Note 3). 15.Related Party TransactionsNotes Receivable from FoundersIn December 2011, the Company entered into unsecured promissory notes (“Notes Receivable”) agreement with the four founders of the Company. Ofthe four founders, three are members of the executive team of the Company. The aggregate amount of Notes Receivable was $133,000 at the issuance dateand the Notes Receivable bore interest at 0.2% per annum. In May 2014, the Company forgave the outstanding balance of Notes Receivable of $111,000 andthe related accrued interest of approximately $1,000, which is reflected in the Company’s consolidated statement of operations for the year ended December31, 2014, as interest expense.Daiichi SankyoIn January 2012, Company entered into a license agreement with Daiichi Sankyo (see Note 5), under which the Company issued 2,867,426 shares ofSeries B convertible preferred stock. As such, Daiichi Sankyo was deemed to be a related party by ownership of more than 10% of the Company’s equity.Upon the consummation of the Company’s IPO, Daiichi Sankyo’s ownership percentage decreased to less than 10% of the Company’s equity; therefore, as ofNovember 2014, Daiichi Sankyo was no longer considered a related party. As a result, the consolidated balance sheets as of December 31, 2015 and 2014 nolonger reflects these balances as related party amounts, and the consolidated statement of operations for the year ended December 31, 2015 does not reflectany transactions with Daiichi Sankyo as related party. For the years ended December 31, 2014 and 2013, the Company recognized related party transactionsof $1.9 million and $2.0 million as collaboration and license revenue–related party in the Company’s consolidated statements of operations, respectively. Inaddition, the Company recognized $7.1 million and $1.3 million as a reduction of research and development expense related to the costs reimbursed byDaiichi Sankyo in the Company’s consolidated statements of operations for the years ended December 31, 2014 and 2013, respectively. Transactions Associated with CookIn January and December 2012, the Company issued a total of 2,150,569 shares of Series B convertible preferred stock to Cook as consideration forpast and future services. As such, Cook was deemed to be a related party by ownership of more than 10% of the Company’s equity. During the second quarterof 2014, Cook divested a majority of its shares of the Company’s Series B convertible preferred stock; therefore, as of December 31, 2014, Cook was nolonger considered a related party. As a result, the consolidated balance sheets as of December 31, 2015 and 2014 no longer reflects these balances as relatedparty amounts, and the consolidated statement of operations for the year ended December 31, 2015 no longer reflect transactions with Cook as related partytransactions. For the years ended December 31, 2014 and 2013, the Company recognized $4.5 million and $6.1 million, respectively, of services rendered byCook within research and development in the consolidated statements of operations. 120Coherus BioSciences, Inc.Notes to Consolidated Financial Statements Transactions Associated with Medpace AgreementOne member of the Company’s board of directors is also the chief executive officer of Medpace. As such, Medpace was deemed to be a related party.As of December 31, 2015, the Company had $10.9 million in prepaid assets (prepaid clinical, material, manufacturing and other–related parties), $3.5 millionin accounts payable–related parties, and $6.1 million in accrued and other liabilities (accrued clinical, manufacturing and other–related parties), all reflectedon the Company’s consolidated balance sheet associated with Medpace. As of December 31, 2014, the Company had $6.0 million in prepaid assets (prepaidclinical, material, manufacturing and other–related parties), $1.9 million in accounts payable–related parties, and $3.0 million in accrued and otherliabilities (accrued clinical, manufacturing and other–related parties), all reflected on the Company’s consolidated balance sheet associated with Medpace.The Company recognized $42.5 million, $24.1 million and $4.7 million during years ended December 31, 2015, 2014 and 2013, respectively, for servicesrendered by Medpace within research and development expense in the consolidated statements of operations. Additionally, the Company recognized $0.5million of interest expense for the year ended December 31, 2013 associated with extended payment arrangement with Medpace. The Company also has anagreement with Medpace which provides for a minimum fee commitment of $35.0 million for clinical trial services which is further discussed in Note 8. As ofDecember 31, 2015, the Company has fulfilled the minimum fee commitment related to this agreement.Recruiting ServicesOne member of the Company’s board of directors is the chief executive officer of a company that provides recruiting services to the Company. Assuch, the recruiting services provided were deemed to be related party transactions. As of December 31, 2014, the Company had $90,000 in accountspayable-related parties reflected on the Company’s consolidated balance sheet. As of December 31, 2015, there were no such balances in the Company’sconsolidated balance sheet. The Company recorded in research and development expense in its consolidated statements of operations, $258,000, $241,000and $35,000 for the years ended December 31, 2015, 2014 and 2013, respectively, for services rendered by the recruiting company. The Company recordedin general and administrative expense in its consolidated statements of operations, $559,000, $597,000 and $18,000 for the year ended December 31, 2015,2014 and 2013, respectively, for services rendered by the recruiting company.Convertible Notes — Related PartiesIn the third quarter of 2013, the Company entered into Bridge Loans with certain investors, including existing stockholders, some members of theCompany’s board of directors and their affiliated companies and some members of management, for a total aggregate amount of $10.0 million and issued the2013 Warrants to purchase shares of the Company’s preferred stock at an exercise price of $0.0167 per share (see Note 9). In May 2014, the Companycompleted a preferred stock financing and contemporaneously the Bridge Loans and the related accrued interest were automatically converted into Series Cpreferred stock (see Note 7). For the years ended December 31, 2014 and 2013, the Company recognized $2.7 million and $3.3 million, respectively, ofinterest expense related to the debt and the amortization of the debt discount in the Company’s consolidated statements of operations.InteKrin AcquisitionIn February 2014, the Company completed the acquisition of the InteKrin for total consideration of $5.0 million (see Note 6). Mr. Dennis M. Lanfear,the chief executive officer of the Company, was the chairman of the board and acting president of InteKrin at the time of the acquisition. As such, the InteKrinacquisition was a related party transaction. Mr. Lanfear also owns 10% of the outstanding securities of InteKrin Russia, a majority owned subsidiary ofInteKrin.Other Assets – Related PartyIn December 2014, the Company entered into an agreement with an officer of the Company, in which the officer irrevocably transferred his rights to acertain number of shares with an aggregate value of $1.7 million. This amount is reflected in the Company’s consolidated balance sheet at December 31,2014 as “other assets-related party”. This transaction was settled in July 2015. 121Coherus BioSciences, Inc.Notes to Consolidated Financial Statements 16.Subsequent Events In February 2016, the Company issued and sold $100.0 million aggregate principal amount of its 8.2% senior convertible notes due 2022 (“theNotes”). These Notes require quarterly interest distributions at a fixed coupon rate of 8.2% until maturity, redemption or conversion, which will be no laterthan March 31, 2022. The Notes are convertible into shares of common stock at an initial conversion rate of 44.7387 shares of common stock per $1,000principal amount of the Notes (equivalent to a conversion price of approximately $22.35 per share of common stock, representing a 60% premium over theaverage last reported sale price of the Company’s common stock over the 15 trading days preceding the date the notes were issued), subject to adjustment incertain events. After March 31, 2020, the full amounts of the Notes not previously converted are redeemable for cash at the Company’s option if the lastreported sale price per share of the Company’s common stock exceeds 160% of the conversion price on 20 or more trading days during the 30 consecutivetrading days preceding the date on which the Company sends notice of such redemption to the holders of the Notes. Upon conversion of the Notes by aholder, the holder will receive shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share. At maturity orredemption, if not earlier converted, the Company will pay 109% of the par value of the Notes, together with accrued and unpaid interest, in cash.The holders of the Notes are Healthcare Royalty Partners III, L.P., which holds $75.0 million in aggregate principal amount, and three related partyinvestors, KKR Biosimilar L.P., which holds $20.0 million, MX II Associates LLC, which holds $4.0 million, and KMG Capital Partners, LLC, which holds$1.0 million. 17.Supplementary Data – Quarterly Financial Data (Unaudited)The following table presents certain unaudited consolidated quarterly financial information for each of the quarters ended December 31, 2015 and2014: 2015 Quarter End (in thousands, except per share data) March 31 June 30 September 30 December 31 Total revenue $5,810 $6,866 $7,167 $10,198 Total operating expenses 42,558 65,761 78,384 62,405 Net loss (40,839) (59,034) (71,485) (52,580)Net loss attributable to Coherus (40,725) (58,810) (71,334) (52,391)Net loss per share attributable to Coherus, basic and diluted (1.22) (1.56) (1.86) (1.35) 2014 Quarter End March 31 June 30 September 30 December 31 Total revenue $3,596 $4,965 $16,052 $6,493 Total operating expenses 17,357 22,903 22,475 33,053 Net loss (25,170) (25,070) (7,914) (29,023)Net loss attributable to Coherus (25,170) (24,957) (7,872) (29,134)Net loss per share attributable to Coherus, basic and diluted (6.04) (5.96) (1.79) (1.47) 122 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A.Controls and Procedures (a)Evaluation of Effectiveness of Disclosure Controls and ProceduresWe carried out an evaluation, under the supervision of our Chief Executive Officer and our Chief Financial Officer, and evaluated the effectiveness ofour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by thisAnnual Report on Form 10-K. Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as ofthe end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were, in design and operation, effective.We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that suchinformation is accumulated and communicated to our management, including our chief executive officer, principal financial officer and principal accountingofficer, as appropriate, to allow for timely decisions regarding required disclosure.We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct anymaterial deficiencies that we may discover. Our goal is to ensure that our management has timely access to material information that could affect ourbusiness. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our businessmay cause us to modify our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizesthat any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controlobjectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. (b)Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer, principalfinancial officer and principal accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based onthe framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013Framework). Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal controlover financial reporting was effective as of December 31, 2015. Ernst & Young LLP, our independent registered public accounting firm, has attested to andissued a report on the effectiveness of our internal control over financial reporting, which is included herein.Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Coherus BioSciences, Inc.We have audited Coherus BioSciences, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSOcriteria). Coherus BioSciences Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that123 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, Coherus BioSciences Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,2015, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Coherus BioSciences Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss,convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2015 of CoherusBioSciences, Inc. and our report dated February 29, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young, LLPRedwood City, CaliforniaFebruary 29, 2016Changes in Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. Item 9B.Other InformationNot applicable. 124 PART IIICertain information required by PART III is omitted from this Annual Report on From 10-K because the Company will file a Definitive ProxyStatement with the Securities and Exchange Commission within 120 days after the end of our year ended December 31, 2015. Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated herein by reference to the Proxy Statement. Item 11.Executive CompensationThe information required by this item is incorporated herein by reference to the Proxy Statement. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated herein by reference to the Proxy Statement. Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated herein by reference to the Proxy Statement. Item 14.Principal Accounting Fees and ServicesThe information required by this item is incorporated herein by reference to the Proxy Statement. 125 PART IV Item 15.Exhibits and Financial Statement Schedules (a)(1)The financial statements required by Item 15(a) are filed in Item 8 of this Annual Report on Form 10-K. (2)The financial statement schedules required by Item 15(a) are omitted because they are not applicable, not required or the required informationis included in the financial statements or notes thereto as filed in Item 8 of this Annual Report on Form 10-K. (3)We have filed, or incorporated into this report by reference, the exhibits listed on the accompanying Index to Exhibits immediately followingthe signature page of this Annual Report on Form 10-K.126 SIGNATURESPursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement tobe signed on its behalf by the undersigned, thereunto duly authorized. COHERUS BIOSCIENCES, INC. Date: February 29, 2016 By: /s/ Dennis M. Lanfear Name: Dennis M. Lanfear Title: President and Chief Executive Officer(Principal Executive Officer)127 POWER OF ATTORNEYKNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis M Lanfearand Jean-Frédéric Viret, his attorneys-in-fact, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to filethe same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying andconfirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. /s/ Dennis M. Lanfear Dennis M. Lanfear Chairman, President and Chief Executive Officer(Principal Executive Officer) February 29, 2016 /s/ Jean-Frédéric Viret, Ph.D. Jean-Frédéric Viret, Ph.D. Chief Financial Officer(Principal Financial and Accounting Officer) February 29, 2016 /s/ James I. Healy, M.D., Ph.D.James I. Healy, M.D., Ph.D. Director February 29, 2016 /s/ V. Bryan Lawlis, Ph.D.V. Bryan Lawlis, Ph.D. Director February 29, 2016 /s/ Christos RichardsChristos Richards Director February 29, 2016 /s/ Ali J. SatvatAli J. Satvat Director February 29, 2016 /s/ August J. Troendle, M.D.August J. Troendle, M.D. Director February 29, 2016 /s/ Mats WahlströmMats Wahlström Director February 29, 2016 /s/ Mary T. SzelaMary T. Szela Director February 29, 2016128 INDEX TO EXHIBITS Incorporated by ReferenceExhibitNumberExhibit DescriptionFormDateNumberFiledHerewith 3.1Amended and Restated Certificate of Incorporation.8-K11/12/20143.1 3.2Amended and Restated Bylaws.8-K11/12/20143.2 4.1Reference is made to exhibits 3.1 and 3.2. 4.2Registration Rights Agreement, dated as of September 10, 2015, by and between BaxaltaGmbH and Coherus BioSciences, Inc.8-K9/14/20154.1 4.3Form of Common Stock Certificate.S-1/A10/24/20144.2 4.4Third Amended and Restated Investor Rights Agreement, dated as of May 9, 2014 by andamong Coherus BioSciences, Inc. and certain investors named therein.S-19/25/20144.3 10.1†License Agreement, effective January 23, 2012, by and between Daiichi Sankyo Company,Limited and BioGenerics, Inc.S-1/A10/20/201410.1 10.2(a)†License Agreement, effective August 30, 2013, by and among Baxter International Inc.,Baxter Healthcare Corporation, and Baxter Healthcare SA and Coherus BioSciences, Inc.S-1/A10/20/201410.2(a) 10.2(b)†First Amendment to License Agreement, effective February 7, 2014, by and among BaxterInternational Inc., Baxter Healthcare Corporation, and Baxter Healthcare SA and CoherusBioSciences, Inc.S-19/25/201410.2(b) 10.3†Distribution Agreement, effective December 26, 2012, by and between Orox PharmaceuticalsB.V. and Coherus BioSciences, Inc.S-19/25/201410.3 10.4†Non-Exclusive License Agreement, effective July 10, 2013, by and between Genentech, Inc.and Coherus BioSciences, Inc.S-19/25/201410.4 10.5†Commercial License Agreement, effective April 8, 2011, by and between Selexis SA andBioGenerics, Inc.S-19/25/201410.5 10.6†Commercial License Agreement, effective June 25, 2012, by and between Selexis SA andCoherus BioSciences, Inc.S-19/25/201410.6 10.7Agreement and Plan of Merger, dated January 8, 2014, by and among Coherus BioSciences,Inc., Coherus Intermediate Corp., Coherus Acquisition Corp., InteKrin Therapeutics Inc., andFortis Advisors LLC.S-19/25/201410.7 10.8(a)Office Lease, effective September 26, 2011, by and between CA-Towers at Shores CenterLimited Partnership and BioGenerics, Inc.S-19/25/201410.8(a) 10.8(b)First Amendment to the Office Lease, effective May 17, 2012, by and between CA-Towers atShores Center Limited Partnership and Coherus BioSciences, Inc.S-19/25/201410.8(b) 10.8(c)Second Amendment to the Office Lease, effective September 11, 2013, by and between CA-Towers at Shores Center Limited Partnership and Coherus BioSciences, Inc.S-19/25/201410.8(c) 10.8(d)Third Amendment to the Office Lease, effective February 4, 2014, by and between CA-Towers at Shores Center Limited Partnership and Coherus BioSciences, Inc.S-19/25/201410.8(d) 10.8(e)Fourth Amendment to the Office Lease, effective May 1, 2014, by and between CA-Towers atShores Center Limited Partnership and Coherus BioSciences, Inc.S-19/25/201410.8(e) 129 Incorporated by ReferenceExhibitNumberExhibit DescriptionFormDateNumberFiledHerewith 10.8(f)Fifth Amendment to the Office Lease, effective December 10, 2014, by and between CA-Towers at Shores Center Limited Partnership and Coherus BioSciences, Inc.8-K12/11/201410.1 10.9(a)Standard Industrial/Commercial Multi-tenant Lease-Gross, effective December 5, 2011, byand between Howard California Property Camarillo 5 and BioGenerics, Inc.S-19/25/201410.9(a) 10.9(b)First Amendment to Lease, effective December 21, 2013, by and between Howard CaliforniaProperty Camarillo 5 and Coherus BioSciences, Inc.S-19/25/201410.9(b) 10.10(a)#BioGenerics, Inc. 2010 Equity Incentive Plan, as amended.S-19/25/201410.10(a) 10.10(b)#Form of Stock Option Grant Notice and Stock Option Agreement under the 2010 EquityIncentive Plan, as amended.S-19/25/201410.10(b) 10.11(a)#Coherus BioSciences, Inc. 2014 Equity Incentive Award Plan.S-1/A10/24/201410.11 10.11(b)#Form of Stock Option Grant Notice and Stock Option Agreement under the 2014 EquityIncentive Award Plan.S-1/A11/4/201410.11(b) 10.11(c)#Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement underthe 2014 Equity Incentive Award Plan.S-1/A11/4/201410.11(c) 10.11(d)#Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit AwardAgreement under the 2014 Equity Incentive Award Plan.S-1/A11/4/201410.11(d) 10.12#Coherus BioSciences, Inc. 2014 Employee Stock Purchase Plan.S-1/A10/24/201410.12 10.13#Form of Indemnification Agreement between Coherus BioSciences, Inc. and each of itsdirectors, officers and certain employees.S-1/A10/24/201410.13 10.14#Separation Agreement, effective June 30, 2014, by and between Stephen C. Glover andCoherus BioSciences, Inc.S-19/25/201410.14 10.15†Master Services Agreement, effective January 23, 2012, by and between Medpace, Inc. andBioGenerics, Inc.S-19/25/201410.15 10.16(a)†Task Order Number 13, effective October 18, 2013, by and between Medpace, Inc. andCoherus BioSciences, Inc.S-19/25/201410.16(a) 10.16(b)†Amendment Number 1 to Task Order Number 13, effective April 23, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-19/25/201410.16(b) 10.16(c)†Amendment Number 2 to Task Order Number 13, effective May 21, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-19/25/201410.16(c) 10.16(d)†Amendment Number 3 to Task Order Number 13, effective May 30, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-19/25/201410.16(d) 10.16(e)†Amendment Number 4 to Task Order Number 13, effective August 19, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-19/25/201410.16(e) 10.17(a)†Task Order Number 20, effective November 8, 2013, by and between Medpace, Inc. andCoherus BioSciences, Inc.S-1/A10/24/201410.17(a) 10.17(b)†Amendment Number 1 to Task Order Number 20, effective April 23, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-1/A10/24/201410.17(b) 10.17(c)†Amendment Number 2 to Task Order Number 20, effective June 27, 2014, by and betweenMedpace, Inc. and Coherus BioSciences, Inc.S-1/A10/24/201410.17(c) 10.17(d)†Amendment Number 3 to Task Order Number 20, effective September 5, 2014, by andbetween Medpace, Inc. and Coherus BioSciences, Inc.S-1/A10/24/201410.17(d) 130 Incorporated by ReferenceExhibitNumberExhibit DescriptionFormDateNumberFiledHerewith 10.18†Amended and Restated License Agreement, effective April 10, 2015, by and among BaxterInternational Inc., Baxter Healthcare Corporation, and Baxter Healthcare SA and CoherusBioSciences, Inc.10-Q5/11/201510.1 10.19(a)†Master Services Agreement, effective February 27, 2015, by and between a contract researchorganization and Coherus BioSciences, Inc.10-Q5/11/201510.2(a) 10.19(b)†Work Order #1, effective March 31, 2015, by and between a contract research organizationand Coherus BioSciences, Inc.10-Q5/11/201510.2(b) 10.20Task Order Number 23, effective November 12, 2014, by and between Medpace, Inc. andCoherus BioSciences, Inc.10-Q8/10/201510.1 10.21Seventh Amendment to the Office Lease, effective July 6, 2015 by and between HudsonTowers at Shore Center, LLC, successor in interest to CA-Towers at Shores Center LimitedPartnership, and Coherus BioSciences, Inc.10-Q8/10/201510.2 10.22New Office Lease, effective July 6, 2015, by and between Hudson 333 Twin Dolphin Plaza,LLC and Coherus BioSciences, Inc.10-Q8/10/201510.3 10.23First Amendment, effective August 10, 2015, by and between Hudson 333 Twin DolphinPlaza, LLC and Coherus BioSciences, Inc.10-Q8/10/201510.4 10.24Stock Purchase Agreement dated as of September 10, 2015 by and among BaxaltaIncorporated, Baxalta US Inc. and Baxalta GmbH and Coherus BioSciences, Inc.8-K9/14/201510.1 23.1Consent of Independent Registered Public Accounting Firm X 31.1Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, as amended. X 31.2Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, as amended. X 32.1Certification of Principal Executive Officer and Principal Financial Officer Required UnderRule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C §1350. X 101.INS*XBRL Instance Document X 101.SCH*XBRL Taxonomy Extension Schema Document X 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB*XBRL Taxonomy Extension Label Linkbase Document X 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document X †Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filedseparately with the SEC.#Indicates management contract or compensatory plan. 131Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-208625) of Coherus BioSciences, Inc. and in the relatedProspectus for the registration of common stock, preferred stock, debt securities and warrants and in the Registration Statement (Form S-8 No. 333-200593)pertaining to the BioGenerics, Inc. 2010 Equity Incentive Plan, as amended, the Coherus BioSciences, Inc. 2014 Equity Incentive Award Plan, and theCoherus BioSciences, Inc. 2014 Employee Stock Purchase Plan of Coherus BioSciences, Inc. of our reports dated February 29, 2016, with respect to theconsolidated financial statements of Coherus BioSciences, Inc., and the effectiveness of internal control over financial reporting of Coherus BioSciences,Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2015. /s/ERNST & YOUNG LLPRedwood City, CaliforniaFebruary 29, 2016 Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TOSECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Dennis M. Lanfear, certify that:1.I have reviewed this Annual Report on Form 10-K of Coherus BioSciences, Inc. (the "registrant"); and2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 29, 2016 /s/ Dennis M. LanfearDennis M. LanfearPresident and Chief Executive Officer Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TOSECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Jean-Frédéric Viret, certify that:1.I have reviewed this Annual Report on Form 10-K of Coherus BioSciences, Inc. (the "registrant"); and2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 29, 2016 /s/ Jean-Frédéric ViretJean-Frédéric Viret, Ph.D.Chief Financial Officer Exhibit 32.1CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of CoherusBioSciences, Inc. (the “Registrant”) certify that the Annual Report of Coherus BioSciences, Inc. on Form 10-K for the year ended December 31, 2015 (the“Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and thatinformation contained in the Report fairly presents in all material respects the financial condition and results of operations of the Registrant. Date: February 29, 2016 By: /s/ Dennis M. Lanfear Name: Dennis M. Lanfear Title: President and Chief Executive Officer Date: February 29, 2016 By: /s/ Jean-Frédéric Viret Name: Jean-Frédéric Viret Title: Chief Financial OfficerA signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 hasbeen provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to beincorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, asamended, (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing. 

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