Surface warns bankruptcy possible if shareholders reject Coherus merger

Surface Oncology has shown investors the ghost of biotech yet to come. Needing shareholder support for its planned merger with Coherus BioSciences, the biotech has warned that outlays triggered by the deal have shrunk its cash runway and will leave Surface needing funding fast if the deal collapses. 

Coherus struck a stock-for-stock deal to buy Surface for up to $65 million in June. The boards of both the biotechs signed off on the merger but Surface needs to secure shareholder support at a meeting scheduled for next month. Until all the pieces are in place, the deal could still collapse—and that would cause problems for Surface, which laid off half of its staff in conjunction with the merger.

The biotech shared details of actions triggered by the merger agreement, such as a lease termination and loan repayment, when it disclosed the Coherus deal in June. Surface used its second-quarter results to outline the implications of the actions for its prospects if the merger falls apart.

In the event shareholders reject the merger, Surface “anticipates its remaining cash and cash equivalents will provide runway through 2023.” The biotech had previously forecast its cash would last into the third quarter of 2024 before it handed $10 million to its landlord to terminate the lease on its headquarters and paid $28.3 million to end a loan agreement.

The payments laid the groundwork for the merger with Coherus but could leave Surface in a sticky spot if shareholders snub the merger. If the deal implodes, Surface said its board of directors will “evaluate all viable strategic alternatives including bankruptcy or dissolution proceedings.”

Surface now faces a one-month wait to find out if shareholders will support the deal.