Corcept Therapeutics Incorporated — Q3 2013 Form 10-Q
Business and period. The filing covers the quarter and nine months ended September 30, 2013. Corcept develops and commercializes medicines for cortisol-related disorders. Its marketed product, Korlym (mifepristone), is approved in the U.S. for certain adults with endogenous Cushing’s syndrome; it is also conducting a Phase 3 study of mifepristone for psychotic depression and developing selective GR-II antagonists.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net product sales | $2.634 million | $1.055 million | $6.242 million | $1.930 million |
| Research and development expense | $5.155 million | $3.008 million | $13.903 million | $9.218 million |
| Selling, general and administrative expense | $7.179 million | $5.694 million | $23.723 million | $18.932 million |
| Operating loss | $9.740 million | $7.671 million | $31.466 million | $26.292 million |
| Net loss | $10.906 million | $8.293 million | $34.887 million | $26.924 million |
| Basic and diluted loss per share | $0.11 | $0.08 | $0.35 | $0.30 |
Cost of sales was $40,000 in Q3 and $82,000 for the nine months, or 1.5% and 1.3% of sales, respectively. Management cautioned that reported cost of sales understates full production costs while previously expensed pre-approval inventory is being used. Gross margin was not separately reported.
Cash and cash equivalents were $63.175 million at September 30, down from $93.032 million at December 31, 2012. Nine-month operating cash use was $29.392 million, versus $27.278 million in 2012; investing cash use was $87,000. The company reported no financing proceeds in the 2013 period and paid $378,000 under its financing agreement.
Total assets were $71.057 million; current liabilities were $10.142 million. The Biopharma capped-royalty obligation had a $34.642 million carrying value, including $4.500 million classified current. The maximum aggregate repayment is $45 million.
Material changes and developments
- Sales increased substantially year over year as Korlym commercialization continued. SG&A rose 26% in Q3 and 25% for the nine months; R&D rose 71% and 51%, respectively. Higher Phase 3 psychotic-depression trial spending was a significant R&D driver.
- Interest and other expense increased to $1.166 million in Q3 and $3.421 million for the nine months, primarily reflecting accretion of interest on the Biopharma financing.
- Corcept transitioned its exclusive U.S. specialty pharmacy services to Centric effective July 1, 2013. A $300,000 reserve for returns from the former provider reduced nine-month net revenue.
- Cash declined by $29.857 million during the first nine months. Accumulated deficit reached $281.5 million. Common shares outstanding were 99.814 million at September 30 and November 6, 2013.
Outlook, commentary, and risks
- Management expected operating cash use and R&D and commercialization spending to be higher in the remainder of 2013 than in the comparable 2012 period; funding needs could rise in 2014 and beyond. Korlym revenue was expected to offset only part of these costs. The filing gives no clear numerical revenue guidance.
- Management expected to report an interim analysis of the ongoing Phase 3 psychotic-depression study in Q2 2014. Enrollment was ongoing, with 27 active sites as of November 6, 2013; the company warned that interim results could be negative or inconclusive and that enrollment and trial costs were uncertain.
- Corcept submitted a Marketing Authorization Application request to the European Medicines Agency in October 2013. Approval and the benefits of European Orphan Drug Designation remain uncertain.
- The Biopharma agreement requires payments generally equal to 20% of covered-product net sales and certain contingent payments until $45 million has been paid. Change of control or U.S. licensing of Korlym can accelerate the remaining amount; specified covenant breaches can increase the sales-payment rate to 50% and remove caps. The obligation is secured by intellectual property and related assets.
- Supply is a material risk: the company reported a single-source mifepristone API supplier and was negotiating a long-term tablet-supply agreement with AAI; FDA validation batches were planned for early 2014. Strategic inventory partly mitigates disruption risk.
- Other key risks include Korlym adoption, reimbursement and competition; clinical-trial, regulatory and safety uncertainty; potential need for additional financing; and the possibility that available cash will not cover planned programs. Management said it may need additional funds, which may not be available on acceptable terms.
- No material legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Korlym sales growth continues and supports adequate reimbursement, patient access, and sustainable product economics.
- Cash runway relative to operating cash burn, planned trial and commercialization spending, and the potential need for new financing.
- Phase 3 Study 14 enrollment progress and the timing and outcome of the planned interim analysis.
- API and tablet manufacturing continuity, AAI validation, and execution of long-term supply arrangements.
- Actual payments, accounting estimates, and covenant compliance under the Biopharma agreement, including its acceleration provisions.
- Progress and outcome of the European regulatory review and any implications for market access or exclusivity.