Corcept Therapeutics Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Financial statements are unaudited. Corcept is a pharmaceutical company whose commercial product is Korlym (mifepristone), approved in the U.S. for certain adults with endogenous Cushing’s syndrome; it is also developing mifepristone and selective GR-II antagonists for other indications.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net product sales | $5.851 million | $1.891 million | $10.255 million | $3.608 million |
| Cost of sales | $0.215 million | $0.023 million | $0.389 million | $0.043 million |
| Research and development | $4.252 million | $4.491 million | $11.537 million | $8.748 million |
| Selling, general and administrative | $7.965 million | $8.160 million | $17.769 million | $16.544 million |
| Operating loss | $(6.581) million | $(10.783) million | $(19.440) million | $(21.727) million |
| Net loss | $(7.552) million | $(11.897) million | $(21.481) million | $(23.981) million |
| Basic and diluted loss per share | $(0.07) | $(0.12) | $(0.21) | $(0.24) |
- Q2 sales increased about 209% year over year; first-half sales increased about 184%. The company remained loss-making.
- Cost of sales was 3.7% of sales in Q2 and 3.8% for the first half. Management cautioned that reported cost of sales did not include certain production costs expensed before Korlym’s FDA approval, so these percentages do not represent full production economics.
- At June 30, cash and cash equivalents were $33.974 million, down from $54.877 million at December 31, 2013. Six-month operating cash use was $20.044 million; investing cash use was $0.158 million and financing cash use was $0.701 million.
- Current assets were $39.437 million and current liabilities $13.302 million, implying working capital of about $26.1 million. Total assets were $44.390 million.
- The Biopharma capped-royalty financing obligation had a $35.0 million carrying value, including $7.396 million current and $27.636 million long-term. The maximum aggregate repayment is $45.0 million; $3.0 million had been paid by June 30, with a further $1.3 million paid in July. Payments generally equal 20% of covered-product sales and specified contingent receipts, subject to terms and caps.
- Accumulated deficit was $314.1 million. Common shares outstanding were approximately 101.1 million at June 30; 101,123,406 were outstanding on August 4.
Changes, outlook and material developments
- Sales growth helped narrow Q2 operating and net losses versus the prior-year quarter. For the first half, net loss also narrowed, despite higher R&D and SG&A expenses.
- First-half R&D rose 32%, primarily reflecting increased clinical and staffing activity, including the psychotic-depression and oncology programs and bonuses. First-half SG&A rose 7.4%, mainly due to $2.5 million in employee bonuses, partly offset by lower commercial professional-service costs.
- On May 7, 2014, Corcept discontinued its Phase 3 psychotic-depression study after an interim review indicated it was unlikely to meet its primary endpoint with statistical significance. Management said resources would be redeployed to other programs.
- The Phase 1 study of mifepristone with chemotherapy for triple-negative breast cancer began enrolling in February 2014; the company expected results in 2015. It also planned to advance at least two selective GR-II antagonist compounds into clinical testing over the following year.
- Management expected R&D spending for the remainder of 2014 to be below 2013 levels as psychotic-depression spending fell, partly offset by oncology and next-generation compound work. SG&A was expected to be slightly higher. The company expected remaining-2014 cash use to be lower than in comparable 2013 periods, citing anticipated Korlym revenue growth. The filing refers to 2014 net-revenue guidance but the supplied text does not provide a clear guidance amount.
- Corcept submitted an EU marketing authorization application for Korlym in October 2013. No approval outcome is reported here.
Risks, contingencies and unusual items
- Corcept depends heavily on Korlym sales and has limited commercial history; adoption, reimbursement, pricing and revenue timing are uncertain. The company warned that it may need additional funding, which may be unavailable or dilutive.
- Korlym’s active ingredient and tablets were each sourced from a single manufacturer. New long-term supply agreements were signed with PCAS for mifepristone API and AAI for tablets, but supplier disruption or regulatory noncompliance could still constrain supply.
- The Biopharma agreement pledges specified intellectual property and related rights as collateral. A change of control or U.S. licensing of Korlym can accelerate the remaining repayment obligation; certain covenant or payment breaches can increase the revenue-share rate and remove payment caps.
- A March 2014 CRO agreement for a Phase 1 study of a new compound carries an approximately $2.6 million commitment, expected to be spent over about one year. PCAS commitments depend on future requirements; the AAI agreement has no minimum purchase obligation.
- Other key risks include clinical-trial failure or delay, regulatory and post-marketing requirements, product safety and liability, competition, patent challenges, and dependence on third parties. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Korlym prescription growth, net sales, payer coverage and reimbursement, and whether 2014 revenue guidance was stated or updated elsewhere.
- Cash consumption and funding needs relative to cash on hand, including the timing and amount of Biopharma payments.
- Full manufacturing economics as previously expensed production costs enter cost of sales, and the adequacy and reliability of API and tablet supply.
- Progress and results of the triple-negative breast cancer study, planned selective GR-II antagonist trials, and the EU marketing application.
- Potential dilution from equity securities and the terms, caps, collateral and acceleration provisions of the Biopharma agreement.