Corcept Therapeutics Incorporated — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Financial statements are unaudited. Corcept received FDA approval for Korlym on February 17, 2012 and began commercial sales on April 10, 2012.
Financial performance
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Net product sales | $0.875 million | $0.875 million | None |
| Cost of sales | $0.048 million | $0.048 million | None |
| Research and development | $2.668 million | $6.210 million | $6.203 million; $11.127 million |
| Selling, general and administrative | $5.751 million | $13.238 million | $2.666 million; $4.840 million |
| Operating loss | $7.592 million | $18.621 million | $8.869 million; $15.967 million |
| Net loss | $7.597 million | $18.630 million | $8.882 million; $15.983 million |
| Net loss per share | $0.09 | $0.22 | $0.11; $0.19 |
| Cash used in operating activities | Not provided for quarter | $18.049 million | $14.502 million |
For the three- and six-month comparisons, respectively, R&D expense declined 57% and 44%, while SG&A increased substantially as Corcept built commercialization capabilities. Q2 sales less reported cost of sales imply $0.827 million of gross profit, or about 94.5% gross margin; management cautioned that current cost of sales understates full manufacturing cost because much of the product’s pre-approval production cost was expensed earlier as R&D.
At June 30, cash and cash equivalents were $34.899 million, versus $39.635 million at December 31, 2011. Current assets were $38.299 million and current liabilities $5.816 million. Total assets were $38.618 million; stockholders’ equity was $32.802 million. The balance sheet reports no debt balance. Accumulated deficit was $227.188 million.
Material changes and financing
- Compared with 2011, first-half net loss increased by $2.647 million and operating cash use rose by $3.547 million. Higher commercialization-related SG&A more than offset lower R&D expense.
- R&D reductions reflected lower NDA preparation costs, lower clinical-trial spending in several programs, and capitalization of approved-product manufacturing costs into inventory. First-half SG&A included approximately $1.6 million in cash bonuses associated with FDA approval and approximately $1.3 million in performance-based stock compensation tied to approval.
- In a July 6, 2012 public offering, Corcept sold 11.0 million shares for approximately $46.1 million in net proceeds. This was subsequent to quarter-end.
- On August 2, Corcept signed a transaction with Biopharma under which it expected to receive $30 million at an anticipated August 16 closing. In return, Corcept agreed to variable payments based principally on 20% of covered-product sales and certain licensing or collaboration payments, until cumulative payments reach $45 million. Sales-based quarterly caps apply through 2015; specified covenant or performance failures can raise the rate to 50% and remove caps. The agreement is secured by intellectual-property and related collateral.
- Corcept terminated its Kingsbridge committed equity financing facility effective August 7, 2012; an existing warrant remains outstanding.
Outlook, risks and unusual items
- Management did not provide revenue guidance, noting that early Korlym sales experience was too limited to predict future quarterly or full-year sales.
- Management expected R&D spending to decline in the remainder of 2012 versus 2011, while SG&A and operating cash use were expected to increase as commercialization expands and the psychotic-depression Phase 3 trial scales up. Management warned that Korlym revenue may only partially offset spending and that losses are expected to continue for at least the next few years.
- Study 14, a Phase 3 trial of mifepristone for psychotic depression, was ongoing. Corcept aimed to complete enrollment by year-end 2013 and planned to expand trial sites from eight to approximately 20.
- Manufacturing is a key near-term risk: the sole approved tablet manufacturer planned a temporary production suspension during a facility relocation in Q4 2012. Corcept had submitted an FDA supplement seeking approval of a second tablet manufacturer, with an FDA response date of October 27, 2012. The active pharmaceutical ingredient also had a single-source supplier, whose agreement was due to expire in November 2012.
- Commercial risks include uncertain physician adoption, reimbursement and pricing, product returns and rebates, competition, and public perception of mifepristone. The company also faces clinical, regulatory, patent, financing and product-safety risks. FDA approval entails post-marketing studies, including drug-interaction and drug-utilization studies.
- Other commitments included approximately $2.8 million in 2012 mifepristone purchase orders, of which about $1.2 million had been received and recorded as inventory by June 30; a further $0.843 million order was placed in July. The amended office lease commits approximately $0.630 million in base rent through December 2013.
- No material legal proceedings were reported. Management concluded disclosure controls were effective; no material changes to internal control were reported apart from adopting product-sales, receivables, inventory and cost-of-sales accounting policies for commercialization.
Important facts for investors to verify
- Whether Korlym sales, patient access and reimbursement develop sufficiently to support the commercial cost base; the filing provides no forecast.
- FDA approval and operational readiness of the alternate tablet supplier before the existing manufacturer’s planned Q4 suspension, and continuity of API supply.
- Whether the $30 million Biopharma funding closed as anticipated, and the effect of its revenue-sharing terms, covenants, collateral and change-of-control provisions.
- Actual cash runway and future financing needs, considering the $18.049 million first-half operating cash burn and management’s expectation of higher cash use.
- Enrollment progress, timing and eventual results of the psychotic-depression Phase 3 study, alongside ongoing post-approval obligations for Korlym.