Corbus Pharmaceuticals Holdings, Inc. quarterly report, Q1 FY2020

Corbus Pharmaceuticals Holdings, Inc. — Q1 2020 Form 10-Q Summary

Business Context and Reporting Period

Corbus is a clinical-stage pharmaceutical company developing lenabasum for systemic sclerosis, dermatomyositis, cystic fibrosis and systemic lupus erythematosus, as well as CRB-4001 for fibrotic diseases. The filing covers the three months ended March 31, 2020; financial statements are unaudited. The company has no product-sales revenue and continues to depend on external financing.

Financial Performance and Position

Metric	Q1 2020	Q1 2019
Revenue from awards	$1.8 million	$1.9 million
Research and development expense	$23.9 million	$21.8 million
General and administrative expense	$7.7 million	$6.6 million
Operating loss	$29.9 million	$26.5 million
Net loss	$29.7 million	$26.2 million
Basic and diluted loss per share	$0.43	$0.43
Net cash used in operating activities	$27.6 million	Net cash provided of $10.3 million

• Cash and cash equivalents were $46.6 million at March 31, 2020, up from $31.7 million at December 31, 2019.
• Current assets were $54.7 million and current liabilities were $34.7 million, producing working capital of approximately $20.0 million.
• Total liabilities were $42.5 million, including $0.4 million of notes payable and $8.6 million of operating lease liabilities. The filing does not identify significant funded long-term debt.
• Accumulated deficit was $222.5 million; stockholders’ equity was $22.7 million.
• Research and development represented approximately 76% of operating expenses. Net and operating margins are not meaningful because revenue consisted primarily of award-related revenue rather than product sales.

Material Changes Versus the Prior Comparable Period

• Operating expenses increased $3.2 million, or approximately 11%, primarily because R&D expense rose $2.2 million and G&A expense rose $1.1 million.
• R&D growth reflected higher compensation and clinical-trial costs, partially offset by lower stock-based compensation.
• G&A expense increased despite the absence of the $2.7 million Cystic Fibrosis Foundation royalty charge recorded in Q1 2019 related to the Kaken upfront payment.
• Operating cash flow changed from $10.3 million provided in Q1 2019 to $27.6 million used in Q1 2020, reflecting the recurring operating loss and the absence of substantial deferred-revenue collections recognized in the prior period.
• The company completed a February 2020 public offering of 7,666,667 common shares at $6.00 per share, generating approximately $46.0 million of gross proceeds and approximately $43.0 million net of issuance costs. Shares outstanding increased to 72,490,449 at March 31, 2020 from 64,672,893 at December 31, 2019.

Guidance, Outlook, Risks and Unusual Items

• Management expected $46.6 million of cash plus the remaining $7.5 million of potential CFF award payments to fund operations and capital requirements into the fourth quarter of 2020, based on planned expenditures. Receipt of the CFF amount depends on achievement of clinical milestones.
• The company expects continuing and increasing operating losses and states that it will need significant additional capital to fund operations and lenabasum trials. Management concluded that substantial doubt exists regarding the company’s ability to continue as a going concern.
• Top-line data from the Phase 3 systemic sclerosis study and Phase 2b cystic fibrosis study were expected in summer 2020. The Phase 3 dermatomyositis study was expected to enroll 150 patients, and the NIH-funded Phase 2 lupus study was expected to enroll 100 patients.
• COVID-19 created risks to clinical-site initiation, enrollment, dosing, monitoring, manufacturing, drug distribution and regulatory timelines. One systemic sclerosis site had withdrawn from open-label participation because of COVID-19 as of the filing.
• The company temporarily moved employees to remote work, implemented remote clinical-data monitoring and suspended non-essential travel. It reported no material manufacturing or shipping disruption to China or Italy at the filing date, but identified potential future disruption.
• Disclosure controls and procedures were not effective as of March 31, 2020 because of material weaknesses in internal control over financial reporting previously reported in the 2019 Form 10-K.
• Potential obligations include up to $18.4 million in development and regulatory milestones for each Jenrin compound elected for development, CFF approval royalties, future collaboration royalties and $11.2 million of undiscounted operating lease payments.
• The company reported no material legal proceedings and no material changes to previously disclosed risk factors other than COVID-19-related risks.

Most Important Facts for Investors to Verify

• Whether the remaining $7.5 million CFF award was received and whether related clinical milestones were achieved.
• The actual cash runway after Q1 2020 and the timing, size and terms of any additional financing.
• Progress, enrollment, data quality and reported results for the lenabasum systemic sclerosis, cystic fibrosis, dermatomyositis and lupus programs.
• The effect of COVID-19 on trial timelines, site participation, manufacturing and regulatory submissions.
• Remediation of the material weaknesses in internal control over financial reporting.
• Potential dilution from future equity offerings, the 16.3 million outstanding stock options and the 1.0 million-share CFF warrant.
• The timing and amount of milestone, royalty and lease obligations, including obligations triggered by future approvals, commercialization, licensing or change-of-control transactions.