Corbus Pharmaceuticals Holdings, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2019, compared with the corresponding 2018 periods. The interim financial statements are unaudited. Corbus is a clinical-stage pharmaceutical company developing therapeutics for rare inflammatory and fibrotic diseases, principally lenabasum and CRB-4001.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue from awards and licenses | $29.1 million, versus $0.9 million | $31.0 million, versus $1.8 million |
| Research and development expense | $22.2 million, versus $10.3 million | $44.0 million, versus $20.0 million |
| General and administrative expense | $5.2 million, versus $3.0 million | $11.8 million, versus $6.0 million |
| Operating income (loss) | $1.7 million, versus $(12.4) million | $(24.8) million, versus $(24.3) million |
| Net income (loss) | $2.2 million, or $0.03 per diluted share, versus $(12.1) million, or $(0.21) | $(24.1) million, or $(0.38), versus $(23.8) million, or $(0.42) |
| Net cash used in operating activities | Not separately provided | $6.1 million, versus $7.2 million |
- Second-quarter revenue included recognition of the $27.0 million Kaken upfront payment after Corbus satisfied the related license, technology-transfer and trademark performance obligation. The balance was primarily $2.1 million of revenue recognized under the 2018 Cystic Fibrosis Foundation award.
- R&D expense increased primarily because of higher clinical-trial costs, compensation and stock-based compensation. Approximately 44% of second-quarter R&D expense and 46% for the six-month period was recorded in the United Kingdom and Australia subsidiaries.
- Cash and cash equivalents were $73.2 million at June 30, 2019, compared with $41.7 million at December 31, 2018. Working capital was approximately $46.0 million.
- Financing activities provided $37.7 million in the first six months, including approximately $37.7 million of net proceeds from the January 2019 public offering. Investing activities used $0.3 million.
- Accumulated deficit was $145.5 million. The company has not generated product-sales revenue and continues to expect operating losses for the foreseeable future.
- Total debt was limited: notes payable were $0.1 million at June 30, 2019. Operating lease liabilities totaled $7.6 million, including current and noncurrent amounts.
Material changes versus the prior comparable period
- Revenue increased by $28.2 million in the second quarter and $29.2 million for the six-month period, primarily due to the Kaken upfront payment recognized in 2019.
- Second-quarter net income improved from a $12.1 million loss to $2.2 million of income; however, the company remained unprofitable for the first six months.
- R&D expense more than doubled for both the quarter and year-to-date period as later-stage clinical programs advanced.
- G&A expense increased 74% for the quarter and 96% year to date. The six-month increase included a $2.7 million CFF royalty obligation associated with the Kaken upfront payment.
- Common shares outstanding increased to 64.6 million from 57.2 million at December 31, 2018, primarily from the January equity offering and warrant exercises.
- Corbus adopted the new lease accounting standard on January 1, 2019, recording operating lease right-of-use assets and liabilities. It also expanded its office lease to approximately 62,756 square feet, with occupancy of the additional space expected in the third quarter of 2019.
Outlook, commentary, risks and unusual items
- Management expected cash and cash equivalents at June 30, 2019, together with the remaining potential CFF award proceeds, to fund operations and capital requirements into the fourth quarter of 2020 based on planned expenditures. The financial statements state that cash alone was expected to cover at least 12 months from the filing date.
- Corbus expects significant additional capital will be required to fund lenabasum and CRB-4001 development. Potential sources include equity, convertible or other debt, collaborations and government grants; financing may be unavailable or dilutive or may require relinquishing valuable rights.
- Lenabasum programs included a Phase 3 systemic sclerosis trial, a Phase 2b cystic-fibrosis trial expected to enroll 415 patients, a Phase 2 systemic lupus erythematosus trial, and a Phase 3 dermatomyositis trial expected to enroll approximately 150 adults. CRB-4001 Phase 1 development was planned for 2019.
- The Kaken agreement provides up to approximately $173 million of potential development, regulatory and sales milestones and double-digit royalties in Japan, but milestone payments were excluded from the initial transaction price because they were fully constrained.
- The CFF award provided up to $25 million, of which $17.5 million had been received through June 30, 2019. Remaining amounts depend on achievement of clinical milestones. The arrangement includes future approval and sales-related royalty obligations and a warrant for up to 1.0 million common shares at $13.20 per share.
- Key risks include clinical-trial execution and results, regulatory approval, intellectual-property protection, future financing, continued losses, reliance on third parties, retention of key personnel and the accuracy of clinical-accrual estimates.
- No legal proceedings were reported in Part II, Item 1, and management reported no material changes to previously disclosed risk factors. A putative securities class action was voluntarily dismissed without prejudice on August 2, 2019.
- After quarter-end, effective August 6, 2019, Robert Discordia was appointed Chief Operating Officer and received an option to purchase 100,000 shares, a $400,000 annual base salary and eligibility for a bonus of up to 40% of base salary.
Investor verification points
- Confirm that the $27.0 million Kaken payment is nonrecurring license-related revenue rather than product revenue and review the remaining performance obligations.
- Assess the assumptions supporting the stated cash runway, including the timing and achievement conditions for the remaining CFF award.
- Track clinical milestones, enrollment, trial results and regulatory interactions for lenabasum and the planned CRB-4001 program.
- Review expected future dilution from equity financing, stock options and the CFF warrant.
- Evaluate future CFF royalty and approval-payment obligations, including the 10% payment on qualifying Kaken proceeds and potential approval royalties.
- Reconcile the reported second-quarter profit with the substantial six-month loss, continuing cash burn and accumulated deficit.
- Monitor expanded lease commitments, rising clinical accruals and the company’s continuing dependence on external capital.