Corbus Pharmaceuticals Holdings, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2018; filed August 8, 2018. Corbus is a clinical-stage pharmaceutical company developing lenabasum for systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The company has no product sales and remains unprofitable.
Financial Overview
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue from awards | $853,646 | $350,186 | $1,804,088 | $1,643,883 |
| Research and development expense | $10.26 million | $5.76 million | $20.03 million | $12.13 million |
| General and administrative expense | $2.99 million | $1.88 million | $6.04 million | $4.26 million |
| Operating loss | $(12.39) million | $(7.29) million | $(24.26) million | $(14.74) million |
| Net loss | $(12.07) million | $(7.30) million | $(23.76) million | $(14.76) million |
| Net loss per share | $(0.21) | $(0.15) | $(0.42) | $(0.31) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(7.16) million | $(12.35) million |
Liquidity: Cash and cash equivalents were $64.68 million at June 30, 2018, compared with $62.54 million at December 31, 2017. Working capital was approximately $54.10 million. Current liabilities were $13.45 million, including $4.48 million of deferred revenue and $5.80 million of accrued expenses.
Debt and commitments: Notes payable were $83,704 at quarter-end. The company reported operating lease commitments of $5.26 million and capital lease obligations of $2,650. No material off-balance-sheet arrangements were reported other than contingent royalty obligations under development awards.
Margins and profitability: Product revenue was zero. Award revenue did not cover operating expenses, and the filing does not present meaningful commercial operating margins for the clinical-stage business. The accumulated deficit was $89.46 million at June 30, 2018.
Material Changes Versus the Prior Comparable Period
- Q2 revenue increased to $853,646 from $350,186, primarily because revenue shifted from the completed 2015 CFFT Award to the new 2018 CFF Award.
- Six-month revenue increased modestly to $1.80 million from $1.64 million, while six-month operating expenses increased 59% to $26.06 million.
- Six-month research and development expense increased $7.90 million, driven mainly by higher clinical-trial costs, compensation and stock-based compensation.
- Six-month general and administrative expense increased $1.78 million, reflecting higher compensation, consulting, legal and other public-company costs.
- Net loss increased to $23.76 million from $14.76 million for the first six months, and loss per share increased to $0.42 from $0.31.
- The company received $12.5 million under the 2018 CFF Award during the first half of 2018, including $6.25 million in the second quarter. It also raised approximately $11.2 million net from a 1.5 million-share equity issuance in the first quarter.
- Property and equipment increased to $2.67 million from $1.43 million, largely reflecting construction and purchases for the new office space.
Guidance, Outlook, Risks and Unusual Items
- Management expects operating losses and expenses to increase substantially as it advances lenabasum trials, manufacturing, regulatory activities and staffing.
- Management stated that cash on hand was expected to fund operating and capital requirements for at least 12 months from the filing date. The MD&A additionally projected that cash plus the remaining potential 2018 CFF Award would fund operations into the fourth quarter of 2019, based on planned expenditures.
- The 2018 CFF Award provides for up to $25 million; $12.5 million had been received by June 30, 2018. Remaining amounts depend on achievement of clinical-trial milestones.
- Under ASC 606, the company recognized $1.80 million of 2018 revenue over time for research and development services and reported $4.48 million of deferred revenue at quarter-end. The performance period was expected to continue through approximately the second quarter of 2020.
- The company issued CFF a warrant for up to 1 million shares at an exercise price of $13.20 per share. The warrant was assigned a fair value of $6.22 million and is exercisable for 500,000 shares immediately, with the remainder subject to a future milestone.
- Future CFF obligations include approval royalties, sales royalties and payments tied to licensing, transfers or a change of control. The prior 2015 CFFT arrangement also contains contingent royalty obligations.
- Management expects to raise significant additional capital. Potential financing could dilute shareholders, impose restrictive covenants or require the company to relinquish valuable rights; financing may not be available on acceptable terms.
- Key risks include clinical-trial failure or delay, inability to obtain regulatory approval, intellectual-property challenges, dependence on lenabasum, continued losses, uncertain financing and reliance on milestone-based external funding.
- The company adopted ASC 606 in the first quarter of 2018 using the modified retrospective method; management reported no cumulative adoption adjustment.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No legal proceedings or material changes to previously reported risk factors were disclosed.
Important Facts for Investors to Verify
- Whether remaining 2018 CFF Award milestones are achieved and the timing and amount of additional funding received.
- Actual cash burn relative to the company’s projected funding runway and the timing of any required capital raise.
- Progress, enrollment and results of the Phase 3 systemic sclerosis trial and planned dermatomyositis trial, as well as the Phase 2b cystic fibrosis and Phase 2 lupus programs.
- The accounting and collectability of deferred revenue, including the assumptions used to recognize the $18.78 million transaction price net of the CFF warrant over the trial period.
- Potential dilution from the outstanding 9.47 million stock options, 2.29 million warrants and the CFF warrant for up to 1 million shares.
- Future contingent royalty and approval-payment obligations under the CFF and CFFT agreements.
- The effect of the seven-year office lease, future clinical commitments and the forthcoming lease-accounting standard on reported liabilities and liquidity.