Corvus Pharmaceuticals, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Corvus is a clinical-stage biopharmaceutical company developing immuno-oncology therapies. It had no product revenue and operated in one segment.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $10.7 million | $7.7 million | $36.6 million | $20.2 million |
| General and administrative expense | $2.2 million | $2.8 million | $7.7 million | $5.5 million |
| Net loss | $12.7 million | $10.3 million | $43.7 million | $25.3 million |
| Basic and diluted loss per share | $0.62 | $0.51 | $2.14 | $1.83 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $(35.2) million | $(18.5) million |
At September 30, 2017, cash and cash equivalents were $44.1 million and marketable securities were $55.6 million, totaling $99.7 million in cash, cash equivalents and marketable securities. Total current assets were $100.9 million and current liabilities were $10.0 million. Total liabilities were $11.1 million; the filing reports no debt balance. The company had an accumulated deficit of $111.6 million. Gross margin and operating margin are not meaningful because Corvus had no revenue.
For the nine-month period, investing activities provided $74.2 million, largely reflecting maturities of marketable securities, while financing activities provided $0.1 million from option exercises. Cash and cash equivalents increased by $39.1 million to $44.1 million; this movement largely reflects transfers between marketable securities and cash, not operating cash generation.
Material changes versus the prior comparable period
- Nine-month net loss increased by $18.4 million year over year, while operating cash use increased by $16.8 million.
- Nine-month R&D expense rose $16.4 million, primarily from CPI-444 clinical trial, manufacturing and research costs, including a $3.0 million Vernalis milestone payment. CPI-006 development and ITK program costs also increased.
- Nine-month G&A expense increased $2.2 million, mainly due to headcount, stock compensation, public-company costs, and legal and accounting costs. Q3 G&A decreased $0.6 million, primarily because of lower patent-related costs.
- Cash, cash equivalents and marketable securities declined from $134.9 million at December 31, 2016 to $99.7 million at September 30, 2017. The 2016 comparison period included $71.4 million of financing proceeds, primarily from the IPO; 2017 financing proceeds were $0.1 million.
Business developments, outlook and risks
- The lead candidate CPI-444 was in a Phase 1/1b study as monotherapy and with Genentech’s Tecentriq (atezolizumab). The expansion portion was enrolling across multiple solid-tumor cohorts at 37 medical centers. Corvus noted that clinical efficacy and safety information remained limited.
- A second Genentech collaboration covers a randomized Phase 1b/2 study of CPI-444 plus Tecentriq in up to 65 patients with anti-PD-(L)1-resistant or refractory non-small cell lung cancer. The study was expected to begin enrolling in Q4 2017; Genentech would conduct it and the parties would share costs.
- CPI-006 was in IND-enabling studies, with a Phase 1 trial planned for the first half of 2018. An oral ITK inhibitor was also in IND-enabling studies, with a Phase 1 trial planned for 2018. Corvus expected to select an A2B receptor antagonist development candidate in 2018.
- Management expected substantial further R&D spending and continuing losses. It believed available resources would fund planned expenditures and obligations for at least 12 months from issuance of the statements, but stated that existing resources would not fund CPI-444 through completion of development and commercialization. Additional capital would be needed; equity financing could dilute shareholders, debt could impose covenants and repayment obligations, and collaborations could require relinquishing rights.
- Corvus established a Cowen at-the-market offering program for up to $125 million in gross proceeds. No shares had been sold under it by September 30. As a subsequent event, the company reported approximately $0.9 million of net ATM proceeds and $0.6 million from option exercises in October 2017.
- Key risks include clinical-trial failure or delay, enrollment and safety uncertainty, regulatory approval and commercialization risk, reliance on contract research and manufacturing providers, financing needs, competition, and dependence on licensed intellectual property. The filing cites possibly drug-related or drug-related serious adverse events in the CPI-444 combination trial, including hemolytic anemia, encephalitis, hepatitis, pneumonitis and dermatitis.
- Potential contingent milestone and royalty obligations under the Scripps and Vernalis licenses are not recorded as liabilities because amounts are contingent and not fixed or determinable. The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Investor verification points
- Check subsequent CPI-444 and combination-trial enrollment, efficacy, safety findings, and any changes to trial scope or timing.
- Track cash burn, investment maturities, and the cash runway against the planned development program and management’s stated need for additional funding.
- Verify ATM sales, proceeds, share dilution, and any new equity or debt financing.
- Monitor progress and spending for CPI-006, the ITK inhibitor, and the A2B program against the stated development timelines.
- Review the terms and potential financial impact of Vernalis and Scripps milestones and royalties, as well as manufacturing, regulatory, and intellectual-property developments.