Corvus Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Financial statements are unaudited. Corvus is a clinical-stage immuno-oncology company; it had no product revenue and reported one operating segment.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $7.1m | $2.0m | $12.5m | $3.9m |
| General and administrative expense | $1.7m | $0.3m | $2.7m | $0.6m |
| Operating loss | $8.8m | $2.3m | $15.3m | $4.5m |
| Net loss | $8.6m | $20.2m | $15.0m | $22.1m |
| Basic and diluted loss per share | $0.43 | $58.42 | $1.42 | $68.80 |
At June 30, 2016, cash and cash equivalents were $4.3m and marketable securities were $147.8m, totaling $152.2m. Current assets were $153.5m, current liabilities $3.6m, and total liabilities $5.0m. The filing reports no borrowings or debt balance. Accumulated deficit was $46.5m. Profit margins are not meaningful because the company had no revenue.
For the six months, operating cash use was $11.8m, investing cash use $59.4m and financing cash provided $71.4m, primarily from the IPO. Cash and cash equivalents increased by $0.2m; much of the investing outflow reflected purchases of U.S. Treasury securities, partly offset by maturities. Capital expenditures were $1.5m.
Material changes versus comparable periods
- Six-month net loss narrowed to $15.0m from $22.1m, principally because the 2015 comparison included a $17.6m non-cash charge related to remeasurement of a convertible preferred stock liability. Operating loss nevertheless increased to $15.3m from $4.5m as operating expenses rose.
- Q2 R&D expense increased $5.1m year over year, including higher CPI-444 clinical trial and manufacturing costs, anti-CD73 manufacturing costs, and employee and overhead costs. Six-month R&D expense increased $8.6m.
- Six-month G&A expense increased $2.1m, reflecting headcount, stock compensation and public-company costs.
- The March 2016 IPO and April over-allotment increased capital resources; preferred shares converted into common stock at the IPO. Common shares outstanding were 20.9m at June 30.
Outlook, commentary and risks
Management said existing cash and cash equivalents should fund planned expenditures and obligations for at least the next 12 months. It also stated that existing resources are not expected to fund completion of CPI-444 clinical trials and the remaining development program through commercialization. Corvus expects operating losses and R&D spending to continue and increase, and may need additional equity, debt or collaboration financing; availability and terms are uncertain.
- The lead candidate, CPI-444, was in a Phase 1/1b trial begun in January 2016, as a single agent and with Genentech’s atezolizumab (TECENTRIQ). Management planned to continue enrollment and trial work, manufacture CPI-444 supply, advance anti-CD73 toward IND-enabling studies and select candidates for other programs in 2016. No clinical efficacy results are provided in this filing.
- Material risks include early-stage clinical and regulatory uncertainty, patient enrollment and safety, reliance on third-party trial and manufacturing providers, competition, intellectual-property and licensing risks, and the need for further financing. Combination treatment may pose additional safety risks.
- Vernalis license milestone payments could exceed $200m across indications; Scripps milestone payments could total $2.6m. These contingent amounts are not recorded as liabilities. The facility lease runs through 2021, with $4.7m in disclosed future minimum payments.
- Corvus reported no material litigation and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2016.
- Potential share-supply pressure: IPO lock-ups were expected to expire September 18, 2016, after which up to approximately 15.7m additional shares could become eligible for public sale, subject to applicable restrictions.
Important facts for investors to verify
- Clinical trial progress, enrollment, safety and emerging efficacy for CPI-444, including the combination cohort with atezolizumab.
- Cash runway against the planned development program, actual operating burn and timing and terms of any additional financing.
- Reconciliation of IPO proceeds: the filing cites approximately $70.6m net proceeds in its narrative, while the cash-flow statement reports $71.4m of IPO proceeds net of issuance costs.
- Development and manufacturing milestones for anti-CD73 and the other pipeline programs, and the contingent obligations under license agreements.
- Timing and volume of shares becoming eligible for sale after lock-up expiration and potential dilution from outstanding options and future equity financing.