Business Context and Reporting Period
Corbus Pharmaceuticals Holdings, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The clinical-stage pharmaceutical company develops therapeutics for rare, chronic inflammatory and fibrotic diseases. Its lead candidate, lenabasum, was being evaluated in Phase 3 systemic sclerosis and Phase 2b cystic fibrosis studies, with additional programs in dermatomyositis and systemic lupus erythematosus. In September 2018, Corbus licensed the Jenrin compound library, including CRB-4001, with plans to begin a Phase 1 trial in 2019.
Financial Highlights
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue from awards | $1.1 million in 2018 versus $0.8 million in 2017 | $2.9 million versus $2.4 million |
| Research and development expense | $12.8 million versus $5.6 million | $32.8 million versus $17.8 million |
| General and administrative expense | $3.2 million versus $2.1 million | $9.2 million versus $6.4 million |
| Net loss | $14.6 million, or $0.26 per share, versus $7.0 million, or $0.14 per share | $38.4 million, or $0.67 per share, versus $21.7 million, or $0.44 per share |
| Net cash used in operating activities | Not separately provided for the quarter | $16.0 million versus $18.7 million |
The company has no product-sales revenue and has never been profitable. Award revenue relates to development funding, principally the 2018 Cystic Fibrosis Foundation award, rather than commercial product sales. Gross margin is not meaningful because the company has no product sales.
- Cash and cash equivalents were $55.7 million at September 30, 2018, compared with $62.5 million at December 31, 2017; restricted cash declined to zero from $0.2 million.
- Working capital was approximately $41.5 million, based on current assets of $58.5 million and current liabilities of $16.9 million.
- Total assets were $61.2 million and total liabilities were $18.3 million. Stockholders’ equity was $42.9 million.
- Debt was substantially reduced: notes payable were zero at September 30, 2018, compared with $0.3 million at year-end 2017. The company repaid its insurance-financing loan in August 2018.
- Cash used in investing activities was $2.1 million, primarily for office construction, furniture and fixtures. Financing activities provided $11.0 million, including approximately $11.2 million of net proceeds from a first-quarter equity sale.
- Accumulated deficit was $104.1 million at September 30, 2018.
Material Changes Versus the Prior Comparable Period
- Quarterly research and development expense increased by approximately $7.2 million, primarily from higher clinical-trial costs, compensation and stock-based compensation. Nine-month research and development expense increased by approximately $15.1 million.
- Quarterly general and administrative expense increased by approximately $1.1 million, with higher stock-based compensation, compensation, legal and other public-company costs. Nine-month expense increased by approximately $2.8 million.
- Net loss more than doubled for the quarter and increased substantially for the nine-month period, reflecting the expanded clinical-development program.
- Revenue recognition shifted from the completed 2015 CFFT award to the 2018 CFF Award. Corbus recognized $12.5 million of milestone billings under the 2018 award during the first nine months, while recognizing $2.9 million as revenue and recording $3.4 million as deferred revenue at September 30.
- The company adopted ASC 606 using the modified retrospective method. Management stated that adoption reduced reported revenue by approximately $0.5 million for both the quarter and nine-month period compared with the prior accounting treatment.
- Corbus issued 1.5 million shares for approximately $11.2 million of net proceeds during the first quarter and did not sell additional shares under its at-the-market facility during the second or third quarters.
- The company entered into the Jenrin license agreement, paid a $250,000 upfront fee recorded as research and development expense, and assumed potential milestone payments of up to $18.4 million for each compound developed, plus mid-single-digit royalties on licensed-product sales.
Guidance, Outlook, Risks and Unusual Items
- Management expected cash of approximately $55.7 million at September 30, 2018, together with the remaining potential proceeds from the 2018 CFF Award, to fund operations and capital requirements into the fourth quarter of 2019 based on then-current spending plans. The filing also states that cash alone was insufficient to meet requirements for at least 12 months from the filing date.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Corbus expects continuing losses and will need significant additional capital to fund lenabasum and CRB-4001 development.
- Potential financing sources include equity, preferred stock, convertible or other debt, credit facilities, collaborations and government grants. Financing may dilute stockholders, impose restrictive covenants or require surrendering valuable rights.
- If additional funding is unavailable, the company may delay, scale back or discontinue clinical activities.
- The 2018 CFF Award provides for up to $25 million of funding, subject to clinical milestones. It also creates potential approval royalties equal to 1.5 times the award amount upon U.S. approval and another 1.5 times upon approval in another major market, in addition to sales and transaction-related royalties.
- Corbus issued CFF a warrant for up to 1.0 million shares at $13.20 per share and recorded a $6.2 million fair value charge to additional paid-in capital as a payment to the customer under ASC 606.
- Operating lease commitments totaled $5.1 million, primarily under a seven-year, 32,733-square-foot office lease beginning in February 2018. The company expected adoption of the new lease standard to add right-of-use assets and lease liabilities.
- Key risks include clinical-trial failure or delay, regulatory approval uncertainty, intellectual-property disputes, dependence on licensed technology, inability to raise capital, reliance on third parties, and retention of key personnel.
- The filing reports no legal proceedings, no material changes to most previously disclosed risk factors, and effective disclosure controls as of September 30, 2018.
Investor Verification Checklist
- Verify the company’s funding runway, including the timing and probability of remaining CFF milestone payments and the need for additional financing.
- Assess clinical-trial enrollment, milestones, results and regulatory timelines for lenabasum and the planned CRB-4001 Phase 1 study.
- Review the economic terms and diligence requirements of the CFF and Jenrin agreements, including approval royalties, sales royalties and potential milestone obligations.
- Reconcile the reported November 2018 insurance-financing loan amount, which appears as $491,629 in the notes and $501,629 in management’s discussion.
- Evaluate dilution from outstanding options and warrants, including 9.4 million options and 2.3 million warrants outstanding at September 30, 2018.
- Confirm the accounting and timing effects of ASC 606 adoption and the expected implementation of the new lease standard.