Corcept Therapeutics Incorporated — FY 2017 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2017; quarterly figures are also provided. Corcept discovers, develops and commercializes cortisol-modulating medicines. Its only marketed product was Korlym (mifepristone), approved for certain adults with endogenous Cushing’s syndrome. The company’s clinical-stage pipeline included relacorilant, CORT125281 and CORT118335.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net product revenue | $159.2 million | $81.3 million |
| Cost of sales | $3.6 million | $2.1 million |
| Gross profit | $155.6 million | $79.3 million |
| Research and development | $40.4 million | $23.8 million |
| Selling, general and administrative | $62.4 million | $45.2 million |
| Operating income | $52.9 million | $10.2 million |
| Interest and other expense | $0.05 million | $2.0 million |
| Income tax benefit | $76.3 million | — |
| Net income | $129.1 million | $8.1 million |
| Diluted earnings per share | $1.04 | $0.07 |
- Revenue rose about 96%, primarily from increased sales volume and price increases. Price increases accounted for approximately 16.6% of the 2017 revenue increase.
- Gross margin was approximately 97.8% in 2017, compared with 97.5% in 2016; cost of sales was 2.2% and 2.5% of revenue, respectively.
- Operating cash flow was $60.9 million, up from $18.4 million. Investing cash outflow was $73.5 million, mainly reflecting purchases of marketable securities; financing cash outflow was $8.0 million.
- Cash, cash equivalents and marketable securities totaled $104.0 million at year-end, including $31.1 million cash and cash equivalents. Working capital was $94.6 million.
- No debt remained at year-end. The company made its final payment under the Biopharma financing agreement in July 2017, having paid $45.0 million in total.
- Total assets were $220.5 million and stockholders’ equity was $191.0 million at December 31, 2017. The company reported no cash dividends.
- Fourth-quarter 2017 net product sales were $53.3 million and net income was $98.3 million, including the substantial tax benefit described below.
Material changes versus the prior comparable period
- Net product revenue increased from $81.3 million to $159.2 million; operating income rose from $10.2 million to $52.9 million.
- R&D expense increased 69% to $40.4 million, reflecting advancement of relacorilant and development of CORT118335 and CORT125281. SG&A increased 38% to $62.4 million, primarily due to commercial organization growth, performance bonuses and professional services.
- The $76.3 million income tax benefit primarily resulted from releasing valuation allowances on federal and non-California state deferred tax assets. Corcept also remeasured deferred taxes following the federal corporate tax rate reduction from 35% to 21%. The benefit substantially increased reported net income and should not be treated as operating earnings.
- The company invested in marketable securities during 2017 and reported a $75,000 unrealized loss on available-for-sale investments.
Outlook, commentary, risks and unusual items
- Management expected 2018 R&D and SG&A spending to exceed 2017 levels as clinical and commercial programs expanded. The filing says the company expected to fund its stated plans without raising additional capital, while noting it could raise funds for strategic priorities.
- The filing refers to 2018 revenue guidance but does not provide a clear guidance figure in the supplied text.
- Relacorilant was in Phase 2 development for Cushing’s syndrome and in a Phase 1/2 combination trial for solid tumors; enrollment in a metastatic pancreatic cancer cohort began in December 2017. CORT125281 was being studied with Xtandi for metastatic castration-resistant prostate cancer. CORT118335 was in Phase 1, with plans to pursue potential uses in NASH and antipsychotic-induced weight gain.
- Interim results in the first 17 relacorilant Cushing’s trial completers showed dose-dependent improvements in glucose tolerance and serum osteocalcin; 42% of patients with uncontrolled hypertension had a reduction of at least 5 mmHg in systolic or diastolic pressure. The small, open-label study is not confirmatory evidence of efficacy.
- In February 2018, Corcept received notice that Teva had filed an ANDA for generic Korlym, challenging listed Orange Book patents. U.S. orphan exclusivity for Korlym’s Cushing’s indication was due to end in February 2019. Corcept said it planned to defend its patents; the outcome and commercial impact are uncertain.
- A dispute with former specialty pharmacy Dohmen concerned termination of its agreement and $12.9 million of Korlym receivables held in escrow. A January 2018 settlement provided for Dohmen to remit the collected funds to Corcept; the company reported receipt of the $12.9 million and no recorded loss contingency.
- Material business risks include reliance on Korlym for revenue, generic and other competition, dependence on single-source manufacturers and one specialty pharmacy, reimbursement and pricing pressures, and clinical, regulatory and patent uncertainties. The company reported $14.3 million in manufacturing purchase commitments, primarily for API for pipeline candidates.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of year-end. The financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Korlym revenue trajectory, prescription growth, price contribution, and the effects of rebates, patient assistance and reimbursement.
- Teva’s generic application, patent litigation progress, the scope and enforceability of Korlym patents, and competitive developments ahead of the February 2019 exclusivity expiration.
- Whether the $76.3 million tax benefit is distinguished from recurring earnings, and the realizability of deferred tax assets and tax-loss carryforwards.
- Cash generation and available liquidity relative to planned higher R&D and SG&A spending, pipeline milestones, and manufacturing commitments.
- Clinical-trial enrollment, safety and efficacy data, and whether early-stage results are confirmed in larger controlled studies.
- Resolution and receipt of the Dohmen receivable, and continued reliability of the company’s specialty pharmacy and manufacturing suppliers.