Corcept Therapeutics Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. The interim statements are unaudited.
Business context
Corcept develops and commercializes cortisol-modulating medicines. Its principal marketed product is Korlym (mifepristone), approved for certain adults with endogenous Cushing’s syndrome. The company is also developing selective cortisol modulators, including CORT125134, and studying Korlym and CORT125134 in oncology trials.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net product revenue | $21.7 | $13.3 | $57.5 | $35.3 |
| Operating expenses | $18.7 | $13.2 | $52.3 | $40.4 |
| Operating income (loss) | $3.1 | $0.1 | $5.2 | $(5.1) |
| Net income (loss) | $2.6 | $(0.6) | $3.5 | $(7.4) |
| Diluted EPS | $0.02 | $(0.01) | $0.03 | $(0.07) |
- Revenue rose approximately 64% in Q3 and 63% year to date, attributed primarily to higher sales volume and price increases.
- Cost of sales was $0.7 million in Q3 and $1.5 million year to date. Gross margin was approximately 96.9% for Q3 and 97.4% year to date; Q3 cost of sales included a one-time manufacturer expenditure.
- R&D expense increased 95% in Q3 to $7.1 million and 53% year to date to $17.4 million, mainly reflecting CORT125134 development and added clinical staff. SG&A rose 18% in Q3 to $10.9 million and 19% year to date to $33.5 million, reflecting hiring, bonuses and sales commissions.
- Cash provided by operating activities was $13.8 million for the first nine months, versus $1.0 million used in the comparable 2015 period. The 2016 result included increases in accounts payable and accrued liabilities, as well as higher sales.
Financial position and debt
- At September 30, 2016, cash and cash equivalents were $47.9 million, versus $40.4 million at December 31, 2015; total assets were $62.9 million and stockholders’ equity was $31.2 million.
- Current liabilities were $31.7 million, including $18.7 million classified as the current portion of the Biopharma obligation. No long-term portion remained on the balance sheet.
- The Biopharma agreement requires payments totaling $45 million, generally based on 20% of covered-product receipts. Corcept had paid $25.4 million through September 30 and made a further $4.4 million payment in October; management expected full repayment in 2017. The agreement is secured by specified intellectual property and related assets and includes covenants and change-of-control acceleration provisions.
- Cash increased $7.4 million during the nine-month period. Financing cash outflows included $10.3 million of Biopharma payments; option and warrant exercises generated $4.1 million.
- Inventory, including strategic inventory, totaled $5.3 million. The company relies on one supplier for Korlym’s active ingredient and one for tablets.
Changes, outlook and risks
- Corcept reported a return to GAAP profitability for Q3 and the first nine months, compared with a Q3 loss and year-to-date loss in 2015.
- Effective January 1, 2016, sales to its specialty distributor are recognized when sold to the distributor rather than when resold to customers; these sales were less than 2% of revenue in the periods reported.
- Management said current commercial and development plans were expected to be funded without additional capital, while noting it may raise funds for strategic priorities. It expected R&D and SG&A spending to increase.
- Management expected top-line results from the Korlym/eribulin trial in metastatic triple-negative breast cancer in Q4 2016; enrollment was complete. CORT125134 trials in Cushing’s syndrome and solid-tumor cancers were enrolling, and the company expected to begin trials of at least two additional compounds in 2017.
- The filing refers to company guidance for 2016 net product revenue, but the guidance amount is not clearly provided in the filing text supplied. Management’s cash-flow-breakeven outlook depends on Korlym revenue and planned spending.
- Key risks include reliance on Korlym for revenue, reimbursement and physician adoption, competition, clinical and regulatory uncertainty, single-source manufacturing, product safety, and the Biopharma payment and covenant terms. Corcept reported no material legal proceedings, no off-balance-sheet arrangements, and no material change in market risk disclosures. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Verify the actual 2016 net product revenue guidance and subsequent performance against it.
- Review Korlym sales growth, price and volume contributions, payer coverage, rebates, and the sustainability of the unusually high reported gross margin.
- Assess operating cash generation, including the contribution of increased payables and accrued liabilities, and confirm remaining Biopharma payments and repayment timing.
- Check the Q4 2016 triple-negative breast cancer trial results and progress, enrollment and costs for CORT125134 and other development programs.
- Monitor manufacturing continuity and the consequences of Biopharma covenant breaches or change-of-control acceleration.