Corbus Pharmaceuticals Holdings, Inc. — Q1 2019 Form 10-Q Summary
Business context and reporting period
Corbus is a clinical-stage pharmaceutical company developing therapeutics for rare, chronic inflammatory and fibrotic diseases. The report covers the three months ended March 31, 2019, with comparisons to the three months ended March 31, 2018. Its lead candidate is lenabasum, being evaluated in systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The company has not generated product-sales revenue and has incurred recurring losses since inception.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue from awards | $1.9 million | $1.0 million | +$0.9 million |
| Research and development expense | $21.8 million | $9.8 million | +$12.0 million |
| General and administrative expense | $6.6 million | $3.1 million | +$3.6 million |
| Operating loss | $26.5 million | $11.9 million | +$14.7 million loss |
| Net loss | $26.2 million | $11.7 million | +$14.5 million loss |
| Basic and diluted loss per share | $0.43 | $0.21 | Loss per share increased |
| Net cash from operating activities | $10.3 million | $(1.6) million | +$11.9 million |
| Cash and cash equivalents at period end | $89.9 million | $71.0 million | +$18.9 million |
The filing does not provide a meaningful product gross margin; reported revenue consisted of award revenue rather than product sales. The accumulated deficit was $147.6 million at March 31, 2019. Total current assets were $92.8 million versus current liabilities of $52.0 million, producing working capital of approximately $40.8 million.
Cash provided by operations primarily reflected the $27.0 million Kaken upfront payment recorded as deferred revenue, along with increases in accounts payable and accrued expenses. Financing activities provided $37.9 million, principally from the January 2019 equity offering. Investing activities used $0.1 million.
Debt was limited: notes payable were $0.2 million at March 31, 2019. Operating lease liabilities totaled $7.3 million, following adoption of the new lease accounting standard and expansion of the company’s office space.
Material changes versus the prior comparable period
- Revenue from awards increased 98% to $1.9 million, reflecting progress under the 2018 Cystic Fibrosis Foundation award.
- Research and development expense increased 123%, primarily because of approximately $10.0 million in higher clinical-trial costs, $1.1 million in higher compensation costs and $0.9 million in higher stock-based compensation.
- General and administrative expense increased 117%, including a $2.7 million royalty obligation to the Cystic Fibrosis Foundation related to the Kaken transaction.
- The net loss more than doubled, while weighted-average shares increased to 61.7 million from 56.4 million.
- On January 30, 2019, Corbus sold 6,198,500 common shares at $6.50 per share, generating approximately $37.7 million of net proceeds.
- On January 3, 2019, Corbus entered into a Japan collaboration with Kaken. The $27.0 million upfront payment was received in March and remained deferred at quarter-end; the company expected to recognize it upon satisfying the related performance obligation by June 30, 2019.
- The company adopted ASC 842 on January 1, 2019 and recognized operating lease right-of-use assets and liabilities. A February 2019 lease amendment expanded total office space to approximately 62,756 square feet.
Guidance, outlook, risks and unusual items
- Management expects significant expenses and increasing operating losses for at least the next several years as it conducts clinical trials, manufactures clinical materials, seeks regulatory approvals, expands personnel and supports public-company operations.
- Management stated that $89.9 million of cash at March 31, 2019, anticipated proceeds under the CFF award and related adjustments were expected to fund operations and capital requirements into the fourth quarter of 2020 based on then-current planned expenditures. The filing also states that substantial additional capital will be required.
- In April 2019, Corbus became entitled to an additional $5.0 million CFF milestone payment, expected by the end of the second quarter of 2019. Through March 31, 2019, it had received $12.5 million of the potential $25.0 million award.
- Corbus is required to pay CFF $2.7 million in May 2019, equal to 10% of the Kaken upfront payment. Future CFF approval and sales royalties, as well as potential Jenrin milestones and royalties, could be material if applicable.
- The Kaken agreement provides for up to approximately $173 million in development, sales and regulatory milestones and double-digit royalties, but milestone payments were fully constrained and were not recorded as revenue at quarter-end.
- Clinical, regulatory, intellectual-property, financing, foreign-exchange and execution risks remain significant. Failure to obtain additional funding could require delaying, scaling back or discontinuing clinical activities.
- No material changes to previously disclosed risk factors were reported, and no legal proceedings were reported. Management concluded disclosure controls were effective.
Investor verification items
- Verify recognition and timing of the $27.0 million Kaken upfront payment and the associated $2.7 million CFF payment.
- Track achievement and collection of the additional $5.0 million CFF milestone and the remaining potential CFF award proceeds.
- Assess clinical-trial enrollment, results, timelines and regulatory requirements for lenabasum and the planned CRB-4001 Phase 1 program.
- Reconcile the company’s projected funding runway with actual quarterly cash burn and future clinical-development spending.
- Monitor dilution from equity financings, options and outstanding warrants, including 13.1 million anti-dilutive options and warrants at March 31, 2019.
- Review contingent CFF and Jenrin royalties, milestone obligations and the expanded lease commitments.