Business context and reporting period
Corcept Therapeutics Incorporated’s Form 10-K covers the fiscal year ended December 31, 2019; it also provides unaudited quarterly results, including the quarter ended December 31, 2019. The company sells Korlym (mifepristone) in the United States for certain patients with endogenous Cushing’s syndrome and is developing selective cortisol modulators for Cushing’s syndrome, solid tumors, antipsychotic-induced weight gain and NASH.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Net product revenue | $306.5 million | $251.2 million |
| Operating income | $111.6 million | $89.5 million |
| Net income | $94.2 million | $75.4 million |
| Diluted EPS | $0.77 | $0.60 |
| Cash from operating activities | $136.1 million | $115.7 million |
| Cash, cash equivalents and investments | $315.3 million | $206.8 million |
| Working capital | $268.5 million | $201.2 million |
| Total debt | None reported | None reported |
Revenue increased 22.0% year over year, primarily from higher Korlym sales volume, with price increases also contributing. Operating expenses rose 20.5% to $194.9 million, including $89.0 million of R&D and $100.4 million of selling, general and administrative expense. Operating margin was approximately 36.4% versus 35.6%; net margin was approximately 30.7% versus 30.0%. Cost of sales was 1.8% of revenue. Investing activities used $117.8 million, mainly reflecting purchases of marketable securities; financing activities used $28.6 million, including $31.0 million of stock repurchases.
For Q4 2019, net product revenue was $87.9 million versus $66.8 million in Q4 2018, and net income was $29.4 million versus $22.0 million. Diluted EPS was $0.24 versus $0.18.
Material changes versus the prior comparable period
- Annual revenue rose from $251.2 million to $306.5 million; management attributed growth primarily to more patients receiving Korlym. Price increases represented approximately 41.6% of the 2019 revenue increase.
- R&D expense increased from $75.2 million to $89.0 million, chiefly due to personnel and discovery and development spending. Oncology and endocrinology program costs increased; spending on preclinical and clinical selective cortisol modulators declined from 2018.
- SG&A increased from $81.3 million to $100.4 million, reflecting personnel, legal and marketing costs and higher distribution expenses.
- Cash, cash equivalents and investments increased by $108.6 million. The company reported no debt at year-end and had an accumulated deficit of $23.6 million, down from $117.7 million.
- Annual net income in 2017 included a substantial tax benefit; comparisons with that year are therefore not directly representative of operating growth.
Outlook, risks and unusual items
- Management expected 2020 R&D and SG&A expenses to exceed 2019 levels as clinical programs, commercial activity and intellectual-property litigation advanced. It expected to fund its current plans without raising additional capital, though it could choose to raise funds. The supplied filing text does not provide a clear numerical 2020 revenue guidance value.
- Key pipeline programs included the Phase 3 GRACE trial of relacorilant for Cushing’s syndrome; a Phase 2 relacorilant combination trial in ovarian cancer; dose-finding trials in castration-resistant prostate cancer; and miricorilant studies in antipsychotic-induced weight gain. The company also planned further trials, including relacorilant in adrenal Cushing’s syndrome and miricorilant in NASH. These programs remain subject to clinical and regulatory uncertainty.
- Korlym’s orphan exclusivity ended in February 2019. Corcept was litigating against Teva and Sun over proposed generic versions. The filing warned Teva could elect to market after the 30-month stay expires on August 1, 2020, despite ongoing litigation. The PTAB had granted Teva’s review petition concerning one patent; a decision was expected around November 2020. Separately, the PTAB upheld the validity of another patent challenged by Neptune in February 2020, subject to possible further proceedings.
- Other material risks include competition from existing and prospective Cushing’s treatments, dependence on a single Korlym API supplier and specialty pharmacy, reimbursement and pricing pressures, and clinical-trial, manufacturing, regulatory and patent risks.
- The company disclosed a securities class action and two shareholder derivative actions; outcomes were uncertain. Management stated that ordinary-course legal matters were not expected to have a material adverse effect. The auditor identified inventory excess and obsolescence estimates as a critical audit matter; year-end inventory was $17.4 million, including $12.0 million classified as strategic inventory.
- Corcept repurchased $31.0 million of common stock in 2019 under its repurchase program. It also adopted lease accounting requirements in 2019, recognizing lease right-of-use assets and liabilities; prior-year results were not restated.
Important facts for investors to verify
- Korlym patient and unit growth versus price and payer mix, including the sustainability of price increases and government rebates.
- Updates on Teva and Sun generic litigation, the relevant patent proceedings and any generic entry or impact on revenue.
- Enrollment, timing, safety and efficacy data for GRACE and the oncology and miricorilant programs; the filing gives plans and interim findings, not approval outcomes.
- Whether revenue and operating cash flow can support the higher expected 2020 R&D and SG&A spending without external financing.
- Inventory demand assumptions and reserve estimates, as well as continued supply and distribution through the company’s concentrated vendor relationships.
- Developments in the securities and derivative litigation and any resulting financial exposure.