Corcept Therapeutics Incorporated — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Financial statements are unaudited. Corcept is a pharmaceutical company whose only commercial product is Korlym (mifepristone), approved for certain adults with endogenous Cushing’s syndrome; it is also developing selective cortisol modulators.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net product revenue | $35.6 million | $19.7 million | $63.2 million | $35.8 million |
| Income from operations | $12.8 million | $1.5 million | $17.5 million | $2.1 million |
| Net income | $12.6 million | $1.0 million | $17.0 million | $1.0 million |
| Diluted earnings per share | $0.10 | $0.01 | $0.14 | $0.01 |
- Revenue increased 80% year over year in Q2 and 76% in the first half; management attributed growth to higher sales volume and price increases.
- Cost of sales was 2.2% of revenue in Q2 and for the first half, approximately 97.8% gross margin. Operating margin was approximately 36.0% for Q2 and 27.8% for the first half.
- Q2 R&D expense rose 39% to $7.9 million; first-half expense rose 46% to $15.1 million, mainly reflecting CORT125134 development and additional clinical-development hiring. Q2 SG&A rose 17% to $14.1 million; first-half SG&A rose 29% to $29.2 million, primarily due to commercial organization growth.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $33.6 million; short- and long-term marketable securities were $34.0 million. Combined cash, cash equivalents and marketable securities were approximately $67.7 million, compared with $51.5 million in cash and cash equivalents at year-end 2016.
- First-half operating cash flow was $25.1 million, versus $4.9 million in 2016. Investing cash use was $34.4 million, primarily purchases of marketable securities; financing cash use was $8.7 million, including $10.5 million of obligation payments.
- The Biopharma revenue-linked financing obligation had $4.6 million remaining at June 30 and was paid in full in July 2017. No further payments are due. The company reported no off-balance-sheet arrangements.
- Total assets were $86.5 million and stockholders’ equity was $66.1 million at June 30. Current liabilities were $20.4 million; the balance sheet showed a $4.6 million current portion of the obligation before its July repayment.
Changes, outlook and notable items
- Compared with first-half 2016, first-half revenue and operating cash generation rose substantially, and net income increased to $17.0 million from $1.0 million. The company attributed revenue growth to volume and pricing; expenses also increased as commercial and development activity expanded.
- Management expected second-half 2017 R&D and SG&A spending to exceed the corresponding 2016 period. It stated that current plans were expected to be funded without additional capital, while noting that it could raise funds for strategic priorities. The filing refers to 2017 revenue guidance but does not provide a clear guidance amount in the supplied text.
- CORT125134 trials were enrolling in Cushing’s syndrome and in combination with nab-paclitaxel for solid tumors. Management expected CORT118335 and CORT125281 to enter Phase 1 trials in 2017.
- Management reported a full valuation allowance on deferred tax assets, while noting a reasonable possibility that some allowance could be released within 12 months. It had not completed its assessment of the accounting impact of the revenue-recognition standard planned for adoption in 2018.
- Key risks include dependence on Korlym revenue, reimbursement and pricing uncertainty, competition, clinical and regulatory setbacks, and reliance on single-source Korlym manufacturers and a specialty pharmacy. The company reported ordinary-course legal matters and did not expect their outcome to materially harm its business or financial results. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Korlym sales growth and pricing are sustainable, and how payer coverage, rebates and patient access affect net revenue.
- The actual 2017 revenue guidance amount and subsequent performance against it; the supplied filing text does not state the amount clearly.
- Clinical-trial enrollment, safety and efficacy progress for CORT125134 and timing for CORT118335 and CORT125281.
- Post-quarter completion of the $4.6 million Biopharma payoff and the effect of higher planned operating expenses on cash generation.
- Supply continuity and manufacturing capacity given reliance on single-source suppliers, alongside the potential impact of competition and regulatory changes.