Corcept Therapeutics Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Financial statement amounts below are in millions of dollars unless noted. The company commercializes Korlym for certain adults with endogenous Cushing’s syndrome and is developing additional cortisol-modulating therapies.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net product revenue | $19.7 | $12.0 | $35.8 | $22.1 |
| Cost of sales | $0.4 | $0.4 | $0.8 | $0.7 |
| Research and development | $5.7 | $3.3 | $10.3 | $7.7 |
| Selling, general and administrative | $12.1 | $9.3 | $22.5 | $18.8 |
| Operating income (loss) | $1.5 | $(1.2) | $2.1 | $(5.2) |
| Net income (loss) | $1.0 | $(1.9) | $1.0 | $(6.8) |
| Net income (loss) per share | $0.01 | $(0.02) | $0.01 | $(0.06) |
- Revenue increased approximately 65% in Q2 and 62% for the first half, primarily from higher Korlym sales volume and price increases. Management reported cost of sales at 2.2% of Q2 revenue and 2.3% of first-half revenue, versus 3.7% and 3.4% in the prior-year periods.
- Q2 operating income and net income turned positive from losses a year earlier; first-half results also improved to modest profitability. R&D spending rose chiefly with CORT125134 development; SG&A growth reflected staffing, professional services and distribution costs.
- Six-month operating cash flow was positive $4.9 million, compared with negative $1.9 million in 2015. Cash and cash equivalents were $41.8 million at June 30, up from $40.4 million at year-end. The filing does not present a separate cash-flow figure for Q2 alone.
- Current assets were $54.8 million and current liabilities $27.4 million at June 30. Total assets were $56.8 million; stockholders’ equity was $25.7 million. The company reported no off-balance-sheet arrangements.
- The Biopharma capped-royalty financing obligation is recorded at $22.3 million, including $18.6 million current and $3.7 million long-term. The contractual repayment cap is $45 million; $21.4 million had been paid through June 30, with a further $4.0 million paid in July. Corcept expected to repay the obligation in 2017.
Material changes and business developments
- Korlym revenue growth drove the move to GAAP profitability. The company said Korlym revenue now supports operations and expected to remain cash-flow breakeven under its current plans without raising additional funds.
- R&D expense increased as CORT125134 entered Phase 2 studies: one for Cushing’s syndrome and one in combination with anticancer agents for solid-tumor cancers. The company also expected to begin Phase 1 trials of one or more additional compounds in 2017.
- Enrollment was complete in the efficacy phase of the Phase 1/2 Korlym-plus-eribulin trial for metastatic triple-negative breast cancer; results were expected in Q3 2016.
- Effective January 1, 2016, the company began recognizing specialty-distributor sales when sold to the distributor rather than when resold. Such sales were less than 2% of Q2 revenue.
Outlook, commentary and key risks
- Management referred to guidance for 2016 net product revenue, but the supplied filing text does not provide a clear guidance amount. Management cautioned that actual results may differ and Korlym sales are difficult to predict.
- The company anticipated higher R&D spending as clinical, preclinical and discovery programs advanced, and potentially higher SG&A as the commercial business grew. It said additional financing could be pursued for strategic priorities, although current plans were expected to be funded without it.
- Key risks include reliance on Korlym as the principal revenue source; reimbursement, pricing and physician-adoption uncertainty; competition; and dependence on a single API supplier and a single tablet manufacturer. Manufacturing disruption could affect product supply and revenue.
- Clinical programs face uncertain efficacy and safety, enrollment and regulatory timelines, and possible need for further trials or funding. The Biopharma agreement also includes payment acceleration and other covenant provisions, including on a change of control.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings.
Most important facts for investors to verify
- Current 2016 revenue guidance and subsequent Korlym sales, pricing, reimbursement and adoption trends.
- Results and timing of the TNBC trial, and progress, safety and enrollment in the CORT125134 studies.
- Whether operating cash flow remains positive as commercial and development spending rises.
- Actual Biopharma payments and remaining obligation, including the effect of its covenants and acceleration provisions.
- Supplier capacity and continuity for Korlym, and any changes in competition, regulatory requirements or government rebates.