Corbus Pharmaceuticals Holdings, Inc. — Q3 2017 Form 10-Q Summary
Business context and reporting period
Clinical-stage pharmaceutical company developing anabasum, an oral CB2 receptor agonist for rare inflammatory and fibrotic diseases, including systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The filing covers the three and nine months ended September 30, 2017; financial statements are unaudited.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Collaboration revenue | $0.8 million | $0.7 million | $2.4 million | $1.5 million |
| Research and development expense | $5.6 million | $4.3 million | $17.8 million | $10.1 million |
| General and administrative expense | $2.1 million | $1.8 million | $6.4 million | $3.9 million |
| Net loss | $7.0 million | $5.3 million | $21.7 million | $12.4 million |
| Net loss per share | $0.14 | $0.12 | $0.44 | $0.31 |
| Cash used in operations | Not separately provided | Not separately provided | $18.7 million | $8.1 million |
The company has no product sales and remains unprofitable. Q3 operating expenses of $7.8 million substantially exceeded collaboration revenue of $0.8 million. Nine-month operating loss was $21.7 million, compared with $12.4 million in the prior-year period.
At September 30, 2017, cash and cash equivalents were $36.6 million, restricted cash was $0.2 million, current assets were $38.0 million, current liabilities were $6.3 million, and working capital was approximately $31.7 million. Total liabilities were $6.4 million and stockholders’ equity was $32.0 million. Notes payable were fully repaid; remaining debt consisted primarily of a $5,628 capital lease obligation and operating lease commitments.
Material changes versus the prior comparable period
- Q3 collaboration revenue increased 7% to $0.8 million; nine-month revenue increased 59% to $2.4 million. This revenue came from the Cystic Fibrosis Foundation Therapeutics award and was not product revenue.
- Q3 research and development expense increased 30%, driven primarily by higher compensation, clinical-trial costs and stock-based compensation. Nine-month R&D expense increased 77%, principally because of higher clinical-trial costs, compensation and stock-based compensation.
- Q3 general and administrative expense increased 21%; nine-month expense increased 64%, reflecting higher stock-based compensation, investor-relations, recruiting, insurance and consulting costs.
- Q3 net loss increased 30% and nine-month net loss increased 75%. Nine-month operating cash use increased 131% year over year.
- Common shares outstanding increased to 50.2 million at September 30, 2017 from 44.7 million at December 31, 2016, primarily due to equity financings and option exercises. Nine-month stock-based compensation expense was $4.2 million versus $1.5 million in 2016.
- The CFFT development award reached its final milestone in September 2017. The remaining $0.5 million receivable was collected in November 2017, and deferred revenue was reduced to zero.
Guidance, outlook, risks and unusual items
- Management expected to begin Phase 3 systemic sclerosis and Phase 2b cystic fibrosis studies in the fourth quarter of 2017 and expected to begin a Phase 2 systemic lupus erythematosus study during the same quarter. The company also planned further regulatory discussions regarding dermatomyositis.
- On October 26, 2017, the company sold 4.65 million common shares at $7.00 per share, generating approximately $30.4 million of net proceeds. Underwriters received a 30-day option to purchase up to 697,500 additional shares.
- Management stated that September 30 cash, the October offering proceeds and the $0.5 million CFFT payment were expected to fund operations and capital requirements for at least 12 months from filing; the MD&A separately stated that funding was expected to extend into the fourth quarter of 2019 based on current planned expenditures.
- The company expects continuing operating losses and negative operating cash flow and will need substantial additional capital to fund anabasum development. Future financing could dilute shareholders, impose restrictive covenants or require relinquishment of valuable rights.
- The August 2017 lease covers 32,733 square feet for an initial seven-year term, with total operating lease commitments of $5.5 million and a $0.4 million standby letter of credit.
- Key risks include clinical-trial execution, regulatory approval, intellectual-property protection, reliance on additional financing, retention of key personnel, uncertain estimates of clinical costs and the possibility that anabasum may never achieve commercialization or profitability.
- No legal proceedings, material changes to previously disclosed risk factors, material off-balance-sheet arrangements or defaults were reported.
Important facts for investors to verify
- Confirm the status, timing, enrollment and results of the planned systemic sclerosis, cystic fibrosis and SLE trials and subsequent regulatory interactions.
- Reconcile the stated cash runway, including the October 2017 equity offering, the November 2017 CFFT receipt, ongoing monthly cash burn and expected clinical-trial spending.
- Assess the dilution impact of the October offering, the underwriters’ additional-share option, outstanding options and 1.3 million warrants.
- Verify that collaboration revenue has ended with completion of the CFFT performance obligations and evaluate the contingent royalty obligations if anabasum is commercialized or transferred.
- Monitor the $5.5 million office lease, related letter of credit and expansion-related operating costs.