Business Context and Reporting Period
Corbus Pharmaceuticals Holdings, Inc. is a clinical-stage pharmaceutical company developing Resunab, an oral CB2 receptor agonist, for rare inflammatory and fibrotic diseases. The Form 10-Q covers the three and nine months ended September 30, 2016; results are unaudited.
Resunab was being evaluated in Phase 2 studies for cystic fibrosis, systemic sclerosis, and dermatomyositis. A Phase 2 systemic lupus erythematosus study was planned for the first half of 2017.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 |
|---|---|---|
| Collaboration revenue | $742,558 | $1,535,754 |
| Research and development expense | $4,315,632 | $10,056,568 |
| General and administrative expense | $1,760,696 | $3,891,810 |
| Total operating expenses | $6,076,328 | $13,948,378 |
| Operating loss | $(5,333,770) | $(12,412,624) |
| Net loss | $(5,346,768) | $(12,428,400) |
| Net loss per share | $(0.12) | $(0.31) |
| Net cash used in operating activities | Not separately provided | $(8,242,602) |
The company generated no product sales revenue. Collaboration revenue related to the Cystic Fibrosis Foundation Therapeutics award. Operating and net profit margins were not meaningful because the company remained loss-making and had no commercial product revenue.
- Cash and cash equivalents were $18.9 million at September 30, 2016, compared with $12.3 million at December 31, 2015.
- Working capital was approximately $12.8 million, based on current assets of $19.2 million and current liabilities of $6.4 million.
- Total assets were $19.8 million; total liabilities were $6.4 million; stockholders’ equity was $13.3 million.
- Notes payable were fully repaid as of September 30, 2016. The company subsequently entered into a $348,750 financing agreement in October 2016.
- Operating lease commitments totaled $1.08 million, and capital lease commitments totaled $10,222, as of September 30, 2016.
- The accumulated deficit was $25.7 million.
Material Changes Versus the Prior Comparable Period
- Third-quarter collaboration revenue increased to $742,558 from $170,454; nine-month revenue increased to $1.54 million from $284,090.
- Third-quarter research and development expense increased approximately 164% to $4.32 million, primarily due to higher clinical-trial costs, compensation, and stock-based compensation.
- Nine-month research and development expense increased approximately 147% to $10.06 million, primarily reflecting an approximately $4.80 million increase in clinical-trial costs.
- Third-quarter general and administrative expense increased approximately 123% to $1.76 million. Nine-month general and administrative expense increased approximately 51% to $3.89 million.
- Third-quarter net loss increased to $5.35 million from $2.25 million; nine-month net loss increased to $12.43 million from $6.35 million.
- Net cash used in operating activities increased to $8.24 million for the nine months from $3.74 million in the prior-year period.
- June 2016 equity financing generated approximately $14.875 million of net proceeds from the sale of 5.96 million common shares at $2.50 per share, increasing shares outstanding and diluting existing holders.
- Cash increased despite higher operating losses, primarily because equity-financing proceeds exceeded operating and investing cash needs.
Outlook, Risks, Contingencies, and Unusual Items
- Management expected continuing and increasing operating losses as clinical trials, manufacturing, regulatory activities, personnel costs, and public-company expenses expanded.
- Based on planned expenditures, management expected cash on hand plus approximately $1.5 million of remaining CFFT milestone payments to fund operations and capital requirements into the fourth quarter of 2017.
- The remaining CFFT funding was contingent on achieving clinical-trial milestones and was expected incrementally in the first quarter of 2017.
- The company stated that substantial additional capital would be required to continue operations and fund Resunab clinical trials. Potential sources included equity, convertible debt, credit facilities, collaborations, and grants, with possible dilution, restrictive covenants, or loss of valuable rights.
- Management expected top-line systemic sclerosis data in the fourth quarter of 2016, cystic fibrosis data in the first quarter of 2017, and completion of dermatomyositis enrollment by the end of the second quarter of 2017.
- The CFFT award carried contingent royalty and other payment obligations upon commercialization, certain sales thresholds, licensing or transfer transactions, or a change in control.
- The company’s principal risks included clinical-trial failure or delay, inability to obtain regulatory approval, intellectual-property challenges, inability to raise capital, dependence on key personnel, and uncertainty regarding expense estimates.
- The company reported no legal proceedings, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements.
- Restricted cash increased to $186,375, including collateral for corporate credit cards and a landlord letter of credit. The office lease was amended to add space, increasing the required standby letter of credit to $50,000.
Important Facts for Investors to Verify
- Whether the projected cash runway into the fourth quarter of 2017 remained achievable after subsequent clinical, operating, and financing developments.
- Whether the remaining $1.5 million in CFFT milestone funding was received and whether related clinical milestones were achieved.
- The timing and results of the systemic sclerosis and cystic fibrosis Phase 2 programs and the status of planned dermatomyositis and SLE studies.
- Future financing requirements, potential equity dilution, and terms of any debt or strategic funding.
- The contingent royalty and other payment obligations under the CFFT award if Resunab is commercialized, licensed, transferred, or involved in a change-of-control transaction.
- The increase in clinical-trial accruals and accounts payable, including whether these balances were consistent with actual vendor services and trial progress.
- Subsequent obligations under the October 2016 $348,750 loan and the expanded office lease.