Corbus Pharmaceuticals Holdings, Inc. — Q1 2017 Form 10-Q Summary
Business Context and Reporting Period
Corbus is a clinical-stage pharmaceutical company developing anabasum, an oral CB2 agonist for rare inflammatory and fibrotic diseases, including systemic sclerosis, cystic fibrosis, dermatomyositis, and systemic lupus erythematosus. The filing covers the three months ended March 31, 2017, with comparisons to the three months ended March 31, 2016. The interim financial statements are unaudited.
The company has not generated product sales and remains dependent on equity financings, grants, and collaborations. Anabasum had Orphan Drug and Fast Track designations for cystic fibrosis and systemic sclerosis in the United States, and Orphan Drug designations for those indications in Europe.
Financial Highlights
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Collaboration revenue | $1.294 million | $0.397 million | +$0.897 million |
| Research and development expense | $6.366 million | $2.174 million | +$4.192 million |
| General and administrative expense | $2.380 million | $1.110 million | +$1.270 million |
| Operating loss | $7.453 million | $2.887 million | +$4.565 million loss |
| Net loss | $7.465 million | $2.892 million | +$4.573 million loss |
| Basic and diluted loss per share | $0.16 | $0.08 | Loss per share doubled |
| Net cash used in operating activities | $6.636 million | $2.515 million | +$4.121 million use |
Revenue consisted entirely of collaboration revenue from the Cystic Fibrosis Foundation Therapeutics award; there was no product revenue. Based on reported collaboration revenue, the approximate operating and net loss margins were negative 576% and negative 577%, respectively, although these percentages are not economically representative of a commercial business because revenue was milestone- and award-related rather than product-based.
Stock-based compensation was $1.583 million, compared with $0.311 million in the prior-year quarter. Research and development expense increased primarily because of higher clinical trial costs, compensation, and stock-based compensation. General and administrative expense increased mainly because of stock-based compensation, investor relations, compensation, financial consulting, and public-company costs.
Cash, Liquidity, Debt, and Capital Resources
- Cash and cash equivalents were $48.927 million at March 31, 2017, compared with $14.992 million at December 31, 2016. Including restricted cash, total cash, cash equivalents, and restricted cash was $49.127 million.
- Current assets were $50.148 million and current liabilities were $6.956 million, producing working capital of approximately $43.192 million.
- Total liabilities were $7.021 million and stockholders’ equity was $43.586 million.
- Financing activities provided $40.611 million, including approximately $27.2 million of net proceeds from a registered direct offering and approximately $13.4 million of net proceeds from the at-the-market offering. The company also received $0.080 million from stock-option exercises.
- Notes payable were $0.156 million, all classified as current. The company reported no long-term notes payable.
- Operating and capital lease commitments totaled approximately $0.978 million, including $0.969 million of office lease obligations.
- Management stated that cash on hand at March 31, 2017, together with an expected $0.5 million final CFFT milestone payment, was expected to fund operations and capital requirements through the fourth quarter of 2018 based on current planned expenditures.
Material Changes Versus the Prior Comparable Period
- Collaboration revenue increased 226%, reflecting amortization of CFFT award funding and a higher stage of completion of the cystic fibrosis Phase 2 program.
- Research and development expense increased approximately 193%, primarily due to higher clinical trial activity.
- General and administrative expense increased approximately 114%, including a substantial increase in stock-based compensation.
- Net loss increased from $2.892 million to $7.465 million, and loss per share increased from $0.08 to $0.16.
- Operating cash burn increased to $6.636 million from $2.515 million.
- Cash increased substantially because of approximately $41.35 million of gross common-stock issuance proceeds, partially offset by operating cash use, financing costs, debt payments, and capital expenditures.
- Common shares outstanding increased to 50.144 million at March 31, 2017 from 44.682 million at December 31, 2016, indicating meaningful equity dilution during the quarter.
Guidance, Outlook, Risks, and Unusual Items
Management expected the Phase 3 systemic sclerosis study to commence in the fourth quarter of 2017. The company submitted a Phase 3 protocol to the FDA on March 31, 2017 and expected EMA protocol assistance in the second quarter of 2017. The company reported positive top-line data from its cystic fibrosis Phase 2 study at the end of March 2017 and was developing the next trial protocol with external cystic fibrosis organizations. A Phase 2 dermatomyositis study was expected to be completed in the fourth quarter of 2017, and a Phase 2 systemic lupus erythematosus study was planned for the second half of 2017.
The FDA did not grant the company’s recent Breakthrough Therapy Designation application for systemic sclerosis. Management stated that existing Fast Track status provides certain opportunities for enhanced FDA interaction, Priority Review eligibility, and rolling review of completed portions of a New Drug Application.
- The company expects significant increases in clinical, manufacturing, regulatory, personnel, and public-company expenses and anticipates continuing operating losses for at least several years.
- Additional capital will be needed to fund operations and anabasum clinical development beyond 2018. Future financing may be dilutive or unavailable on acceptable terms.
- Key risks include failure or delay of clinical trials, inability to obtain regulatory approval, uncertain product-market acceptance, intellectual-property challenges, dependence on key personnel, inaccurate expense estimates, and inability to support growth.
- The CFFT award included potential future royalty and other payment obligations tied to commercialization, sales, licensing, or a change in control of anabasum. The final $0.5 million award milestone was expected in the second quarter of 2017, subject to achievement of the applicable milestone.
- The company early adopted the restricted-cash presentation standard. It planned to adopt the new revenue-recognition standard in the first quarter of 2018 and stated that the standard could affect milestone and contingent-payment accounting. The new lease standard is expected to affect the balance sheet because of the company’s operating lease commitment.
- No material legal proceedings, off-balance-sheet arrangements, or changes to previously reported risk factors were disclosed.
Important Facts for Investors to Verify
- Whether the final $0.5 million CFFT milestone was achieved and received in the second quarter of 2017.
- Progress, regulatory feedback, and timing for the planned Phase 3 systemic sclerosis trial.
- Confirmatory details and follow-up results from the cystic fibrosis Phase 2 study.
- Cash burn, remaining liquidity, and the timing and terms of future financing requirements.
- Potential dilution from the at-the-market facility, stock options, and warrants; at March 31, 2017, the company had 7.513 million options and 1.289 million warrants outstanding.
- The potential magnitude and timing of CFFT royalty or other contingent payment obligations if anabasum is commercialized, licensed, sold, or involved in a change-of-control transaction.