Corbus Pharmaceuticals Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
Corbus is a clinical-stage biopharmaceutical company developing therapeutics for rare inflammatory-fibrotic diseases. Its principal product candidate, Resunab, was expected to enter Phase IIa studies for cystic fibrosis and scleroderma after FDA clearance of an Investigational New Drug application. The filing covers the quarter and nine months ended September 30, 2014; the financial statements are unaudited.
On April 11, 2014, the company completed a reverse acquisition and recapitalization. Corbus Pharmaceuticals, Inc. became a wholly owned subsidiary of Corbus Pharmaceuticals Holdings, Inc., and historical financial information reflects Corbus Pharmaceuticals, Inc. as the accounting acquirer.
Financial performance and liquidity
| Metric | Three months ended September 30, 2014 | Three months ended September 30, 2013 | Nine months ended September 30, 2014 | Nine months ended September 30, 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $452,600 | $28,971 | $683,960 | $225,922 |
| General and administrative expense | $365,603 | $16,374 | $704,185 | $55,097 |
| Total operating expenses | $818,203 | $45,345 | $1,388,145 | $281,019 |
| Operating loss | $(818,203) | $(45,345) | $(1,388,145) | $(281,019) |
| Net loss | $(659,621) | $(59,552) | $(1,280,208) | $(312,472) |
| Basic and diluted loss per share | $(0.03) | $(0.01) | $(0.07) | $(0.04) |
Revenue and profit margins were not meaningful because the company had no product sales and remained loss-making. The nine-month operating loss increased approximately 394%, while the nine-month net loss increased approximately 310% versus the prior-year period.
- Cash and cash equivalents were $7.54 million at September 30, 2014, compared with $303,000 at December 31, 2013.
- Working capital was approximately $6.94 million, based on current assets of $7.56 million and current liabilities of $614,000.
- Net cash used in operating activities was $1.04 million for the nine months ended September 30, 2014, compared with $243,000 in the prior-year period.
- Net cash used in investing activities was $64,448, primarily for property and equipment.
- Net cash provided by financing activities was $8.34 million, including $10.26 million of gross common-stock proceeds and $1.81 million of offering costs.
- Total debt declined to $75,244 from $638,078 at December 31, 2013. The remaining debt was current and payable in 2014.
- Accumulated deficit was $3.17 million, and stockholders’ equity was $7.02 million at September 30, 2014.
Material changes versus the prior comparable period
- Research and development expense rose $424,000 in the third quarter and $458,000 for the nine-month period, primarily due to Resunab manufacturing for clinical trials, consulting, compensation, recruiting, and lower research-grant offsets.
- General and administrative expense rose $350,000 in the third quarter and $649,000 for the nine-month period, reflecting higher employee compensation, investor relations, legal, stock compensation, board and consulting costs.
- Other income in the third quarter included a $145,006 gain on settlement of debt. The company paid a vendor $90,000 and issued common stock and warrants in settlement of obligations with an aggregate stated amount of approximately $631,000.
- The company completed a private placement of 10.26 million common shares and warrants in April and May 2014, generating approximately $8.45 million of net proceeds.
- Series A convertible and non-convertible preferred stock was converted into 2.04 million common shares. Common shares outstanding increased to 25.80 million from 6.96 million at December 31, 2013.
- A derivative warrant liability was reclassified to additional paid-in capital after warrant terms were modified; no derivative warrant liability remained at September 30, 2014.
Guidance, outlook, risks and unusual items
Management expected operating losses to continue and projected that cash on hand would fund operating and capital requirements until at least December 2015. The company stated that substantial additional capital would be required for Resunab clinical trials, research and development, expansion and other operating needs. Future financing could dilute existing stockholders, impose debt covenants or require the company to surrender valuable rights, and financing may not be available on acceptable terms.
- Resunab had completed Phase I safety studies but had not entered Phase II clinical studies. FDA acceptance of the applicable INDs was required before human trials could begin.
- The company depended substantially on the successful development, regulatory approval and commercialization of Resunab and had no approved products or product revenue.
- Key risks included clinical-trial failure or delay, FDA or other regulatory action, manufacturing and supply-chain failures, intellectual-property challenges, competition, product liability and inability to recruit or retain personnel.
- The company entered a three-year office lease beginning July 1, 2014. Remaining disclosed rent commitments totaled approximately $154,198, and restricted cash of $13,725 supported a landlord letter of credit.
- The board approved a potential reverse stock split in a range of 1-for-1.25 to 1-for-5, later approved by stockholders on October 8, 2014. As of the filing date, the board had not determined to implement it; the stated purpose was to support potential NASDAQ or NYSE MKT listing requirements.
- The company reported no legal proceedings, no material off-balance-sheet arrangements and effective disclosure controls as of September 30, 2014.
Important facts for investors to verify
- Confirm the timing and outcome of FDA IND submissions and the actual commencement, enrollment and results of Resunab clinical trials.
- Reconcile the company’s cash runway with its stated expectation of funding through at least December 2015 and its projected clinical-development spending.
- Review subsequent equity, debt, warrant and option issuances for dilution, including the October 2014 option grants and the large warrant overhang.
- Verify whether the reverse stock split was implemented and whether the company achieved or pursued a national exchange listing.
- Assess the terms and remaining obligations of the $75,244 note payable and the debt settlement that generated the $145,006 accounting gain.
- Evaluate the company’s ability to raise additional capital given recurring losses, lack of revenue and dependence on a single product candidate.