Corvus Pharmaceuticals, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The unaudited results are for a clinical-stage immuno-oncology company with no product revenue. Corvus completed its IPO during the quarter, and its preferred shares converted to common stock immediately before the offering closed.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $5.397 million | $1.924 million |
| General and administrative expense | $1.029 million | $0.290 million |
| Total operating expenses / operating loss | $6.426 million | $2.214 million |
| Net loss | $6.347 million | $1.913 million |
| Net loss per share, basic and diluted | $5.39 | $6.44 |
| Cash used in operating activities | $5.636 million | $2.324 million |
- At March 31, cash and cash equivalents were $4.065 million and marketable securities were $148.235 million, totaling approximately $152.3 million. Marketable securities were U.S. Treasury securities. Current assets were $154.072 million; current liabilities were $3.383 million.
- Q1 investing cash outflow was $58.747 million, principally reflecting purchases of marketable securities, net of maturities, and $0.614 million of property and equipment purchases. Financing cash inflow was $64.343 million, primarily from the IPO.
- Total liabilities were $4.674 million; the filing reports no borrowings or debt financing. No profit margin is meaningful because Corvus had no revenue.
- The March 2016 IPO sold 4.7 million shares at $15 per share. The company reported approximately $63.7 million of net proceeds after discounts, commissions and estimated offering expenses. On April 26, it sold a further 502,618 shares through partial exercise of the underwriters’ option, generating approximately $7.0 million net proceeds.
Changes versus the prior comparable period
- Net loss increased by $4.434 million year over year as operating expenses rose by $4.212 million. R&D expense increased $3.473 million, reflecting clinical-trial and drug-supply costs for CPI-444, higher headcount and overhead, and increased work on other programs. G&A increased $0.739 million, including higher personnel and public-company preparation costs.
- Interest income rose to $79,000 from $1,000, alongside the larger investment portfolio. Q1 2015 included a $300,000 gain from remeasurement of a preferred-stock liability; no such item was recorded in Q1 2016.
- Loss per share improved despite the larger net loss, but the comparison is affected by changes in the weighted-average share count and the preferred-stock conversion; it should not be read as an improvement in operating performance.
Business outlook, risks and other notable items
- The lead candidate, CPI-444, is an oral A2A adenosine-receptor antagonist. Patient enrollment in its Phase 1/1b trial began in January 2016; the trial is evaluating it alone and with Genentech’s atezolizumab across solid tumors. Corvus also identified a lead anti-CD73 antibody candidate and planned to select candidates for two other programs during 2016.
- Management expects R&D and G&A spending, and losses, to increase. It said available resources should fund planned expenditures and obligations for at least the next 12 months, but also stated that existing resources are not expected to fund CPI-444’s remaining development through commercialization. Additional financing may be needed; equity could dilute shareholders, debt could impose repayment obligations and covenants, and collaborations could require relinquishing product rights.
- The principal uncertainties include clinical efficacy and safety, trial enrollment and timing, regulatory approval, manufacturing and reliance on third parties, competition, intellectual-property rights, and the availability and terms of future financing. The filing notes possible added safety concerns for CPI-444 in cancer patients and in combination with atezolizumab; prior third-party studies reported mild transient hypertension and minor gastrointestinal effects.
- Contractual commitments include $4.125 million of future minimum facility lease payments as of March 31, 2016. Potential Vernalis and Scripps milestones and royalties are contingent and not included in that amount. Vernalis’ potential milestone payments exceed $200 million; Scripps’ aggregate potential milestones are $2.6 million.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the cash-and-investments figure: the balance sheet and MD&A liquidity discussion report approximately $152.3 million at March 31, while one risk-factor passage states $153.2 million. The balance-sheet components sum to $152.3 million.
- Assess whether the stated 12-month funding horizon is consistent with management’s separate statement that resources will not fund CPI-444 through commercialization, and monitor burn rate and financing needs.
- Track CPI-444 trial enrollment, safety, efficacy and combination-treatment findings, along with progress on the anti-CD73 program and other candidates.
- Review the potential dilution from outstanding options and shares eligible for sale after IPO lock-ups expire, as well as the terms and obligations in the Vernalis and Scripps licenses.