Corbus Pharmaceuticals Holdings, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Corbus is a clinical-stage pharmaceutical company developing lenabasum, an oral CB2-targeting therapy for rare inflammatory and fibrotic diseases. The company is evaluating lenabasum in systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The filing covers the three months ended March 31, 2018; financial statements are unaudited.
- Clinical programs included a planned Phase 3 systemic sclerosis study, a Phase 2b cystic fibrosis study and a Phase 2 systemic lupus erythematosus study.
- The company had not generated product-sales revenue and had 50 full-time employees as of March 31, 2018.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue from awards | $0.95 million | $1.29 million |
| Research and development expense | $9.77 million | $6.37 million |
| General and administrative expense | $3.05 million | $2.38 million |
| Operating loss | $11.86 million | $7.45 million |
| Net loss | $11.70 million | $7.47 million |
| Basic and diluted loss per share | $0.21 | $0.16 |
| Net cash used in operating activities | $1.60 million | $6.64 million |
- Cash and cash equivalents were $70.96 million at March 31, 2018, compared with $62.54 million at December 31, 2017. Working capital was approximately $64.21 million.
- Total assets were $77.14 million and total liabilities were $11.60 million. Accumulated deficit was $77.39 million.
- Debt was limited: notes payable were $0.21 million, and the company made $0.12 million of principal payments during the quarter.
- Cash used in investing activities was $1.27 million, primarily for office construction and property and equipment. Cash provided by financing activities was $11.13 million.
- The company sold 1.5 million common shares under a $50 million at-the-market facility for approximately $11.2 million of net proceeds. It also received $6.25 million under the 2018 Cystic Fibrosis Foundation award.
- Stock-based compensation expense was $1.88 million, compared with $1.58 million in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue declined $0.34 million, or approximately 27%, because the prior-year amount related to the completed 2015 CFFT award, while Q1 2018 revenue related to the new 2018 CFF award.
- Research and development expense increased $3.40 million, primarily from higher clinical-trial costs, compensation and stock-based compensation.
- General and administrative expense increased $0.67 million, primarily from higher compensation, consulting and other public-company costs.
- Net loss increased $4.23 million, reflecting higher operating expenses despite approximately $0.20 million of net other income in Q1 2018.
- Operating cash use improved year over year because receipt of the $6.25 million CFF payment and increases in payables and accrued expenses offset a larger net loss.
- The company adopted ASC 606 using the modified retrospective method. The adoption had no cumulative transition adjustment, but it increased Q1 2018 award revenue by approximately $0.45 million versus the former accounting model and created a $0.92 million contract asset.
- Office and lease commitments increased following occupancy of a new 32,733-square-foot facility in February 2018. Future operating lease payments totaled $5.38 million as of March 31, 2018.
Guidance, outlook, risks and unusual items
- Management expects continuing and increasing operating losses as clinical development, manufacturing, regulatory, personnel and public-company costs rise. Profitability is not expected unless lenabasum is successfully approved and commercialized.
- Management stated that $70.96 million of cash and cash equivalents at quarter-end was expected to fund operations and capital requirements for at least 12 months from filing. Separately, management projected available cash plus the up-to-$25 million 2018 CFF award would fund planned operations through the end of Q4 2019, subject to milestone achievement and current spending plans.
- The 2018 CFF award provides up to $25 million for the Phase 2b cystic fibrosis trial. In May 2018, the company became entitled to an additional $6.25 million milestone payment, expected by the end of Q2 2018.
- The company issued CFF a warrant for up to 1 million shares at $13.20 per share, with a $6.22 million fair value recorded in additional paid-in capital. The warrant creates potential dilution.
- Future CFF payments depend on clinical milestones. The award also carries approval royalties, sales royalties and certain transaction-related payment obligations.
- The company expects to require significant additional capital. Potential financing may dilute shareholders, impose debt covenants or require the company to surrender valuable rights; funding may not be available on acceptable terms.
- Key risks include failure or delay of clinical trials, regulatory non-approval, dependence on lenabasum as the sole product candidate, reliance on contract manufacturers and clinical research organizations, controlled-substance requirements, intellectual-property disputes, competition and inability to commercialize or obtain reimbursement.
- No legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the Phase 2b cystic fibrosis trial achieves milestones required for the remaining CFF funding and whether the additional $6.25 million payment is received.
- Clinical enrollment, safety and efficacy results for lenabasum, particularly in the Phase 3 systemic sclerosis and Phase 2b cystic fibrosis programs.
- Cash burn, remaining capacity under the $50 million at-the-market facility and the timing and terms of future financing.
- The accounting and cash-flow effects of ASC 606, including the $0.92 million contract asset and revenue recognition through the expected Q2 2020 completion of the CFF-related performance obligation.
- Potential dilution from the 9.34 million outstanding stock options, 2.29 million outstanding warrants and the CFF warrant for up to 1 million additional shares.
- Future royalty and approval-payment obligations under the 2015 and 2018 CFF arrangements.
- Manufacturing, DEA licensing and regulatory milestones required before any potential commercialization of lenabasum.