Corbus Pharmaceuticals Holdings, Inc. — 2019 Q3 Form 10-Q Summary
Business context and reporting period
Corbus is a clinical-stage pharmaceutical company developing therapies for rare, chronic inflammatory and fibrotic diseases. Its primary candidate, lenabasum, was being evaluated in systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The company was also developing CRB-4001 for fibrotic diseases.
This Form 10-Q covers the three and nine months ended September 30, 2019. The interim financial statements are unaudited. The company had 64,672,893 common shares outstanding as of November 1, 2019.
Financial metrics
| Metric | Q3 2019 | Q3 2018 | First nine months 2019 | First nine months 2018 |
|---|---|---|---|---|
| Revenue from awards and licenses | $2.6 million | $1.1 million | $33.6 million | $2.9 million |
| Research and development expense | $22.2 million | $12.8 million | $66.1 million | $32.8 million |
| General and administrative expense | $5.5 million | $3.2 million | $17.4 million | $9.2 million |
| Operating loss | $25.1 million | $14.9 million | $49.9 million | $39.2 million |
| Net loss | $20.8 million | $14.6 million | $44.9 million | $38.4 million |
| Basic and diluted loss per share | $0.32 | $0.26 | $0.71 | $0.67 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $23.2 million | $16.0 million |
Reported revenue consisted of development awards and license revenue; the company had no product sales. The nine-month 2019 revenue included the $27.0 million Kaken upfront license payment and $6.6 million recognized under the Cystic Fibrosis Foundation award. Approximate operating and net margins were negative 969% and negative 803%, respectively, in Q3 2019, and negative 149% and negative 134%, respectively, for the first nine months; these ratios are distorted by the company’s minimal and largely nonrecurring revenue.
- Cash and cash equivalents were $54.8 million at September 30, 2019, compared with $41.7 million at December 31, 2018.
- Working capital was approximately $27.0 million, based on current assets of $57.5 million and current liabilities of $30.5 million.
- Total assets were $68.1 million and total liabilities were $38.5 million.
- The company had no notes payable at September 30, 2019. Operating lease liabilities totaled approximately $8.3 million, including current and noncurrent amounts.
- Stockholders’ equity was $29.6 million, while the accumulated deficit was $166.2 million.
- Cash provided by financing activities was $37.7 million, principally from the January 2019 equity offering. Capital expenditures were $1.5 million.
Material changes versus the prior comparable period
- Q3 revenue increased 137% to $2.6 million, while nine-month revenue increased more than tenfold to $33.6 million, primarily because of the Kaken upfront payment recognized in Q2 2019 and increased CFF award revenue.
- Q3 research and development expense increased $9.3 million, or approximately 73%, driven by higher clinical-trial costs, compensation and stock-based compensation. Nine-month research and development expense increased $33.3 million, or approximately 101%.
- Q3 general and administrative expense increased $2.4 million, or approximately 74%. Nine-month expense increased $8.1 million, including a $2.7 million payment obligation to CFF related to the Kaken upfront payment.
- Q3 net loss increased $6.2 million, and nine-month net loss increased $6.5 million. Loss per share increased to $0.32 from $0.26 in Q3 and to $0.71 from $0.67 for the nine-month period.
- The company raised approximately $37.7 million net through a January 2019 public offering and issued 6.2 million shares, contributing to dilution.
- Accrued expenses increased to $24.0 million from $9.9 million at year-end 2018, principally due to higher accrued clinical operations, product development and compensation costs.
- The company adopted the new lease standard on January 1, 2019, recognizing operating lease right-of-use assets and liabilities. It also expanded its office lease, with total lease liabilities of approximately $8.3 million at September 30, 2019.
Guidance, outlook, risks and unusual items
- Management expected cash on hand plus the remaining $7.5 million of potential CFF award payments to fund operations into the third quarter of 2020 based on planned expenditures. The filing also states that cash at September 30, 2019 may not be sufficient to meet operating and capital requirements for at least 12 months from filing.
- The financial statements contain a substantial doubt regarding the company’s ability to continue as a going concern. Management expects continuing operating losses and significant additional capital needs for lenabasum and CRB-4001.
- Potential financing sources include equity, preferred stock, convertible debt, credit facilities, collaborations and government grants. Future equity or debt financing could dilute shareholders, impose restrictive covenants or require the company to relinquish valuable rights.
- The company received a $27.0 million upfront payment from Kaken for Japanese rights to lenabasum in systemic sclerosis and dermatomyositis. Kaken may also pay up to approximately $173.0 million in development, regulatory and sales milestones and double-digit royalties. The upfront payment was recognized as revenue by June 30, 2019.
- The company paid CFF $2.7 million in May 2019, representing 10% of the Kaken upfront payment under the 2018 CFF award. Additional approval, sales and licensing royalties may become payable to CFF upon specified future events.
- The company received $17.5 million under the up-to-$25 million 2018 CFF award through September 30, 2019. The remaining amount depends on achievement of clinical-development milestones.
- A $4.1 million refundable foreign research and development tax credit was recorded as other income in Q3 2019. This was a significant non-operating and unusual contributor to the quarter’s results.
- Lenabasum clinical programs remained dependent on successful enrollment, clinical results, regulatory approvals and continued funding. The company expected to commence a Phase 1 trial of CRB-4001 in 2020.
- As a subsequent event, the company entered into a November 2019 insurance-financing loan of approximately $1.0 million, payable over nine months. It also disclosed an October 2019 lease amendment expected to increase lease liabilities and right-of-use assets by approximately $466,000.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, intellectual-property challenges, dependence on additional capital, foreign-exchange exposure, retention of key personnel and the possibility that the company may never achieve profitability.
Most important facts for investors to verify
- Reconcile the filing’s cash runway statements: the MD&A projects funding into Q3 2020, while the going-concern disclosure states that cash may not cover requirements for at least 12 months.
- Confirm the timing and probability of the remaining $7.5 million in CFF milestone payments and any related clinical milestones.
- Assess whether the Kaken collaboration can generate milestone and royalty payments, given the dependence on clinical and regulatory success and Kaken’s termination rights.
- Monitor clinical-trial enrollment, endpoints and regulatory developments for lenabasum, particularly the Phase 3 systemic sclerosis and dermatomyositis programs and the Phase 2b cystic-fibrosis program.
- Evaluate expected additional financing needs, dilution risk and the company’s ability to fund CRB-4001 development.
- Verify the sustainability of reported revenue, since the period’s results were materially affected by the nonrecurring Kaken upfront payment, CFF award recognition and foreign tax-credit income.