Corvus Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Period: Quarter and nine months ended September 30, 2018. Unaudited. Corvus is a clinical-stage oncology biopharmaceutical company and has not generated product revenue.
Financial results and liquidity
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $8.4 million (2017: $10.7 million) | $30.2 million (2017: $36.6 million) |
| General and administrative expense | $2.8 million (2017: $2.2 million) | $7.9 million (2017: $7.7 million) |
| Total operating expenses | $11.1 million (2017: $12.9 million) | $38.1 million (2017: $44.3 million) |
| Net loss | $10.5 million; $0.36 per share (2017: $12.7 million; $0.62 per share) | $36.4 million; $1.35 per share (2017: $43.7 million; $2.14 per share) |
| Operating cash used | Not presented for the quarter | $32.7 million (2017: $35.2 million) |
At September 30, cash and cash equivalents were $40.7 million and marketable securities were $81.9 million, totaling $122.6 million, versus $90.1 million at December 31, 2017. Current assets were $124.5 million and current liabilities $7.7 million. Total liabilities were $8.4 million; the filing reports no borrowings or debt balance. Accumulated deficit was $160.0 million. No operating margin is meaningful because the company had no revenue.
Investing activities used $36.7 million, primarily reflecting purchases of marketable securities net of maturities. Financing provided $65.1 million, principally from the March 2018 follow-on offering, which raised approximately $64.9 million net. Cash and cash equivalents declined $4.4 million over the nine-month period.
Changes versus prior comparable periods
- Quarterly net loss narrowed by $2.2 million; nine-month net loss narrowed by $7.3 million year over year. Lower R&D spending drove the improvement, partly offset by higher G&A and higher interest income and other expense, net.
- Nine-month R&D expense fell $6.4 million. CPI-444 spending declined $10.0 million, including the absence of a $3.0 million Vernalis milestone paid in 2017 and lower clinical-trial costs. CPI-818 spending rose $1.8 million as manufacturing and IND-enabling work increased.
- Cash, cash equivalents and marketable securities increased $32.5 million from year-end 2017, primarily reflecting the follow-on offering; common shares outstanding rose from 21.0 million to 29.3 million.
Outlook, developments and risks
- Management expects significant losses and increased R&D spending for the foreseeable future. It believes available cash, cash equivalents and marketable securities will fund planned expenditures and obligations for at least 12 months from issuance of the financial statements, but says existing resources are not expected to fund CPI-444 or CPI-006 through commercialization. Additional capital may be needed; equity financing could dilute shareholders, debt could impose repayment obligations and covenants, and collaborations could require surrendering product rights.
- Development priorities include CPI-444 trials in solid tumors, including combination studies with Genentech’s Tecentriq; the Phase 1/1b CPI-006 study, initiated in March 2018; and CPI-818 IND-enabling work. Management planned to submit an IND and begin a Phase 1 CPI-818 trial in early 2019. These are plans, not guaranteed milestones.
- The filing describes possible or drug-related serious adverse events in CPI-444 combination treatment, including hemolytic anemia, encephalitis, hepatitis, pneumonitis, mucositis and dermatitis. CPI-006 had limited human safety follow-up at the reporting date. Trial outcomes, safety, enrollment, regulatory review, third-party manufacturing and clinical-trial execution are material uncertainties.
- Corvus depends on external manufacturers and clinical research organizations and has no commercial manufacturing capabilities. Its pipeline also depends on licensed intellectual property; potential milestone obligations under the Vernalis license exceed $200 million in aggregate, subject to milestones being achieved.
- Facility lease payments were expected to total $2.6 million under the lease terms at September 30. A subsequent October 11, 2018 amendment extended the lease through February 2023; disclosed expected payments include $1.26 million in 2021 and $1.30 million in 2022.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable assurance level and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Clinical-trial progress, enrollment, efficacy and safety updates for CPI-444 and CPI-006, and whether CPI-818’s planned IND and trial milestones were achieved.
- Actual cash burn and spending relative to management’s stated 12-month funding outlook; timing and terms of any additional financing.
- The status of the Cowen at-the-market program: the filing says no proceeds were received during the nine months, while its risk-factor discussion says 52,569 shares had been sold for approximately $894,000 gross as of September 30. Clarify the timing and reconciliation of these disclosures.
- Potential dilution, including the March 2018 offering, outstanding options, and any future ATM or other equity issuance.
- Third-party supply continuity, license compliance and milestone exposure, and the effect of the lease extension on future commitments.