CORCEPT THERAPEUTICS INC quarterly report, Q2 FY2013

Corcept Therapeutics Incorporated — Q2 2013 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2013. Financial statements are unaudited. Corcept commercializes Korlym (mifepristone) for a limited indication in Cushing’s syndrome and is developing mifepristone for psychotic depression, alongside selective GR-II antagonist programs.

Key financial results

Metric	Q2 2013	Q2 2012	Six months 2013	Six months 2012
Net product sales	$1.891 million	$0.875 million	$3.608 million	$0.875 million
Operating expenses	$12.674 million	$8.467 million	$25.335 million	$19.496 million
Operating loss	$10.783 million	$7.592 million	$21.727 million	$18.621 million
Net loss	$11.897 million	$7.597 million	$23.981 million	$18.630 million
Basic and diluted loss per share	$0.12	$0.09	$0.24	$0.22

For the six months, research and development expense rose to $8.748 million from $6.210 million, largely reflecting greater psychotic-depression trial and selective GR-II antagonist activity. Selling, general and administrative expense increased to $16.544 million from $13.238 million, driven by commercialization and support costs.
Cost of sales was $23,000 in Q2 and $43,000 for the six months, or 1.2% of net sales. Management cautioned that this low ratio is not representative of full production costs: much of the manufacturing cost for product sold had been expensed before FDA approval.
Cash and cash equivalents were $72.220 million at June 30, down from $93.032 million at December 31, 2012. Six-month operating cash use was $20.790 million; investing cash use was $22,000, with no financing proceeds in the period.
Current assets were $74.570 million and current liabilities $9.079 million. The Biopharma capped-receipts financing obligation had a $33.887 million carrying value, including $3.650 million current; maximum aggregate repayment is $45 million. The agreement requires variable payments generally equal to 20% of covered product sales and certain licensing receipts, subject to terms and caps. The first payment, approximately $378,000, was made in July 2013.
Net cash used in operations increased from $18.049 million in the first half of 2012 to $20.790 million in 2013. Accumulated deficit was $270.587 million. Common shares outstanding were 99.814 million at June 30 and August 2, 2013.

Changes and operating developments

Korlym sales increased year over year, but remain modest relative to operating costs. Management said the limited commercialization history makes future sales difficult to forecast.
Corcept replaced CuraScript with Centric as its exclusive specialty pharmacy beginning July 1, 2013; Centric dispenses on consignment, with sales recognized when patients receive product. CuraScript-related inventory returns resulted in a $300,000 sales reserve, and lower pharmacy inventory purchases reduced Q2 net sales by a further $100,000. Future returns are expected to be limited mainly to the specialty-distributor channel.
Enrollment continued in the Phase 3 Study 14 trial for psychotic depression. The company had 27 active sites as of August 2, 2013 and expected to report an interim analysis in Q3 2014.
Corcept planned to submit an EU marketing authorization application request for Korlym in Q4 2013 and had entered a named-patient distribution agreement for markets outside the U.S. The EMA had accepted a pediatric Cushing’s study plan.

Outlook, risks and unusual items

Management expected R&D spending to increase during the remainder of 2013, particularly for expansion of Study 14 and development of selective GR-II antagonists. SG&A and operating cash use were also expected to rise as commercialization and development continued. No Korlym revenue forecast was provided.
The company expected Korlym sales to offset only part of its operating and development costs, anticipated losses for at least the next few years, and said additional financing might be required. Availability and terms of future funding were uncertain.
Key risks include uncertain Korlym uptake and payer coverage, competition, clinical-trial enrollment and outcomes, regulatory approval, and dependence on third-party manufacturing. The filing describes a single-source API supplier whose agreement was extended only through September 30, 2013, and tablet-supply risks while the original manufacturer relocated and the approved second manufacturer’s commercial agreement was still being negotiated.
The Biopharma agreement creates variable sales-linked payments, collateral over specified product-related intellectual property and other assets, and potential acceleration up to the unpaid $45 million cap upon specified events, including a change of control. Failure to meet certain covenants could increase the payment rate and remove caps.
Interest and other expense rose to $1.114 million in Q2 and $2.254 million for the six months, primarily from accretion under the financing agreement. Management’s non-GAAP adjusted net loss excluded stock-based compensation and this non-cash accretion; it does not replace the GAAP results.
No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective, and reported no material change in internal control over financial reporting.

Important facts for investors to verify

Whether Korlym prescriptions, net sales, payer coverage and reimbursement improve under Centric’s consignment model, and how product returns affect reported revenue.
Study 14 enrollment progress, interim-analysis timing and results, and whether the trial can support regulatory filing.
Execution of durable API and tablet manufacturing agreements, supplier qualification and availability of commercial supply.
Cash runway and future operating cash burn relative to Korlym sales, development plans and potential financing needs.
Actual payments and covenant compliance under the Biopharma agreement, including the effect of sales growth or a change-of-control event.
Progress and timing of the planned EU regulatory submission and pediatric study.