Corbus Pharmaceuticals Holdings, Inc. quarterly report, Q3 FY2015

Corbus Pharmaceuticals Holdings, Inc. — Q3 2015 Form 10-Q Summary

Business context and reporting period

Corbus is a clinical-stage pharmaceutical company developing Resunab, an oral anti-inflammatory candidate for rare inflammatory and fibrotic diseases, including cystic fibrosis, scleroderma and dermatomyositis. The filing covers the three and nine months ended September 30, 2015; financial statements are unaudited. The company has no approved products or product sales and remains dependent on external financing.

Financial performance and liquidity

Metric	Three months ended September 30	Nine months ended September 30
Collaboration revenue	$170,454	$284,090
Research and development expense	$1.635 million	$4.065 million
General and administrative expense	$791,000	$2.572 million
Total operating expenses	$2.425 million	$6.637 million
Operating loss	$2.255 million	$6.353 million
Net loss	$2.254 million	$6.352 million
Basic and diluted loss per share	$0.06	$0.22

• Cash and cash equivalents were $13.173 million at September 30, 2015, compared with $6.262 million at December 31, 2014.
• Net cash used in operating activities was $3.744 million for the first nine months of 2015; capital expenditures were $21,036.
• Financing activities provided $10.675 million, principally from $10.820 million of proceeds from common-stock exercises.
• Total assets were $13.334 million, total liabilities were $2.160 million, and stockholders’ equity was $11.174 million at September 30, 2015.
• Accumulated deficit was $10.779 million. The company had no notes payable outstanding at September 30, 2015.
• Deferred revenue totaled $965,910, including $681,816 classified as current and $284,094 as non-current.
• Operating margins are not economically meaningful because revenue was limited to amortization of a development award rather than product sales.

Material changes versus the prior comparable period

• Third-quarter collaboration revenue increased from none to $170,454, and nine-month collaboration revenue increased from none to $284,090, reflecting the Cystic Fibrosis Foundation Therapeutics award.
• Third-quarter research and development expense increased $1.182 million, or approximately 261%, primarily because of higher clinical-trial costs and compensation.
• Nine-month research and development expense increased $3.381 million, or approximately 494%, driven by clinical-trial costs, Resunab manufacturing, consulting and compensation.
• Third-quarter general and administrative expense increased $425,000, or approximately 116%, while nine-month expense increased $1.868 million, or approximately 265%. Increases included stock-based compensation, investor relations, legal and accounting, insurance and public-company costs.
• Net loss increased from $660,000 to $2.254 million for the quarter and from $1.280 million to $6.352 million for the nine-month period.
• Common shares outstanding increased to 37.605 million from 25.938 million at year-end 2014, primarily because of exercises of options and warrants. Outstanding warrants and options at September 30, 2015 represented potential additional dilution of approximately 5.797 million shares.
• The company fully repaid its outstanding note payable during 2015.

Guidance, outlook, risks and unusual items

• Management expects current cash to fund operating and capital requirements into the fourth quarter of 2016, but states that significant additional capital will be required to fund Resunab clinical trials. Financing may involve equity dilution, senior securities, restrictive debt covenants or relinquishment of valuable rights.
• The company expects increasing operating losses for the foreseeable future as it conducts clinical trials, manufactures clinical materials, seeks regulatory approval, expands personnel and operates as a public company. It may never achieve profitability.
• The CFFT development award provides up to $5 million of funding. The company received $1.25 million initially and recognized $284,090 of revenue through September 30, 2015. In October 2015, the first cystic-fibrosis patient was dosed, triggering an additional $1.25 million payment and leaving potential additional payments of $2.5 million under the award.
• The award includes contingent royalty and other payment obligations tied to commercialization, sales thresholds, licensing, transfer or change-of-control transactions.
• Resunab is the company’s only product candidate and had commenced Phase 2 studies. It has not demonstrated efficacy in Phase 2, has not received marketing approval, and the company has never filed an NDA.
• Resunab was classified as a Schedule I controlled substance, creating DEA licensing, quota, security, recordkeeping, import and export requirements that could delay manufacturing or clinical trials.
• Key risks include clinical-trial failure or delay, regulatory rejection, manufacturing dependence, intellectual-property challenges, controlled-substance compliance, limited operating history, reliance on third parties, product liability and inability to obtain future financing.
• The company reported no legal proceedings, no defaults upon senior securities and no off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of September 30, 2015.

Important facts for investors to verify

• Whether the reported cash runway into the fourth quarter of 2016 remains adequate after subsequent clinical spending and whether additional financing was obtained or required.
• Progress, enrollment, safety and efficacy results for Resunab’s Phase 2 programs, particularly the cystic-fibrosis trial.
• Receipt and accounting treatment of the additional $1.25 million CFFT milestone payment and any remaining award milestones.
• Potential dilution from the 3.828 million outstanding options and 1.969 million outstanding warrants, as well as future equity financing.
• The enforceability and potential magnitude of contingent CFFT royalties and payments upon commercialization, licensing or a change of control.
• DEA, FDA and other regulatory status, including required licenses, manufacturing approvals and any clinical holds or delays.