Corbus Pharmaceuticals Holdings, Inc. — Fiscal 2019 Form 10-K Summary
Reporting period: Year ended December 31, 2019; filed March 16, 2020. This is an annual filing, not a standalone fourth-quarter report.
Business Context and Development Status
Corbus is a Phase 3 clinical-stage pharmaceutical company with no approved products or product sales. Its lead candidate, oral CB2 agonist lenabasum, is being developed for systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus. The company also holds rights to more than 600 cannabinoid compounds from Jenrin, including early-stage CRB-4001 for fibrotic diseases such as NASH.
- Phase 3 systemic sclerosis study enrolled 365 patients; topline data were expected in summer 2020.
- Phase 2b cystic fibrosis study enrolled 426 patients; topline data were expected in summer 2020.
- Phase 3 dermatomyositis study was expected to enroll approximately 150 patients.
- Phase 2 lupus study, funded by NIH, was expected to enroll approximately 100 patients, with topline data expected in 2020.
- CRB-4001 Phase 1 safety data were expected in 2020.
2019 Financial and Operating Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue from awards and licenses | $36.1 million | $4.8 million | Increase of $31.3 million |
| Research and development expense | $89.6 million | $48.6 million | Increase of $41.0 million |
| General and administrative expense | $23.6 million | $13.0 million | Increase of $10.7 million |
| Operating loss | $77.1 million | $56.7 million | Increase of $20.4 million |
| Other income, net | $5.7 million | $1.1 million | Increase of $4.6 million |
| Net loss | $71.5 million | $55.7 million | Increase of $15.8 million |
| Basic and diluted loss per share | $1.12 | $0.98 | Loss increased |
| Cash used in operating activities | $45.7 million | $30.1 million | Increase of $15.7 million |
| Cash and cash equivalents at year-end | $31.7 million | $41.7 million | Decrease of $10.0 million |
2019 revenue primarily consisted of the $27.0 million Kaken upfront payment recognized in the second quarter and $9.1 million recognized from the Cystic Fibrosis Foundation award. The company has not generated revenue from product sales. Reported margins are not economically representative because revenue was primarily nonrecurring collaboration and award revenue; the filing does not provide a meaningful product gross margin.
At December 31, 2019, total current assets were $38.2 million and current liabilities were $34.9 million, resulting in working capital of approximately $3.3 million. Total liabilities were $43.0 million, including $0.8 million of notes payable and $8.7 million of recognized operating lease liabilities. The company had no material off-balance-sheet arrangements other than potential royalty obligations.
Material Changes Versus 2018
- Revenue increased substantially because of the Kaken Japan license and increased CFF award recognition.
- R&D expense rose primarily due to higher clinical-trial costs, compensation and stock-based compensation as programs advanced.
- G&A expense increased due to higher personnel and public-company costs and a $2.7 million royalty payment to CFF related to the Kaken upfront payment.
- Cash declined despite a $40.3 million gross equity offering, reflecting increased operating expenditures and clinical development activity.
- The company expanded its leased office footprint to approximately 63,256 square feet and recorded operating lease assets and liabilities under ASC 842.
- Common shares outstanding increased to 64.7 million at year-end from 57.2 million, before the February 2020 offering.
Liquidity, Financing and Going Concern
Management and the independent auditor identified substantial doubt about the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow and expected continuing clinical-development expenditures. The company stated that year-end cash of $31.7 million alone might not fund operations for at least 12 months.
- On February 11, 2020, Corbus sold 7,666,667 shares at $6.00 per share for $46.0 million of gross proceeds and approximately $43.0 million of net proceeds.
- The company expected to receive the remaining $7.5 million under the CFF award upon achievement of milestones, with receipt expected before the end of the fourth quarter of 2020.
- Management estimated that year-end cash, February 2020 offering proceeds and expected CFF payments would fund planned operations into the fourth quarter of 2020.
- Additional capital will be required; potential sources include equity, debt, government grants and strategic collaborations. Future equity financing could dilute existing holders.
Guidance, Outlook, Risks and Unusual Items
- Management expected substantially higher expenses and operating losses in 2020 and subsequent years as clinical trials, manufacturing, regulatory work, staffing and commercialization preparation continue.
- Kaken received exclusive Japanese rights for lenabasum in systemic sclerosis and dermatomyositis. Corbus recognized the $27.0 million upfront payment and remains eligible for up to approximately $173.0 million in milestones plus double-digit royalties.
- The CFF arrangement provides up to $25.0 million of support but includes substantial future approval and sales-related royalty obligations, including potential payments based on amounts received under the Kaken agreement.
- Lenabasum was classified as a Schedule I controlled substance in the United States, creating DEA licensing, quota, security, recordkeeping and rescheduling risks.
- The company relies on third parties, including foreign suppliers, for clinical and potential commercial manufacturing, creating supply, quality, scale-up and regulatory risks.
- The FDA had noted drawbacks in both the modified Rodnan Skin Score and ACR CRISS endpoints for the systemic sclerosis trial. Corbus changed the primary endpoint to ACR CRISS at its own risk, and FDA approval is not assured even if trial results are positive.
- The filing discusses COVID-19 risks involving clinical-trial enrollment, trial-site operations, travel and manufacturing partners in China and Italy. The potential impact was uncertain at filing.
- Management reported material weaknesses in internal control over financial reporting involving management review and accrual controls, as well as information-technology general controls. The auditor issued an adverse opinion on internal control effectiveness.
- The auditor issued an unqualified opinion on the financial statements but included a going-concern explanatory paragraph.
Most Important Facts for Investors to Verify
- Whether lenabasum’s systemic sclerosis and cystic fibrosis trials produced statistically significant efficacy and acceptable safety results.
- Whether the dermatomyositis and lupus programs advanced as planned and whether regulatory filings became supportable.
- Actual cash burn, remaining CFF milestone receipts and the timing and terms of future financing.
- Progress in remediating the reported material weaknesses in internal controls.
- The status of FDA, EMA and DEA requirements, including any rescheduling needed before U.S. commercialization.
- Whether Kaken achieves Japanese regulatory approval and whether additional milestone or royalty revenue becomes probable.
- The enforceability and remaining term of lenabasum and CRB-4001 patent protection.
- The impact of COVID-19 or other disruptions on clinical timelines, manufacturing and regulatory submissions.