Corcept Therapeutics Incorporated — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Unaudited interim financial statements. Corcept commercialized its first product, Korlym (mifepristone), in April 2012 following FDA approval in February for certain adults with endogenous Cushing’s syndrome and hyperglycemia. The company continues development of mifepristone for psychotic depression and selective GR-II antagonist candidates.
Financial results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net product sales | $1.055 million | None | $1.930 million | None |
| Cost of sales | $24,000 | None | $72,000 | None |
| Research and development | $3.008 million | $3.228 million | $9.218 million | $14.355 million |
| Selling, general and administrative | $5.694 million | $3.209 million | $18.932 million | $8.049 million |
| Operating loss | $(7.671) million | $(6.437) million | $(26.292) million | $(22.404) million |
| Net loss | $(8.293) million | $(6.435) million | $(26.924) million | $(22.418) million |
| Net loss per share | $(0.08) | $(0.08) | $(0.30) | $(0.27) |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $(27.278) million | $(21.106) million |
Cost of sales was 2.2% of Q3 net sales and 3.7% for the nine-month period; management cautioned these ratios are temporarily low because much of the product’s manufacturing cost was expensed before approval. No operating or net profit margin is meaningful given the company’s losses.
At September 30, cash and cash equivalents were $101.628 million, versus $39.635 million at year-end 2011. Current assets were $104.619 million and current liabilities $5.548 million, for working capital of approximately $99.1 million. Total assets were $105.524 million. The balance sheet reported a $30.575 million long-term obligation, including current portion; its maximum aggregate repayment is $45 million.
Changes and financing
- Commercial sales began in April; Q3 net sales were $1.055 million and nine-month sales were $1.930 million. Management said the limited sales history makes future revenue difficult to forecast.
- Nine-month R&D expense fell 36% year over year, primarily reflecting lower NDA-related consulting and clinical/manufacturing costs, including capitalization of approved-product manufacturing into inventory.
- Nine-month SG&A rose to $18.932 million from $8.049 million, mainly due to Korlym commercialization, staffing and professional services; the increase also included approval-related bonuses and $1.3 million of performance-based stock compensation.
- Net loss increased year over year despite new product revenue. Operating cash use rose by approximately $6.2 million year over year.
- Financing provided $89.364 million in net cash over the nine months: $59.504 million from common stock and warrant transactions and $29.860 million from the Biopharma financing. The company also reported $46.1 million net proceeds from its July public offering and approximately $12.9 million from March warrant transactions.
Outlook, risks and other notable matters
- No specific revenue or earnings guidance was provided. Corcept expects continued losses for at least the next few years, higher operating cash use in the remainder of 2012, and potentially higher funding needs in 2013 and beyond. It expects 2013 R&D spending to rise with expanded psychotic-depression enrollment and selective GR-II development.
- Management aimed to complete enrollment in the Phase 3 psychotic-depression Study 14 by the end of 2013 and planned to expand trial sites from eight to about 20 by the end of 2012. Enrollment pace and trial outcomes remain uncertain.
- The $30 million Biopharma financing requires variable payments equal to 20% of covered-product net sales and certain licensing or other contingent receipts, until cumulative payments reach $45 million. First payments were not due until July 2013. The agreement is secured by specified intellectual property and related assets; change of control or certain defaults may accelerate unpaid amounts. Payments can rise to 50% and caps lapse following specified uncured covenant failures.
- Supply concentration is significant: the company had a single-source API manufacturer, and its existing tablet manufacturer planned a temporary production suspension during a facility move. The FDA approved a second tablet manufacturer on November 1, 2012, after the quarter-end.
- Key risks include uncertain Korlym adoption and reimbursement, competition, product safety and post-marketing requirements, manufacturing continuity, clinical-trial enrollment and results, and access to additional capital. Korlym sales are concentrated in two customers under the same corporate parent.
- Outstanding commitments included approximately $3.2 million for API purchases and approximately $630,000 of lease base rent through December 2013. The filing reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Investor verification priorities
- Track Korlym prescriptions, net sales, payer coverage, returns and channel inventory to assess commercial uptake and revenue quality.
- Verify continued API and tablet supply, including the operating status and capacity of the newly approved second tablet manufacturer.
- Monitor Study 14 enrollment, site expansion, timing and clinical results, alongside planned R&D spending.
- Review cash burn and liquidity against commercialization and development plans, and assess any need for new financing or dilution.
- Confirm Biopharma payment calculations, covenant compliance, collateral terms and any potential acceleration or change-of-control consequences.