Business Context and Reporting Period
Corbus Pharmaceuticals Holdings, Inc. is a clinical-stage pharmaceutical company developing cannabinoid-based therapies for rare inflammatory and fibrotic diseases. Its lead candidate, lenabasum, was being evaluated in dermatomyositis, systemic lupus erythematosus, systemic sclerosis, and cystic fibrosis. This Form 10-Q covers the three and nine months ended September 30, 2020, and was filed November 9, 2020.
Financial Highlights
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue from awards and licenses | $1.2 million | $2.6 million | $3.3 million | $33.6 million |
| Research and development expense | $27.5 million | $22.2 million | $82.2 million | $66.1 million |
| General and administrative expense | $7.7 million | $5.5 million | $23.1 million | $17.4 million |
| Operating loss | $34.0 million | $25.1 million | $102.0 million | $49.9 million |
| Net loss | $34.9 million | $20.8 million | $102.7 million | $44.9 million |
| Basic and diluted loss per share | $0.43 | $0.32 | $1.37 | $0.71 |
The filing does not provide a meaningful operating margin because the company has no product sales and revenue consists of awards and license-related amounts. Based on reported figures, the operating loss substantially exceeded revenue in both periods.
- Cash and cash equivalents were $81.9 million at September 30, 2020, compared with $31.7 million at December 31, 2019. Restricted cash was $1.0 million, for total cash, cash equivalents, and restricted cash of $82.9 million.
- Working capital was approximately $44.0 million, based on current assets of $85.4 million and current liabilities of $41.4 million.
- Net cash used in operating activities was $81.5 million for the first nine months of 2020, compared with $23.2 million in the prior-year period.
- Net cash provided by financing activities was $133.1 million, primarily from equity offerings and the K2 HealthVentures loan.
- Total debt was approximately $17.9 million net of discount. The underlying K2 loan principal, including the final payment, was approximately $21.2 million.
- Stockholders’ equity was $29.2 million at September 30, 2020, compared with $6.2 million at December 31, 2019. Shares outstanding increased to 82.2 million from 64.7 million.
Material Changes Versus Prior Comparable Period
- Third-quarter revenue declined 52% year over year, while nine-month revenue declined 90%, principally because the prior-year period included recognition of the $27.0 million Kaken upfront payment. The 2020 revenue was generated from the Cystic Fibrosis Foundation award.
- Third-quarter research and development expense increased $5.4 million, primarily from higher clinical-trial costs, compensation, and stock-based compensation. Nine-month R&D expense increased $16.0 million.
- Third-quarter general and administrative expense increased $2.1 million; nine-month expense increased $5.8 million.
- Third-quarter net loss increased $14.1 million, and nine-month net loss increased $57.8 million. Prior-year other income included a $4.1 million refundable foreign research-and-development tax credit that did not recur.
- The company raised approximately $46.0 million gross in a February 2020 public offering and received approximately $71.7 million of net proceeds from its April 2020 at-the-market offering through September 30, 2020. It also entered into a new at-the-market facility authorizing up to $150 million of additional common-stock sales, with no sales under that facility during the quarter.
- In July 2020, the company borrowed $20.0 million under a secured K2 HealthVentures facility that permits up to $50.0 million in aggregate borrowings, subject to clinical and regulatory milestones for later tranches.
Guidance, Outlook, Risks, and Unusual Items
- Management expected cash and cash equivalents at September 30, 2020, together with the expected final $2.5 million CFF milestone payment, to fund operations and capital requirements into the fourth quarter of 2021 based on planned expenditures. The company nevertheless stated that substantial additional capital will be required and disclosed substantial doubt regarding its ability to continue as a going concern.
- The final $2.5 million of the up-to-$25 million 2018 CFF award was expected upon achievement of the final clinical milestone, with management expecting receipt by the end of the fourth quarter of 2020.
- After quarter-end, Corbus reported that the Phase 3 systemic sclerosis study and Phase 2b cystic fibrosis study of lenabasum failed to meet their primary endpoints. The cystic fibrosis result was announced October 6, 2020.
- Corbus announced a workforce reduction of approximately 54% in October 2020 and expected a severance and related charge of approximately $3.0 million, substantially in the fourth quarter.
- The company planned to seek to shorten the DETERMINE dermatomyositis trial from 52 to 28 weeks. The last 28-week patient visit was expected in March 2021, with topline data shortly thereafter.
- Management expected expenses to decrease substantially beginning in 2021 as the systemic sclerosis and cystic fibrosis trials were completed, but anticipated continuing operating losses for at least several years.
- The K2 facility carries variable interest at a minimum of 8.5%, is secured by substantially all company assets other than intellectual property, and includes restrictive and financial covenants. The company was in compliance at September 30, 2020.
- COVID-19 could delay clinical-site initiation, enrollment, dosing, monitoring, manufacturing, data analysis, and regulatory timelines. The company also identified risks from future financing needs, clinical failure, regulatory approval, intellectual property, reliance on third parties, and foreign currency exposure.
- Disclosure controls and procedures were not effective as of September 30, 2020 because of material weaknesses in internal control over financial reporting previously reported in the 2019 Form 10-K.
- No material legal proceedings were reported. The filing states there were no material changes to previously disclosed risk factors other than the financial-position, K2 covenant, and COVID-19 risks described above.
Investor Verification Checklist
- Verify the impact of the failed systemic sclerosis and cystic fibrosis trials on the remaining lenabasum programs, regulatory strategy, and future R&D spending.
- Assess whether the company received the expected $2.5 million CFF milestone and whether the milestone conditions remained achievable after the cystic fibrosis trial failure.
- Review post-quarter equity sales, cash burn, and the availability and covenant requirements of the remaining K2 loan tranches.
- Evaluate dilution from the at-the-market facilities, stock options, and approximately 1.1 million outstanding warrants.
- Assess the going-concern disclosure, projected runway, and the company’s ability to obtain additional financing on acceptable terms.
- Confirm the timing and amount of the workforce-reduction charge and the resulting reduction in operating expenses.
- Review remediation of the disclosed material weaknesses in internal control over financial reporting.