Notes
to Unaudited Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2020
Business
Corbus
Pharmaceuticals Holdings, Inc. (the “Company”) is a clinical stage pharmaceutical company, focused on the development
and commercialization of novel therapeutics to treat rare, chronic, and serious inflammatory and fibrotic diseases. Since its
inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting
management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant
risks and uncertainties and the Company will be dependent on raising substantial additional capital before it becomes profitable
and it may never achieve profitability.
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management of the Company, the
accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company
as of September 30, 2020, the results of its operations and changes in stockholders’ equity for the three months and nine
months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The December
31, 2019 condensed consolidated balance sheet was derived from audited financial statements. The Company prepared the condensed
consolidated financial statements following the requirements of the SEC for interim reporting. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019, filed on March 16, 2020. The results of operations for such interim periods are not necessarily indicative
of the operating results for the full fiscal year.
2.
|
LIQUIDITY
AND GOING CONCERN
|
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The Company has incurred recurring losses since inception and as of September 30, 2020, had an accumulated
deficit of $295,481,430. The Company anticipates operating losses to continue for the foreseeable future due to, among other things,
costs related to research funding, development of its product candidates and its preclinical and clinical programs, strategic
alliances and the development of its administrative organization.
Should
the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including
delaying or discontinuing certain clinical activities. The Company will need to raise significant additional capital to continue
to fund the clinical trials for lenabasum and its preclinical drug candidates (see Note 4). The Company may seek to sell common
or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek
other debt financing. The sale of equity and convertible debt securities may result in dilution to the Company’s stockholders
and certain of those securities may have rights senior to those of the Company’s common shares. If the Company raises additional
funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other
debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could
require the Company to relinquish valuable rights.
The
source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically,
on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on
terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or
eliminate some or all of the Company’s planned clinical trials. These factors among others cause management to conclude
there is a substantial doubt about the Company’s ability to continue as a going concern. There have been no adjustments
made to these consolidated financial statements as a result of these uncertainties.
On
February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock (“February 2020
Offering”) (See Note 10).
On
April 7, 2020, the Company entered into an Open Market Sale AgreementSM (“April 2020 Sale Agreement”) with
Jefferies LLC (“Jefferies”) pursuant to which Jefferies is serving as the Company’s sales agent to sell up to
$75,000,000 of shares of the Company’s common stock through an “at the market offering,” (See Note 10).
In
June 2020, the Company became entitled to receive $5,000,000 upon the Company’s achievement of a milestone related to the
progress of the Phase 2b Clinical Trial, as set forth in the Cystic Fibrosis Program Related Investment Agreement (“Investment
Agreement”) with the Cystic Fibrosis Foundation (“CFF”), a non-profit drug discovery and development corporation,
pursuant to which the Company received a development award for up to $25,000,000 in funding (the “2018 CFF Award”)
to support a Phase 2b Clinical Trial (the “Phase 2b Clinical Trial”) of lenabasum in patients with cystic fibrosis.
The Company received the $5,000,000 payment from the CFF for this milestone achievement in July 2020. The Company expects the
final $2.5 million remainder of the 2018 CFF Award will be paid to the Company upon the achievement of the last remaining milestone
related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. (See Note 9).
On
July 28, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with its subsidiary,
Corbus Pharmaceuticals, Inc., as borrower, the Company, as guarantor, each lender party thereto (the “Lenders”), K2
HealthVentures LLC (“K2HV”), an unrelated third party, as administrative agent for the Lenders, and Ankura Trust Company,
LLC, an unrelated third party, as collateral agent for the Lenders, pursuant to which K2HV may provide the Company with term loans
in an aggregate principal amount of up to a $50,000,000. (See Note 13).
On
August 7, 2020, the Company entered into an Open Market Sale AgreementSM (the “August 2020 Sale Agreement”)
with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company may issue and sell, from time to time,
through Jefferies, shares of its common stock, and pursuant to which Jefferies may sell its common stock by any method permitted
by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act
of 1933, as amended. The Company will pay Jefferies a commission of 3.0% of the aggregate gross proceeds from each sale of common
stock and have agreed to provide Jefferies with customary indemnification and contribution rights. The Company has also agreed
to reimburse Jefferies for certain specified expenses. As of August 7, 2020, the Company is authorized to offer and sell up to
$150 million of its common stock pursuant to the August 2020 Sale Agreement. During the
quarter ended September 30, 2020, the Company did not make any sales of its common stock under the August 2020 Sales Agreement.
3.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
A
summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:
Use
of Estimates
The
process of preparing financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical
obligations, the recognition of revenue under the Investment Agreement (See Note 9), the valuation of the CFF and K2HV warrants
discussed in Note 12 and Note 7, and the derivative liability associated with the K2 Security and Loan agreement (see Note 7).
Cash
and Cash Equivalents
The
Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months
from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months.
At September 30, 2020 and December 31, 2019, cash equivalents were comprised of money market funds. The Company had no marketable
investments at September 30, 2020 and December 31, 2019.
Restricted
cash as of September 30, 2020 included a collateral account for the Company’s corporate credit cards and is classified in
current assets in the amount of $250,000. Additionally, as of September 30, 2020, restricted cash included a stand-by letter of
credit issued in favor of a landlord for $769,900 of which $100,000 was classified in current assets and $669,900 was classified
in noncurrent assets as of September 30, 2020.
Cash,
cash equivalents, and restricted stock consisted of the following:
Schedule
of Cash and Cash Equivalents
|
|
September 30,
2020
|
|
|
December 31, 2019
|
|
Cash
|
|
$
|
3,962,572
|
|
|
$
|
884,115
|
|
Money market fund
|
|
|
77,908,079
|
|
|
|
30,864,571
|
|
Cash and cash equivalents
|
|
|
81,870,651
|
|
|
$
|
31,748,686
|
|
|
|
|
|
|
|
|
|
|
Restricted cash, current
|
|
|
350,000
|
|
|
|
—
|
|
Restricted cash, noncurrent
|
|
|
669,900
|
|
|
|
—
|
|
Restricted cash
|
|
|
1,019,900
|
|
|
|
—
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
82,890,551
|
|
|
$
|
31,748,686
|
|
As
of September 30, 2020, all of the Company’s cash and cash equivalents was held in the United States, except for approximately
$1,595,000
of cash which was held in our subsidiaries
in the United Kingdom and Australia. As of December 31, 2019, all of the Company’s cash was held in the United States, except
for approximately $466,000
of cash which was held in our subsidiaries
in the United Kingdom and Australia.
Financial
Instruments
The
carrying values of the notes payable and debt approximate their fair value due to the fact that they are at market terms.
Fair
Value Measurements
The
valuation of the company’s debt and embedded derivatives are determined primarily by an income approach that considers the
present value of net cash flows of the debt with and without prepayment and default features. In accordance with ASC 815 “Accounting
for Derivative Instruments and Hedging Activities”, these embedded debt features which are determined to be classified
as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the
current period. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level
1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
as of the measurement date
Level
2 – Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data
Level
3 – Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset
or liability at the measurement date
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include the discount rate, risk free interest rate and derivative term. The
fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative
liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in fluctuations
in other income (expense) because of the corresponding non-cash gain or loss recorded.
Property
and Equipment
The
estimated life for the Company’s property and equipment is as follows: three years for computer hardware and software and
three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease
are amortized over the shorter of their useful lives or the respective leases. See Note 5 for details of property and equipment
and Note 6 for operating and capital lease commitments.
Research
and Development Expenses
Costs
incurred for research and development are expensed as incurred.
Nonrefundable
advance payments for goods or services that have the characteristics that will be used or rendered for future research and development
activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized
as an expense as the related goods are delivered or the related services are performed.
Accruals
for Research and Development Expenses and Clinical Trials
As
part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its
obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in
connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from
contract to contract and may result in payment terms that do not match the periods over which materials or services are provided
under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching
those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses
according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion
with applicable internal personnel and outside service providers as to the progress of clinical trials, or the services completed.
During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its
estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances
known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of
contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially
different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual
status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular
period. For the three and nine months ended September 30, 2020 and 2019, there were no material adjustments to the Company’s
prior period estimates of accrued expenses for clinical trials.
Leases
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.
ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an
incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU
asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a
straight-line basis over the lease term.
Concentrations
of Credit Risk
The
Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts
or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation
insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.
Segment
Information
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing
performance. To date, the Company has viewed its operations and manages its business as principally one
operating segment, which is developing
and commercializing therapeutics to treat rare life-threatening, inflammatory fibrotic diseases. As of September 30, 2020 all
of the Company’s assets were located in the United States, except for approximately $1,595,000
of cash, $1,207,000
of prepaid expenses, and $30,000
of property and equipment, net which were
held outside of the United States, principally in our subsidiary in the United Kingdom. As of December 31, 2019, all of the Company’s
assets were located in the United States, except for approximately $466,000
of cash, $1,606,000
of prepaid expenses, $23,000
of other assets, and $52,000
of property and equipment, net which were
held outside of the United States, principally in our subsidiary in the United Kingdom.
Income
Taxes
For
federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the
financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted
laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred
tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly,
given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax
assets in order to eliminate the deferred tax assets amounts.
Tax
positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated
to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.
Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be
recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the
financial statements as of September 30, 2020 or December 31, 2019.
Impairment
of Long-lived Assets
The
Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets
may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s
carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets
in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal
to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value
of the asset may not be recoverable. No impairment charges were recorded during the three and nine months ended September 30,
2020 and 2019.
Stock-based
Payments
The
Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors
as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based
award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model,
net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over
the requisite service period of the awards, which is generally the vesting period.
Foreign
Currency
Transaction
gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S.
Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may
be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance
sheet date.
Net
Loss Per Common Share
Net
loss per share was computed as follows:
Schedule of Computation of Net Loss Per Common Share
|
|
Three
Months Ended
September
30
|
|
|
Nine
Months Ended
September
30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,895,349
|
)
|
|
$
|
(20,790,801
|
)
|
|
$
|
(102,657,472
|
)
|
|
$
|
(44,872,957
|
)
|
Weighted average
number of common shares-diluted*
|
|
|
81,879,119
|
|
|
|
64,660,017
|
|
|
|
75,037,418
|
|
|
|
63,638,447
|
|
Net
loss per share of common stock-basic and diluted*
|
|
$
|
(0.43
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(0.71
|
)
|
*
|
* Warrants
and options that have not been exercised have been excluded from the diluted calculation as all periods presented have a net
loss and the impact of these securities would be anti-dilutive
|
Recent
Accounting Pronouncements
Accounting
for Income Taxes
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which
is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted
upon the effective date for the Company beginning January 1, 2021. The Company is currently evaluating the expected impact it
could have on its financial statements and related disclosures.
Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity which is intended to simplify various aspects generally accepted accounting principles (GAAP)
for certain financial instruments with characteristics of liabilities and equity. The standard is effective for public companies
that meet definition of a Securities and Exchange Commission (SEC) filer, excluding entities to be smaller reporting companies
as defined by the SEC, for fiscal years, and interim periods within those years, beginning after December 15, 2021. For all other
entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim
periods within those fiscal years. The Company is currently evaluating the timing of the adoption of ASU 2020-06 and the expected
impact it could have on the Company’s financial statements and related disclosures.
Collaborative
Arrangements
In
November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic
808 and Topic 606 (“ASU 2018-18”).
ASU 2018-18 clarifies the interaction between the accounting guidance for collaborative arrangements and revenue from contracts
with customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after December 15, 2019,
including interim periods within that fiscal year. The Company’s adoption of
ASU 2018-18 as of January 1, 2019 had no impact on the Company’s financial
statements and related disclosures.
The
Company entered into a License Agreement (the “Jenrin Agreement”) with Jenrin Discovery, LLC, a privately-held Delaware
limited liability company (“Jenrin”), effective September 20, 2018. Pursuant to the Jenrin Agreement, Jenrin granted
the Company exclusive worldwide rights to develop and commercialize the Licensed Products (as defined in the Jenrin Agreement)
which includes the Jenrin library of over 600 compounds and multiple issued and pending patent filings. The compounds are designed
to treat inflammatory and fibrotic diseases by targeting the endocannabinoid system.
In
consideration of the license and other rights granted by Jenrin, the Company paid Jenrin a $250,000 upfront cash payment and is
obligated to pay potential milestone payments to Jenrin totaling up to $18,400,000 for each compound it elects to develop based
upon the achievement of specified development and regulatory milestones. In addition, Corbus is obligated to pay Jenrin royalties
in the mid, single digits based on net sales of any Licensed Products, subject to specified reductions.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU
2017-01”) which clarifies the definition of a business and determines when an integrated set of assets and activities is
not a business. ASU 2017-01 requires that if substantially all of the fair value of gross assets acquired or disposed of is concentrated
in a single asset or group of similar identifiable assets, the assets would not represent a business. The Company determined that
substantially all of the fair value of the Jenrin Agreement was attributable to a single in-process research and development asset,
CRB-4001, which did not constitute a business. The Company concluded that it did not have any alternative future use for the acquired
in-process research and development asset. Thus, the Company recorded the $250,000 upfront payment to research and development
expenses in the third quarter of 2018. The Company will account for the $18,400,000 of development and regulatory milestone payments
in the period that the relevant milestones are achieved as either research and development expense or as an intangible asset as
applicable.
5.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following:
Summary
of Property and Equipment
|
|
September
30, 2020
|
|
|
December 31, 2019
|
|
Computer hardware and software
|
|
$
|
714,380
|
|
|
$
|
711,442
|
|
Office furniture and equipment
|
|
|
1,614,853
|
|
|
|
1,627,896
|
|
Leasehold improvements
|
|
|
4,163,860
|
|
|
|
4,150,488
|
|
Property and equipment, gross
|
|
|
6,493,093
|
|
|
|
6,489,826
|
|
Less: accumulated depreciation
|
|
|
(2,091,071
|
)
|
|
|
(1,405,961
|
)
|
Property and equipment, net
|
|
$
|
4,402,022
|
|
|
$
|
5,083,865
|
|
Depreciation
expense was $202,079 and
$157,773 for
the three months ended September 30, 2020 and 2019, respectively and $841,755
and $466,104
for the nine months ended September 30,
2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company wrote off $156,645
of fully depreciated property and equipment.
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Lease Commitment
On
August 21, 2017, the Company entered into a lease agreement (“August 2017 Lease Agreement”) for commercial lease of
office space, pursuant to which the Company agreed to lease 32,733 square feet of office space (“Leased Premises”).
The initial term of the August 2017 Lease Agreement was for a period of seven years which began with the Company’s occupancy
of the Leased Premises in February 2018. The base rent for the Leased Premises ranged from approximately $470,000 for the first
year to approximately $908,000 for the seventh year. Per the terms of the August 2017 Lease Agreement, the landlord agreed to
reimburse the Company for $1,080,189 of leasehold improvements. The reimbursements had been deferred and were to be recognized
as a reduction of rent expense over the term of the lease. Additionally, the August 2017 Lease Agreement required a standby irrevocable
letter of credit of $400,000, which was to be reduced, if the Company is not in default under the August 2017 Lease Agreement,
to $300,000 and $200,000 on the third and fourth anniversary of the commencement date, respectively, The Company entered into
an unsecured letter of credit for $400,000 in connection with the August 2017 Lease Agreement.
The
Company adopted ASU 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”) using the effective date method
as of January 1, 2019 and recorded a lease liability of approximately $3,811,000, and a right-of-use asset of approximately $2,400,000,
with no operations adjustment to the accumulated deficit related to the Leased Premises. Operating leases are included in operating
lease right-of-use assets (“ROU”), operating lease liabilities, current and operating lease liabilities, noncurrent
in the Company’s condensed consolidated balance sheets.
ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. ROU assets and liabilities are recognized at the date of adoption based on the
present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company
uses an incremental borrowing rate based on the information available at commencement date in determining the present value of
lease payments, which was 9%. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar
term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease
payments is recognized on a straight-line basis over the lease term.
On
February 26, 2019, the Company amended its lease (“February 2019 Lease Agreement”) pursuant to which an additional
30,023 square feet of office space (“New Premises”) will be leased by the Company in the same building for an aggregate
total of 62,756 square feet of leased office space (“Total Premises”). Per ASC 842, the February 2019 Lease Agreement
constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided
under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. Accordingly,
the Company reassessed the classification of the Leased Premises and remeasured the lease liability on the basis of the extended
lease term using the 20 additional monthly rent payments and the incremental borrowing rate at the effective date of the modification
of 9%. The remeasurement for the modification resulted in an increase to the lease liability and the ROU asset of approximately
$855,000. The Company determined that the New Premises will be treated as a new standalone operating lease under ASC 842 and recorded
a lease liability and a right-of-use asset of approximately $2,700,000 for this lease.
On
October 25, 2019, the Company amended its lease (“October 2019 Lease Amendment”) pursuant to which the term of the
lease was extended through November 30, 2026 and the existing office space under lease was expanded by 500 square feet for an
aggregate total of 63,256 square feet of leased office space (“Amended Total Premises”). The October 2019 Lease Amendment
constitutes a modification as it extends the original lease term and increases the scope of the lease (additional space provided
under the amendment), which requires evaluation of the remeasurement of the lease liability and corresponding ROU asset. The additional
space did not result in a separate contract as the rent increase was determined not to be commensurate with the standalone price
for the additional right of use. Accordingly, the Company reassessed the classification of the Amended Total Premises, which resulted
in operating classification, and remeasured the lease liability on the basis of the extended lease term using the additional monthly
rent payments and the incremental borrowing rate at the effective date of the modification of 8%. The remeasurement for the modification
resulted in an increase to the lease liability and the ROU asset of approximately $381,000 that was recorded in the fourth quarter
of 2019.
The
following table contains a summary of the lease costs recognized and other information pertaining to the Company’s operating
leases for the year ended December 31, 2019:
Schedule of Lease Costs
Lease cost
|
|
|
|
|
Operating lease cost
|
|
$
|
1,025,899
|
|
Total lease cost
|
|
$
|
1,025,899
|
|
|
|
|
|
|
Other information
|
|
|
|
|
Operating cash flows received for operating leases
|
|
$
|
338,435
|
|
Weighted average remaining lease term
|
|
|
6.9 years
|
|
Weighted average discount rate
|
|
|
8.00
|
%
|
Total
lease expense for the three months ended September 30, 2020 and 2019 was $310,118 and $307,182, respectively. Total lease expense
for the nine months ended September 30, 2020 and 2019 was $930,354 and $814,527, respectively.
Pursuant
to the terms of our non-cancelable lease agreements in effect at September 30, 2020, the following table summarizes our maturities
of operating lease liabilities as of September 30, 2020:
Schedule of Maturities of Operating Lease Liabilities
2020 (Remainder of year)
|
|
$
|
391,396
|
|
2021
|
|
|
1,605,121
|
|
2022
|
|
|
1,652,563
|
|
2023
|
|
|
1,700,005
|
|
2024
|
|
|
1,747,447
|
|
Thereafter
|
|
|
3,483,034
|
|
Total lease payments
|
|
$
|
10,579,566
|
|
|
|
|
|
|
Less: imputed interest
|
|
|
(2,253,337
|
)
|
Total
|
|
$
|
8,326,229
|
|
For
commitments under the Company’s development award agreements see Note 9.
COVID-19
In
response to the spread of COVID-19, the Company has taken temporary precautionary measures intended to help minimize the risk
of the virus to its employees and community, including temporarily requiring employees to work remotely, implementing remote monitoring
procedures for clinical data and suspending all non-essential travel worldwide for its employees.
As
a result of the COVID-19 pandemic, the Company may experience disruptions that could adversely impact its business. The COVID-19
pandemic may negatively affect clinical site initiation, patient recruitment and enrollment, patient dosing, distribution of drug
to clinical sites and clinical trial monitoring for the Company’s clinical trials. The COVID-19 pandemic may also negatively
affect the operations of the third-party contract research organizations that the Company relies upon to assist it in conducting
its clinical trials and the contract manufacturers who manufacture the Company’s drug candidates.
The
Company is continuing to assess the potential impact of the COVID-19 pandemic on its business and operations.
D&O
Financing
In
November 2018, the Company entered into a loan agreement with a financing company for $491,629 to finance one of the Company’s
insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $49,857 over
a ten-month period. Interest accrues on this loan at an annual rate of 3.07%. This loan was fully repaid in August 2019.
In
November 2019, the Company entered into a loan agreement with a financing company for $963,514 to finance one of the Company’s
insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $109,413 over
a nine-month period. Interest accrues on this loan at an annual rate of 5.25%. Prepaid expenses as of September 30, 2020 and December
31, 2019, included $0 and $923,292, respectively, related to this insurance policy. This loan was fully repaid in July 2020.
In
November 2020, the Company entered into a loan agreement with a financing company for $909,375 to finance one of the Company’s
insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $103,112 over
a nine-month period. Interest accrues on this loan at an annual rate of 4.89%.
Loan
and Security Agreement with K2 HealthVentures LLC
On
July 28, 2020, the Company, with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, entered into a $50,000,000 secured
Loan and Security Agreement with K2HV, an unrelated third party (the “Loan Agreement”) and received the first $20,000,000
tranche upon signing. The second tranche of $20,000,000 and the third tranche of $10,000,000 will be made available at the Company’s
option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and the Company
is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next
24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in
The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down
of 25 basis points upon the funding of the second tranche. The interest rate used at September 30, 2020 was 8.5%. K2HV may elect
to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share.
In
connection with the Loan Agreement, on July 28, 2020, the Company issued the Lenders a warrant to purchase up to 86,206 common
shares (the “K2 Warrant”) at an exercise price of $6.96 (the “Warrant Price”). The K2 Warrant may be exercised
either for cash or on a cashless “net exercise” basis and expires on July 28, 2030. The total proceeds attributed
to the K2 Warrant was approximately $472,000 based on the relative fair value of the K2 Warrant as compared to the sum of the
fair values of the K2 Warrant, prepayment feature, default feature, and debt. Total proceeds attributed to the prepayment and
default features was approximately $546,000. The Company also incurred approximately $1,244,000 of debt issuance costs and is
required to make a final payment equal to approximately $1,190,000. See Note 12 for more detail on assumptions used in the valuation
of the K2 warrant and see Note 13 for more information on the assumptions used in valuation of the default and prepayment features.
The
total principal amount of the loan under the Loan Agreement outstanding at September 30, 2020, including the $1,190,000 final
payment discussed above, is $21,190,000.
Upon
the occurrence of an Event of Default (as defined in the Loan Agreement), and during the continuance of an Event of Default, the
applicable rate of interest, described above, will be increased by 5.00% per annum. The secured term loan maturity date is August
1, 2024, and the Loan Agreement includes both financial and non-financial covenants. The Company was in compliance with these
covenants as of September 30, 2020. The obligations under the Loan Agreement are secured on a senior basis by a lien on substantially
all of the assets of the Company and its subsidiaries. The subsidiaries of the Company are guarantors of the obligations of the
Company under the Loan Agreement.
The
total debt discount related to Lenders of approximately $2,262,000 is being charged to interest expense using the effective interest
method over the term of the debt. At September 30, 2020 and December 31, 2019, the fair value of our outstanding debt, which is
considered level 3 in the fair value hierarchy, is estimated to be approximately $17,857,000 and $0, respectively. Interest expense
for the three and nine months ended September 30, 2020 was approximately $460,000. No interest expense or amortization of debt
discount recorded in 2019 related to K2 Loan Agreement.
The
net carrying amounts of the liability components consists of the following:
Schedule of Notes Payable
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
20,000,000
|
|
|
|
-
|
|
Less: debt discount
|
|
|
(2,262,000
|
)
|
|
|
-
|
|
Accretion of Debt Discount
|
|
|
118,977
|
|
|
|
-
|
|
Net Carrying amount
|
|
$
|
17,856,977
|
|
|
|
-
|
|
The
following table summarizes the future principal payments due under long-term debt;
Schedule of Principal Maturities on Long Term Debt
|
|
Principal Payments
and final payment
on Loan Agreement
|
|
|
|
|
|
Remaining 2020
|
|
$
|
-
|
|
2021
|
|
|
-
|
|
2022
|
|
|
3,093,344
|
|
2023
|
|
|
9,835,341
|
|
2024
|
|
|
8,261,315
|
|
Total
|
|
$
|
21,190,000
|
|
Accrued
expenses consisted of the following:
Schedule of Accrued Expenses
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Accrued clinical operations and trials costs
|
|
$
|
18,709,059
|
|
|
$
|
14,242,669
|
|
Accrued product development costs
|
|
|
3,589,136
|
|
|
|
3,573,231
|
|
Accrued compensation
|
|
|
4,676,027
|
|
|
|
3,673,111
|
|
Accrued other
|
|
|
1,618,827
|
|
|
|
958,928
|
|
Total
|
|
$
|
28,593,049
|
|
|
$
|
22,447,939
|
|
9.
|
DEVELOPMENT
AWARDS AND DEFERRED REVENUE
|
Collaboration
with Kaken
On
January 3, 2019, Corbus Pharmaceuticals Holdings, Inc. the Company entered into a Collaboration and License Agreement (the “Agreement”)
with Kaken Pharmaceutical Co., Ltd., a company organized under the laws of Japan (“Kaken”). Pursuant to the Agreement,
Corbus granted Kaken an exclusive license to commercialize pharmaceutical preparations containing lenabasum (the “Licensed
Products”) for the prevention or treatment of dermatomyositis and systemic sclerosis (together, the “Initial Indications”)
in Japan (the “Territory”).
Pursuant
to the terms of the Agreement, Corbus will bear the cost of, and be responsible for, among other things, conducting the clinical
studies and other developmental activities for the Licensed Products in the Initial Indications in the Territory, and Kaken will
bear the cost of, and be responsible for, among other things, preparing and filing applications for regulatory approval in the
Territory and for commercializing Licensed Products in the Territory, and will use commercially reasonable efforts to commercialize
Licensed Products and obtain pricing approval for Licensed Products in the Territory.
In
consideration of the license and other rights granted by Corbus, Kaken paid to Corbus in March 2019 a $27,000,000 upfront cash
payment and is obligated to pay potential milestone payments to Corbus totaling up to approximately $173,000,000 for the achievement
of certain development, sales and regulatory milestones, with part of the milestone payments being calculated in Japanese Yen,
and therefore subject to change based on the conversion rate to U.S. Dollars in effect at the time of payment. In addition, during
the Royalty Term (as defined below), Kaken is obligated to pay Corbus royalties on sales of Licensed Products in the Territory,
under certain conditions, in the double digits, which royalty shall be reduced in certain circumstances. In particular, for so
long as Corbus supplies Licensed Products to Kaken pursuant to a supply agreement to be entered into by the parties, royalty payments
shall be payable for each unit of Licensed Product that Corbus supplies as a percentage of the Japanese National Health Insurance
price of the Licensed Product. During any time in which a supply agreement is not in effect, royalty payments shall be changed
to a rate to be agreed upon by the parties in good faith.
The
Agreement will remain in effect on a Licensed Product-by-Licensed product basis and will expire upon the expiration of the Royalty
Term for the final Licensed Product. The “Royalty Term” means the period beginning on the date of the first commercial
sale of the Licensed Product in Japan and ends on the latest of (i) the expiration of the last valid claim of the royalty patents
covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product for such Initial
Indication in Japan, or (iii) ten (10) years after the first commercial sale of such Licensed Product for such Initial Indication
in Japan. The Agreement may be terminated by either party for material breach, upon a party’s insolvency or bankruptcy or
upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for
a safety concern or clinical failure, or at its convenience following the second anniversary of the first commercial sale of a
Licensed Product in either of the Initial Indications in the Territory, with 180 days’ notice.
Pursuant
to the Agreement, the parties agreed to develop a joint steering committee to provide strategic oversight of the parties’
activities under the Agreement, as well as a joint development committee to coordinate the development of Licensed Products in
Japan. Additionally, the parties will establish a joint commercialization committee to review and confirm commercialization activities
with respect to Licensed Products in Japan upon regulatory approval of such Licensed Product.
The
Agreement also contains customary representations, warranties and covenants by both parties, as well as customary provisions relating
to indemnification, confidentiality and other matters.
The
Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Kaken, is a customer.
The Company identified the following material promises under the arrangement: (1) the exclusive license to commercialize lenabasum;
(2) the product’s initial know-how transfer; (3) election to use the product trademarks; (4) the sharing of data gathered
through the execution of the Global Development Plan for the Initial Indications; and (5) Japanese Pharmaceuticals and Medical
Devices Agency (“PMDA”)-required supplemental studies. The Company identified two performance obligations; (1) the
combined performance obligation of the License, initial know-how transfer and license to the Company’s product trademarks;
and (2) the sharing of data gathered through the execution of the Global Development Plan (as defined in the Agreement) for the
Initial Indications. The Company determined that the license and initial know-how transfer were not distinct from another in the
context of the contract, as initial know-how transfer is highly interrelated to the license and Kaken would incur significant
costs to re-create the know-how of the Company. The Company determined that the election to use the product trademarks license
contributes to the exclusivity of the license and, therefore, is combined with the license. The PMDA-required supplemental study
is a contingent promise although not a performance obligation as the promise does not provide Kaken with a material right.
Under
the Agreement, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of $27,000,000
constituted the entirety of the consideration to be included in the transaction price at the outset of the arrangement, which
was allocated to the two performance obligations. The potential milestone payments that the Company is eligible to receive were
excluded from the transaction price, as all milestone payments are fully constrained based on the probability of achievement.
The Company will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or
other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.
The
Company estimated the stand-alone selling price of each performance obligation using a market approach and allocated the transaction
price on a relative basis. This allocation resulted in a de minimis value attributable the obligation to sharing of data gathered
through the execution of the Global Development Plan for the Initial Indications and effectively all of the value to the combined
license, initial know-how transfer and license to product trademarks. Therefore, the full upfront payment of $27,000,000 is allocated
to the combined performance obligation of the license, initial technology transfer and license to the product trademarks.
The
Company received the upfront payment of $27,000,000 in March 2019 and, as the performance obligations were not yet satisfied at
that time, the payment was recorded in deferred revenue as of March 31, 2019. The Company satisfied the combined performance obligation
by June 30, 2019, upon which the Company recognized the $27,000,000 upfront payment as revenue in the second quarter of 2019.
The
Company was required to make a $2,700,000 royalty payment to CFF within 60 days of receipt of the upfront cash payment from Kaken
pursuant to the 2018 CFF Award. This obligation was paid by the Company to CFF in May 2019.
2018
CFF Award
On
January 26, 2018, the Company entered into the Cystic Fibrosis Program Related Investment Agreement with the CFF (“Investment
Agreement”), a non-profit drug discovery and development corporation, pursuant to which the Company received an award for
up to $25,000,000 in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical
Trial”) of lenabasum in patients with cystic fibrosis, of which the Company has received $22,500,000 in the aggregate through
September 30, 2020 upon the Company’s achievement of milestones related to the progress of the Phase 2b Clinical Trial,
as set forth in the Investment Agreement. I. The Company expects that the final $2.5 million of the 2018 CFF Award will be paid
upon the Company’s achievement of the last remaining milestone related to the progress of the Phase 2b Clinical Trial, as
set forth in the Investment Agreement, and the Company expects to receive the remainder before the end of the fourth quarter of
2020.
Pursuant
to the terms of the Investment Agreement, the Company is obligated to make certain royalty payments to CFF, including a royalty
payment of one and one-half times the amount of the 2018 CFF Award, payable in cash within sixty days upon the first receipt of
approval of lenabasum in the United States and a second royalty payment of one and one-half times the amount of the 2018 CFF Award
upon approval in another major market, as set forth in the Investment Agreement (the “Approval Royalty”). At the Company’s
election, the Company may satisfy the first of the two Approval Royalties in registered shares of the Company’s common stock.
Additionally,
the Company is obligated to make (i) royalty payments to CFF of two and one-half percent of net sales from lenabasum due within
sixty days after any quarter in which such net sales occur in the Field, as defined in the Investment Agreement, (ii) royalty
payments to CFF of one percent of net sales of Non-Field Products, as defined in the Investment Agreement due within sixty days
after any quarter in which such net sales occur, and (iii) royalty payments to CFF of ten percent of any amount the Company and
its stockholders receive in connection with the license, sale, or other transfer to a third party of lenabasum, if indicated for
the treatment or prevention of CF, or a change of control transaction, except that such payment shall not exceed five times the
amount of the 2018 CFF Award, with such payments to be credited against any other net sales royalty payments due. Accordingly,
the Company will owe to CFF a royalty payment equal to 10% of any amounts the Company receives as payment under the collaboration
agreement with Kaken, provided that the total royalties that the Company will be required to pay under the Investment Agreement
resulting from income from licenses or sales subject to the Investment Agreement are capped at five times the total amount of
the 2018 CFF Award, and the Company may credit such royalties against any royalties on net sales otherwise owed to CFF under the
Investment Agreement. Accordingly, the Company was required to pay CFF $2,700,000 in May 2019 as a result of its receipt of the
$27,000,000 upfront cash payment from Kaken.
Either
CFF or the Company may terminate the Investment Agreement for cause, which includes the Company’s material failure to achieve
certain commercialization and development milestones. The Company’s payment obligations survive the termination of the Investment
Agreement.
Pursuant
to the terms of the Investment Agreement, the Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of
the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per
share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone
set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement,
the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires
on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered
and subject to a one-year lock-up.
Under
the Investment Agreement, the Company recorded $1,230,621 and $2,589,783 of revenue during the three months ended September 30,
2020 and 2019, respectively, and recorded $3,279,026 and $6,570,048 of revenue during the nine months ended September 30, 2020
and 2019, respectively. The Company concluded that the contract counterparty, CFF, is a customer. The Company identified the following
material promise under the arrangement: research and development activities and related services under the Phase 2b Clinical Trial.
Based on these assessments, the Company identified one performance obligation at the outset of the Investment Agreement, which
consists of: Phase 2b Clinical Trial research and development activities and related services.
To
determine the transaction price, the Company included the total aggregate payments under the Investment Agreement which amount
to $25,000,000 and reduced the revenue to be recognized by the payment to the customer of $6,215,225 in the form of the CFF Warrant
representing its fair value, leaving the remaining $18,784,775 as the transaction price as of the outset of the arrangement, which
will be recognized as revenue over the performance period as discussed below. The $6,215,225 fair value of the warrant was also
recorded as an increase to additional paid in capital.
The
Company has billed and received $22,500,000 so far in milestone payments including $12,500,000 in 2018, $5,000,000 in 2019 and
$5,000,000 in 2020. A roll forward of deferred revenue related to the Investment Agreement for the nine months ended
September 30, 2020 is presented below.
Schedule
of Roll Forward of Deferred Revenue
|
|
September 30, 2020
|
|
Beginning balance, December 31, 2019
|
|
$
|
—
|
|
Billing to CFF upon achievement of milestone
|
|
|
5,000,000
|
|
Recognition of revenue
|
|
|
(3,279,026
|
)
|
Reverse to contract asset (unbilled revenue)
|
|
|
(1,720,974
|
)
|
Ending balance
|
|
$
|
—
|
|
The
CFF Warrant is accounted for as a payment to the customer under ASC 606. See Note 12 for further information related to the CFF
Warrant. The Company notes that the Investment Agreement contains an initial payment that was received upon contract execution
and subsequent milestone payments, which are a form of variable consideration that require evaluation for constraint considerations.
The Company concluded that the related performance milestones are generally within the Company’s control and as result are
considered probable. Revenue associated with the performance obligation is being recognized as revenue as the research and development
services are provided using an input method, according to the costs incurred as related to the research and development activities
on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control
occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance
obligation. The research and development services related to this performance obligation are expected to be performed over approximately
2.75 years and is expected to be completed in the fourth quarter of 2020. The amounts received that have not yet been recognized
as revenue are recorded in deferred revenue and the amounts recognized as revenue, but not yet received or invoiced are generally
recognized as contract assets on the Company’s condensed consolidated balance sheet.
The
Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 82,207,405 shares, and 64,672,893
shares were issued and outstanding as of September 30, 2020, and December 31, 2019, respectively.
On
January 30, 2019, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the
Company sold an aggregate of 6,198,500 shares of its common stock, including 808,500 shares sold pursuant to the full exercise
of the underwriters’ option to purchase additional shares, at a purchase price of $6.50 per share with gross proceeds to
the Company totaling $40,290,250, less issuance costs incurred of approximately $2,572,000.
On
February 11, 2020, the Company consummated an underwritten public offering of shares of its common stock pursuant to which the
Company sold an aggregate of 7,666,667 shares of its common stock, including 1,000,000 shares sold pursuant to the full exercise
of the underwriters’ option to purchase additional shares, at a purchase price of $6.00 per share with gross proceeds to
the Company totaling $46,000,000, less estimated issuance costs incurred of approximately $3,147,000.
On
April 7, 2020, the Company entered into the April 2020 Sale Agreement with Jefferies pursuant to which Jefferies served
as the Company’s sales agent to sell up to $75,000,000
of shares of the Company’s common
stock through an “at the market offering.” Sales of common stock under the April 2020 Sale Agreement were made pursuant
to an effective registration statement for an aggregate offering of up to $75,000,000.
During the three and nine months ended September 30, 2020, the Company sold 1,504,473
and 9,618,267,
respectively, shares of its common
stock under the April 2020 Sale Agreement for which the Company received net proceeds of approximately $11,331,889
and $71,709,534,
respectively through September
30, 2020. In October 2020, the Company sold an additional 921,107
shares of its common stock under the April
2020 Sale Agreement for net proceeds of approximately $1,032,744.
On
August 7, 2020, the Company entered into the August 2020 Sale Agreement with Jefferies pursuant to which Jefferies is serving
as the Company’s sales agent to sell shares of the Company’s common stock through an “at the market offering.”
As of August 7, 2020, the company was authorized to sell up to $150,000,000
of shares of the Company’s common
stock pursuant to the August 2020 Sale Agreement. During the three and nine months ended September 30, 2020, the Company did not
sell any shares from the August 2020 Sale Agreement. In October 2020, the Company sold 908,727
shares of its common stock under the August
2020 Sale Agreement for net proceeds of approximately $953,590
pursuant to an effective registration
statement.
During
the three and nine months ended September 30, 2020, the Company issued 47,084 and 249,578 shares of common stock upon the exercise
of stock options to purchase common stock and the Company received proceeds of $271,928 and $574,233 from these exercises, respectively.
During the three and nine months ended September 30, 2019, the Company issued 28,800 and 107,029 shares of common stock upon the
exercise of stock options to purchase common stock and the Company received proceeds of $80,100 and $386,811 from these exercises,
respectively.
No
warrants were exercised during the three and nine months ended September 30, 2020. During the nine months ended September 30,
2019, warrants to purchase 1,283,500 shares of common stock were exercised on a cashless basis resulting in the issuance of 1,119,868
shares of common stock. No warrants were exercised during the three months ended September 30, 2019.
In
April 2014, the Company adopted the Corbus Pharmaceuticals Holdings, Inc. 2014 Equity Incentive Plan (the “2014 Plan”).
Pursuant to the 2014 Plan, the Company’s Board of Directors may grant incentive and nonqualified stock options and restricted
stock to employees, officers, directors, consultants and advisors. Options issued under the 2014 Plan generally vest over 4 years
from the date of grant in multiple tranches and are exercisable for up to 10 years from the date of issuance.
Pursuant
to the terms of an annual evergreen provision in the 2014 Plan, the number of shares of common stock available for issuance under
the 2014 Plan shall automatically increase on January 1 of each year by at least seven percent (7%) of the total number of shares
of common stock outstanding on December 31st of the preceding calendar year, or, pursuant to the terms of the 2014 Plan, in any
year, the Board of Directors may determine that such increase will provide for a lesser number of shares.
In
accordance with the terms of the 2014 Plan, effective as of January 1, 2019, the number of shares of common stock available for
issuance under the 2014 Plan increased by 3,000,000 shares, which was less than seven percent (7%) of the outstanding shares of
common stock on December 31, 2018. As of January 1, 2019, the 2014 Plan had a total reserve of 18,543,739 shares and there were
8,072,241 shares available for future grants. As of September 30, 2019, there were 4,728,315 shares available for future grants.
In
accordance with the terms of the 2014 Plan, effective as of January 1, 2020, the number of shares of common stock available for
issuance under the 2014 Plan increased by 4,527,103 shares, which was seven percent (7%) of the outstanding shares of common stock
on December 31, 2019. As of January 1, 2020, the 2014 Plan had a total reserve of 23,070,842 shares and there were 8,840,939 shares
available for future grants. As of September 30, 2020 there were 5,228,870 shares available for future grants.
Stock-based
Compensation
For
stock options issued and outstanding for the three months ended September 30, 2020 and 2019, respectively, the Company recorded
non-cash, stock-based compensation expense of $3,630,996 and $2,977,574, net of estimated forfeitures. For stock options issued
and outstanding for the nine months ended September 30, 2020 and 2019, respectively, the Company recorded non-cash, stock-based
compensation expense of $10,116,775 and $8,884,001, net of estimated forfeitures.
The
fair value of each option award for employees is estimated on the date of grant using the Black-Scholes option pricing model that
uses the assumptions noted in the following table. Due to its limited operating history, the Company estimates its volatility
including the volatility of comparable public companies and its own common stock, taking into account the expected life of the
option. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements,
to estimate option exercises and employee terminations in order to estimate its forfeiture rate. The expected term of options
granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined
based on the simplified method due to the Company’s limited operating history, and is 6.25 years based on the average between
the vesting period and the contractual life of the option. For non-employee options, the expected term is the contractual term.
The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.
The
weighted average assumptions used principally in determining the fair value of options granted to employees were as follows:
Summary of Fair Value of Options Granted to Employees
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Risk free interest rate
|
|
|
0.59
|
%
|
|
|
2.41
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term in years
|
|
|
6.25
|
|
|
|
6.25
|
|
Estimated Forfeiture Rate
|
|
|
5.92
|
%
|
|
|
4.63
|
%
|
Expected volatility
|
|
|
82.89
|
%
|
|
|
87.3
|
%
|
A
summary of option activity for the nine months ended September 30, 2020 and is presented below: