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Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”
Overview
Corbus Pharmaceuticals Holdings, Inc. (the “Company” or “Corbus”) is focused on the development of immune modulators that will have application in disease states spanning from immuno-oncology to fibrosis. Corbus’ current pipeline includes anti-integrin monoclonal antibodies that block activation of TGFβ and small molecules that activate or inhibit the endocannabinoid system. The company plans to expand its pipeline in immuno-oncology through internal efforts and business development.
The pipeline includes the following programs:
1.Anti-integrin monoclonal antibodies (mAbs) that inhibit the activation of TGFβ for the treatment of cancer and fibrosis. CRB-601 is an anti-αvβ8 mAb being developed as a potential treatment for solid tumors in combination with existing therapies, including checkpoint inhibitors. The solid tumor program is scheduled for an IND submission to the FDA in the first half of 2023. CRB-602 is a discovery stage anti-αvβ6/αvβ8 mAb currently being explored in disease indications including oncology and fibrosis.
2.Second generation cannabinoid receptor type 1 (CB1) inverse agonists designed to treat obesity and related metabolic diseases. In animal models of diet-induced obesity, our compounds induce weight loss both as a monotherapy and in combination with a GLP-1 agonist. The program is progressing through preclinical studies and regulatory pathway evaluation.
3.Lenabasum, a novel, synthetic, oral molecule that selectively activates cannabinoid receptor type 2 (CB2). We completed a Phase 3 study in dermatomyositis in June 2021 which did not meet its primary endpoint. The National Institutes of Health-sponsored Phase 2 study of lenabasum in systemic lupus erythematosus has completed its last patient visit and the clinical database had been locked. The Company awaits topline results. The Company does not plan to conduct additional clinical studies for Lenabasum and will seek licensing partners to fund future development.
Financial Operations Overview
We are an immunology company and have not generated any revenues from the sale of products. We have never been profitable and at June 30, 2022, we had an accumulated deficit of approximately $372,420,000. Our net losses for the three months ended June 30, 2022 and 2021, were approximately $13,249,000 and $17,138,000, respectively. For six months ended June 30, 2022 and 2021, our net losses were approximately $22,686,000 and $33,204,000, respectively,
We expect to continue to incur significant expenses for the foreseeable future. We expect our expenses to continue to decline in 2022 as compared to 2021 due to the completion of our lenabasum clinical studies and a reduction in personnel. We do not plan to conduct additional clinical studies for lenabasum. While we expect expenses to decline in 2022, we will still incur significant operating losses and accordingly we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or other sources, which may include government grants and collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.
We expect to continue to incur operating losses for at least the next several years in connection with our ongoing activities, as we:
•conduct preclinical and clinical trials for our product candidates;
•continue our research and development efforts; and
•manufacture drugs for clinical studies.
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Revenue Recognition
To date, we have not generated any revenues from the sales of products. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of lenabasum or other of our product candidates, which we expect will take a number of years and is subject to significant uncertainty.
We have not recognized revenue in the three and six months ended June 30, 2022, respectively. In the three and six months ended June 30, 2021, we recognized approximately $137,000 and $784,000 of revenue, respectively.
Amounts recognized in revenue for the six months ended June 30, 2021 were in connection with our entry on January 26, 2018 into 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 we 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 of which we received $6,250,000 in the first quarter of 2018, $6,250,000 in the second quarter of 2018, $5,000,000 in the second quarter of 2019, $5,000,000 in the third quarter of 2020, and $2,500,000 in the fourth quarter of 2021, upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. We received the entire $25 million from the CFF and have recorded a total of $25 million in revenue to date. We will not be recognizing revenue in the future from the 2018 CFF award.
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Results of Operations
Comparison of Three Months Ended June 30, 2022 and 2021
Revenue
To date, we have not generated any revenues from the sales of products. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of lenabasum or other of our product candidates, which we expect will take a number of years and is subject to significant uncertainty.
We have recognized approximately $0 and $137,000 of revenue in the three months ended June 30, 2022 and 2021, respectively.
Amounts recognized in revenue for the three months ended March 31, 2021 were in connection with our entry on January 26, 2018 into 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 we received a development award for up to $25 million 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 we received $6.25 million in the first quarter of 2018, $6.25 million in the second quarter of 2018, $5.0 million in the second quarter of 2019, $5.0 million in the third quarter of 2020, and $2.5 million in the fourth quarter of 2021 upon our achievement of a milestone related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement. We received the entire $25 million from the CFF and have recorded a total of $25 million in revenue to date. We will not be recognizing revenue in the future from the 2018 CFF award.
Research and Development. Research and development expenses for the three months ended June 30, 2022 totaled approximately $2,500,000, a decrease of $8,765,000 from the $11,265,000 recorded for the three months ended June 30, 2021. The decrease in fiscal quarter 2022 as compared to 2021 was primarily attributable to lower clinical expenses of approximately $2,425,000 associated with the end of lenabasum clinical studies. There was also a decrease of $2,347,000 in compensation costs, $2,242,000 decrease in the upfront payments made to in-license integrin drugs, and $859,000 in consulting costs.
During 2018, the Company formed a subsidiary in each of the United Kingdom and Australia and approximately 21% and 13% of research and development expenses recorded for the three months ended June 30, 2022 and 2021, respectively was recorded in these entities.
General and Administrative. General and Administrative expense for the three months ended June 30, 2022 totaled approximately $4,840,000, a decrease of $732,000 from the $5,572,000 recorded for the three months ended June 30, 2021. The decrease in fiscal 2022 as compared to fiscal 2021 was primarily attributable to decreases in compensation costs of $562,000 and software costs of $290,000 which were partially offset by an increase of $228,000 in legal costs.
Litigation Settlement. Litigation Settlement expense for the three months ended June 30, 2022 totaled $5,000,000 as a result of the settlement with Venn Therapeutics, LLC. There was no litigation settlement for the three months ended June 30, 2021.
Other Expense, Net. Other expense, net for the three months ended June 30, 2022 was approximately $909,000 as compared to approximately $437,000 recorded for the three months ended June 30, 2021. The increase of $472,000 in 2022 as compared to 2021 was primarily attributable foreign currency losses and the change in the fair value of the derivative liability.
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Comparison of Six Months Ended June 30, 2022 and 2021
Revenue
We had recognized $0 and $784,000 in revenue for the six months ended June 30, 2022 and 2021.
Research and Development. Research and development expenses for the six months ended June 30, 2022 totaled approximately $5,786,000, a decrease of $16,200,000 from the $21,986,000 recorded for the six months ended June 30, 2021. The decrease in fiscal 2022 as compared to fiscal 2021 was primarily attributable to lower clinical expenses of approximately $6,991,000 associated with the end of lenabasum clinical studies. There was also a decrease of $4,626,000 in compensation costs, $2,269,000 decrease in the upfront payments made to in-license integrin drugs, and $802,000 in consulting costs, and $523,000 in software costs.
During 2018, the Company formed a subsidiary in each of the United Kingdom and Australia and approximately 28% and 25% of research and development expenses recorded for the six months ended June 30, 2022 and 2021, respectively was recorded in these entities.
General and Administrative. General and Administrative expense for the six months ended June 30, 2022 totaled approximately $10,071,000, a decrease of $843,000 from the $10,914,000 recorded for the six months ended June 30, 2021. The decrease in fiscal 2022 as compared to fiscal 2021 was primarily attributable to decreases in compensation costs of $1,441,000 partially offset by an increase in legal costs of $703,000.
Litigation Settlement. Litigation Settlement expense for the six months ended June 30, 2022 totaled $5,000,000 as a result of the settlement with Venn Therapeutics, LLC. There was no litigation settlement for the six months ended June 30, 2021.
Other Expense, Net. Other expense, net for the six months ended June 30, 2022 was approximately $1,829,000 as compared to approximately $1,088,000 recorded for the six months ended June 30, 2021. The increase of $741,000 in 2022 as compared to 2021 was primarily attributable foreign currency losses and the change in the fair value of the derivative liability.
Liquidity and Capital Resources
Since inception, we have experienced negative cash flows from operations. We have financed our operations primarily through sales of equity-related securities. In addition, the majority of the costs of the SLE clinical trial has been or is expected to be funded by NIH grants and our phase 2b clinical trial in cystic fibrosis was supported by the 2018 CFF Award. At June 30, 2022, our accumulated deficit since inception was approximately $372,420,000.
At June 30, 2022, we had total current assets of approximately $75,238,000 and current liabilities of approximately $15,630,000, resulting in working capital of approximately $59,608,000. Of our total cash, cash equivalents, investments, and restricted cash of $74.0 million at June 30, 2022, approximately $71.0 million was held within the United States.
Net cash used in operating activities for the six months ended June 30, 2022 was approximately $22,844,000, which includes a net loss of approximately $22,686,000, adjusted for non-cash expenses of approximately $5,634,000 largely related to stock-based compensation expense, and approximately $5,792,000 of cash used by net working capital items principally due to paying down accounts payable and accrued expenses.
Cash provided by investing activities for the six months ended June 30, 2022 totaled approximately $24,266,000, which was principally related to sales and purchases of marketable securities.
Cash used in financing activities for the six months ended June 30, 2022 totaled approximately $657,000, which was related to the repayment of short-term borrowings.
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Under current SEC regulations, if at any time our public float is less than $75.0 million, and for so long as our public float remains less than $75.0 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float, which is referred to as the baby shelf rules. As of March 8, 2022, at the time of the filing of our Annual Report on Form 10-K for the year ended December 31, 2021, our calculated public float was below $75.0 million and we will be subject to baby shelf rules for any offerings conducted on our shelf registration statement. As of August 9, 2022, the date of the filing of this Quarterly Report on Form 10-Q, the aggregate market value of our outstanding common stock held by non-affiliates, or the public float, was $37.5 million, which was calculated based on 124,695,962 shares of our outstanding common stock held by non-affiliates at a price of $0.30 per share, the closing price of our common stock on July 8, 2022. As such, we will be restricted from selling more than $12.5 million of securities pursuant to a shelf registration statement in any twelve-month period, so long as the aggregate market value of our common stock held by non-affiliates is less than $75.0 million.
We expect our cash, cash equivalents, and marketable securities of approximately $73.3 million at June 30, 2022 will be sufficient to meet our operating and capital requirements into the first quarter of 2024, based on current planned expenditures.
We will need to raise significant additional capital to continue to fund operations and the discovery and pre-clinical costs for our product candidates. If we are unable to raise sufficient capital in the future, we may be required to undertake cost-cutting measures, including delaying or discontinuing certain clinical activities. We may seek to sell common stock, preferred stock or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares. If we raise 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 our operations. Any other third-party funding arrangement could require us 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 our clinical development programs.
Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate expenses including some or all of our planned clinical trials.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, other than future royalty payments under development award agreements discussed as follows:
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License Agreement with Jenrin
Pursuant to the terms of the Jenrin Agreement, we are obligated to pay potential milestone payments to Jenrin totaling up to $18.4 million for each compound we elect to develop based upon the achievement of specified development and regulatory milestones. In addition, we are obligated to pay Jenrin royalties in the mid, single digits based on net sales of any Licensed Products, as defined in the Jenrin Agreement, subject to specified reductions.
The Jenrin Agreement terminates on a country-by-country basis and product-by-product basis upon the expiration of the royalty term for such product in such country. Each royalty term begins on the date of the first commercial sale of the licensed product in the applicable country and ends on the later of seven years from such first commercial sale or the expiration of the last to expire of the applicable patents in that country. The Jenrin Agreement may be terminated earlier in specified situations, including termination for uncured material breach of the Jenrin Agreement by either party, termination by Jenrin in specified circumstances, termination by Corbus with advance notice and termination upon a party’s insolvency or bankruptcy.
License Agreement with Milky Way
Pursuant to the terms of the Milky Way Agreement, we are obligated to pay potential milestone payments to Milky Way totaling up to $53.0 million based upon the achievement of specified development and regulatory milestones. In addition, we are obligated to pay Milky Way royalties in the lower, single digits based on net sales of any Licensed Products, as defined in the Milky Way Agreement.
The Milky Way Agreement will remain in effect on a Licensed Product-by-License Product and country-by-country basis, until the expiration of the Royalty Term of the Licensed Product in the country. The "Royalty Term" means the period beginning from the First Commercial Sale of the Licensed Product in the country until the expiration of the last-to-expire Valid Claim in any Licensor Patent in the country that Covers the composition of matter of the Licensed product, the manufacture of the Licensed Product in the country, or a method of use of the Licensed Product for an indication for which Regulatory Approval has been obtained in the country. The Milky Way Agreement may be terminated earlier in specified situations, including termination for material breach or termination by Corbus with advance notice.
License Agreement with UCSF
Pursuant to the terms of the UCSF Agreement, we are obligated to pay potential milestone payments to UCSF totaling up to $153.0 million based upon the achievement of specified development and regulatory milestones. In addition, we are obligated to pay UCSF royalties in the lower, single digits based on net sales of any Licensed Products, as defined in the UCSF Agreement.
The UCSF Agreement will remain in effect until the expiration or abandonment of the last of the Patent Rights licensed. The Royalty Term is the duration of Patent Rights in that country covering the applicable Licensed Product or Licensed Services Sold in the country. The UCSF Agreement may be terminated earlier in specified situations, including termination for material breach, termination by Corbus with advance notice and termination upon a party's bankruptcy.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates, assumptions, and judgements that affect the reported amounts of assets, liabilities, revenue, costs of expenses and related disclosures in the condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe our critical accounting policies that involve the most judgement and complexity are those relating to:
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stock based compensation; |
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accrued research and development expenses; and |
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right of use assets and lease liabilities; |
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Stock-Based Compensation
Stock options are granted with an exercise price at no less than fair market value at the date of the grant. The stock options normally expire ten years from the date of grant. Stock option awards vest upon terms determined by our Board.
We recognize compensation costs resulting from the issuance of stock-based awards to employees, members of our Board and consultants. The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Due to our limited operating history, we estimated our volatility in consideration of a number of factors, including the volatility of comparable public companies and, commencing in 2015, we also included the volatility of our own common stock. We use historical data, as well as subsequent events occurring prior to the issuance of the consolidated financial statements, to estimate option exercise and employee forfeitures within the valuation model. The expected term of options granted to employees under our stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 48 months). The expected term of options granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is based on the average of the 6.25 years. 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. We estimate the forfeiture rate at the time of grant and revise it, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on management’s expectation through industry knowledge and historical data. We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our share-based compensation.
Accrued Research and Development Expenses
As part of the process of preparing financial statements, we are required to estimate and accrue expenses, the largest of which are research and development expenses. This process involves: communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.
Examples of estimated research and development expenses that we accrue include:
•fees paid to CROs in connection with nonclinical studies;
•fees paid to contract manufacturers in connection with the production of lenabasum for clinical trials;
•fees paid to CRO and research institutions in connection with conducting of clinical studies; and
•professional service fees for consulting and related services.
We base our expense accruals related to clinical studies on our estimates of the services performed pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical study milestones. Our service providers invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.
To date, we have not experienced significant changes in our estimates of accrued research and development expenses following each applicable reporting period. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information regarding the status or conduct of our clinical studies and other research activities.
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Leases
We lease our office space. We determine 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 our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our 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 our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate we 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.
The Company has subleased a portion of its leased facility under an agreement considered to be an operating lease according to GAAP. The Company has not been legally released from its primary obligations under the original lease and therefore it continues to account for the original lease as it did before commencement of the sublease. The Company will record both fixed and variable payments received from the sublessee in its statement of operations on a straight-line basis as an offset to rent expense.