CRBP - Corbus Pharmaceuticals: Uncertainty In A Cash-Burning Early Clinical-Stage Company

2023-08-04 13:07:47 ET

Summary

• Corbus Pharmaceuticals is shifting its strategy after the Lenabasum failure, focusing on new drugs CRB-601 & CRB-701.
• Despite a healthy balance sheet, Corbus' cash reserves are steadily depleting, especially when the company has generated no revenue in the past several quarters.
• The company contends with challenges in gaining traction after Lenabasum's failure, a lack of late-stage clinical drugs, and concerns over the company's future financial position.

Introduction

Corbus Pharmaceuticals ( CRBP ) has gone on over 2 years without any analyst coverage. In the last few years, investors were banking on the breakthrough of Lenabasum as a catalyst for the company, and Seeking Alpha analysts continuously gave the company "Buy ratings" despite the failure of its Phase 3 trial for systemic sclerosis. However, this sentiment did not age well as the topline data from the National Institutes of Health-sponsored Phase 2 study of lenabasum in systemic lupus erythematosus (SLE), once again, did not meet its primary endpoint of a statistical improvement in the Numerical Rating Scale (NRS) for pain associated with musculoskeletal inflammation. The company made no mention of lenabasum following this failure, and in its place, refocused its efforts on developing CRB-601. Moreover, the company made several changes to its management team back in 2022. The company has expanded its Board of Directors with the inclusion of Anne Altmeyer and Yong Ben, while also appointing Rachael Brake as Chief Scientific Officer.

In September 2020, the stock experienced a massive selloff causing the stock to plunge by 77% in one day following the announcement of Lenabasum failing its Phase 3 trial. The stock increased to a minor peak in February 2021, but has been on a gradual decline since. As of August 3, 2023, Corbus is trading at $6.92 with a market cap of $30.25 million.

Company Overview

Although the main audience for this analysis may be current shareholders that have been closely following the company, I see that it is still beneficial to provide a brief company overview given its several years of inactivity. Corbus Pharmaceuticals is an early clinical-stage precision oncology company out of Norwood, Massachusetts focused on developing medicines to treat inflammatory and fibrotic diseases. They approach aims to implement innovative scientific methods to help better understand biological pathways. Corbus is currently developing CRB-701, a Phase I clinical trial antibody drug conjugate ((ADC)). This drug specifically targets Nectin-4 expressed on cancer cells, releasing a potent toxin known as monomethyl auristatin E (MMAE). The firm is also developing CRB-601, a monoclonal antibody that inhibits the activation of TGFß found on cancer cells, with potential applications in treating solid tumors.

Corbus' pipeline today looks drastically different from its pipeline in Q4 2020.

Recent Developments

A little over a month ago, Corbus announced that its intention to join the Russell Microcap Index. This will take place at the end of the 2023 Russell indexes annual reconstitution, and the company will automatically be guaranteed inclusion into the index for one year.

Back in February of this year, Corbus entered a license agreement with CSPC Pharmaceutical Group that granted exclusive development and commercialization rights for CRB-701. This adds to the company's oncology pipeline and is currently undergoing a Phase 1 dose escalation study in patients with advanced solid tumors in China.

The company is also set on participating and presenting its pre-clinical data on CRB-601 at several important conferences, including the BTIG Virtual Biotechnology Conference, the 2023 Jefferies Healthcare Conference, and the 2023 American Association for Cancer Research Annual Meeting.

Financial Performance

Corbus has earned no revenue since the 3rd quarter of 2021, and has historically operated at a loss since the company's inception. This loss has been increasing throughout the quarters, and the company's reported Q1 loss of $17.7 million contrasts significantly with its with $8.5 million operating loss in the same period last year. Notably, this increase in operating loss is attributed to the company's expense of $13.4 million on research and development, which is more than double that of the $6.2 million spent in Q4 2022. As per Corbus' Q1 2023 earnings report , the company reported a net loss per diluted share of $4.24, also significantly greater than the net loss per diluted share of $2.26 in Q1 2022.

Corbus reported total cash and cash equivalents of $44.2 million, which is slightly less than the $59.2 million in Q4 2022. This follows a trend of decreasing cash reserves since Q1 2021, when the company held $124 million in cash. For each consecutive quarter following, the company saw decreases in its total cash. The company has been operating cash flow negative for the past 6 quarters, and it lost a total of $15.1 million cash from operations. In its earnings report, management announced that its Q1 cash should finance operations through Q2 2024 based on its current expenditures plan. Despite this, Corbus still maintains a relatively healthy balance sheet with a high working capital ratio of 3.19 and relatively little debt.

My Analysis & Recommendation

Overall, I am not bullish on Corbus Pharmaceuticals at all. Essentially, the company is rebooting its strategy by focusing on the development of new drugs while entirely abandoning old ones. The double failure of Lenabasum in the past few years is making it extremely hard for Corbus to gain traction moving forward, and not only does this dissolve investor sentiment, but it could also deter prospective partners from engaging in future collaborations. Moreover, the company's over reliance on Lenabasum is what puts them in its unattractive position right now, with no other drugs that are late in the later clinical stages.

While the company is not under immediate financial distress, I could foresee this happening in the next few years. While Corbus currently has a healthy balance sheet and has enough cash to fund operations throughout 2024, the company is still a cash-burning, early clinical-stage company that generates no revenue. I am struggling to see a future where the company is still able to operate after 2024 without incurring substantial debt, especially considering that we already see the company's cash reserves depleting quarter by quarter. There is also not very much guidance from management with no real growth initiatives or updates that may catalyze growth or optimism among investors. I do not see any long potential for Corbus, and I do not advise investors to continue holding onto their positions.

Risks to Thesis

While I struggle to see much upside to this company, I cannot say that there are no risks to my Sell recommendation. I will say that it is very possible that the company's ongoing clinical trials might yield more positive results than I anticipate. I see some potential in CRB-701 given that it was licensed from CSPC Pharmaceutical Group, and if the drug proves successful, it will have a large addressable market, spanning the United States, Canada, the European Union, the United Kingdom, and Australia. It is currently undergoing a Phase 1 trial in China, and the company anticipates a US clinical trial to begin in mid-2024. As for CRB-601, the drug is still in its preclinical trials and is on track for IND submission by the 2nd half of 2023. The company is also anticipating its Phase 1 trial to begin in mid-2024. If the company could bring on a partnership or a license agreement for the development of CRB-601, that could also significantly move the stock. Moreover, shareholders may also be inclined to hold onto their positions provided that the stock experienced relatively minimal volatility in the last 2 years following the failure of Lenabasum. It is possible that the stock will not experience more selloffs or drastic declines in the near future. However, the company will need focus on diversifying its pipeline and also proving that it the company is credible enough to not fail future clinical studies.

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