Corbus Pharmaceuticals "CRBP" - (2)
Updated: Jun 7, 2020
The three-tier strategy of Corbus Pharmaceuticals
In the fourth-quarter 2019 earnings conference call, Craig Millian, the chief commercial officer of the company, introduced a three-tier strategy that would be implemented in the preclinical stage to ensure the company is ready for the commercialization phase.
1. Building a commercial leadership team
2. Establishing a strong foundation of deep market insights
3. Communicating a compelling narrative that provides an appropriate scientific context ahead of potential regulatory approval.
The company, in the last three months, has made some commendable progress from all these fronts. The primary focus of the company has been to recruit a pool of talented individuals to lead the most important functionalities of the company, including commercial analytics, supply chain operations, and public relations.
This year will be historic for the company if everything goes according to the plans
The summer of 2020 will be an important one for the future of the company and the share price performance of Corbus this year. This is because the preliminary data of all its clinical trials will be available this year.
Source: Investor presentation
The top-line data from the lenabasum trials will be a catalyst in determining when the company can become profitable. The management is of the view that Corbus will be in a position to file for its first NDA application this year if the data readouts come in as expected.
If this happens, it’s reasonable to assume that Corbus shares will gain traction in the second half of this year. Historically, announcements regarding NDA applications have acted as catalysts for shares of biotech companies to gain momentum, and there’s no reason to believe that things will be any different with Corbus shares.
The liquidity position of the company is strong
Many early and late-stage biotech companies fail to see light at the end of the tunnel. In other words, these companies succumb to liquidity challenges and eventually cease to exist. Therefore, a critical component of analyzing a biotech company involves the evaluation of the financial health of the company to determine whether it is in a good position to meet cash obligations until the company can bring sufficient operating cash to meet such requirements.
In the case of Corbus, the company has sufficient cash to remain solvent until its clinical trials deliver promising data, which could be as early as the summer of 2020.
Corbus Pharmaceuticals had $32 million at the end of the fourth quarter of 2019. Also, the company raised $46 million on February 11 by pricing in a new equity offering. This increased the cash position to $78 million. In addition to this available liquidity, the company entered into an open market sale agreement of up to $75 million with Jefferies, and Corbus plans to offer 12.7 million shares at a price of $5.91. As confirmed by the management in a statement released on May 4, these funds will be used to facilitate the development of lenabasum, CRB-4001, and other preclinical compounds.
The company reported negative operating cash flows of $45.7 million for 2019. Going by this data, it’s reasonable to assume that Corbus is in a strong position to honor its payment obligations and remain solvent through the end of 2021 even in the worst-case scenario.
Smart money is betting on the success of Corbus
Analyzing and investing in a biotech company is not an easy task. There are many risk factors at play, and this is especially true for companies that are still in the clinical stage. Therefore, investors often look for some lead from institutional investors.
According to data from Nasdaq, institutional investors own approximately 43% of the company, which is an encouraging sign. BlackRock is the second-largest institutional investor in Corbus shares, and needless to say, the largest asset manager in the world has a strong track record of investing in young biotech companies.
Another important indicator an investor can use to determine how successful a biotech company would be is to analyze insider transactions. Insiders of any company have an informational advantage over retail investors, but this is especially true when it comes to pharmaceutical companies as these insiders are usually actively involved in the clinical-stage trials. Over the last 10 months, insiders have been buying Corbus shares actively, which is another positive sign.
The company is showing promising signs in its trials for dermatomyositis and cystic fibrosis as well, which improves the prospects of the company as its future does not depend on the success of just one product.
Investors need to remind themselves that insider buying and institutional ownership are not guarantees for attractive investment returns. Even the best investors get it wrong often, and things are no different for insiders and institutional investors. These two factors, therefore, should be used in combination with fundamental analysis to determine how attractive Corbus shares are.
Takeaway: Corbus is making steady progress and growth-investors might find shares attractive
Investing in equities of a company is inherently risky. However, investing in the shares of a clinical-stage pharmaceutical company is even riskier as investors would be betting on many unknown variables to go in favor of the company. But, at the same time, this sector has provided stellar returns to investors who have been prudent to identify winning companies early. Corbus Pharmaceuticals certainly has many things to like about. The company is ahead of its peers in developing a treatment for systemic sclerosis, and the data that would be released this summer will give an early indication of the future financial performance of the company. So far, what is certain is that Corbus has sufficient funding to support its trials, and the three-tier operating strategy of the company is positioning the company to thrive in the commercialization phase.
There is an opportunity for growth-oriented investors to unlock stellar returns in the future by investing in Corbus shares today. However, at the same time, investors need to be wary of exposing their portfolios to this clinical-stage biotech company as there are a lot of uncertainties involved. Therefore, the best course of action would be to allocate a very tiny portion of a portfolio in the hopes of shares multiplying in value when the company succeeds in the future.
Price Recommendation - $19.56
Disclosure - Long CRBP