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Corbus: Are Phase 2 results enough to buy in?

April 16, 2017

Successful phase IIa results are encouraging for potential upside.

The anabasum patients were considered stable and did not show a decline from baseline and had a reduction in mediators of inflammation.

Risks are too high at this point to invest at current valuation.

 

Thesis

Corbus(NASDAQ:CRBP) has reported positive data from Phase IIa clinical trial for anabasum in cystic fibrosis. We believe this trial demonstrates strong potential for this drug which will produce an estimated 40% return to shareholder upon approval.

The Phase IIa Trial Met Its Primary Safety Endpoint

Cystic Fibrosis is caused by a diverse group of genetic mutations. The disease causes a variety of acute and chronic symptoms that affect many aspects of patients’ breathing and organ function. Patients are in a vulnerable state and may be taking several drugs for the disease or its complications.

The first concern for new drug development is that it does not make the patients worse or cause drug interactions. This is why the FDA and the CF community require small trials to show safety and tolerability in CF patients before permitting larger efficacy trials. The Phase IIa anabasum study was designed to demonstrate safety and tolerability as its primary endpoints. The bloodstream levels were within expected levels and side effects on the GI system were not a problem.

This is an important point for an oral drug in the CF population. CF Patients have a typical decline in FEV1 (forced expiratory volume, a measure of lung function) of about 1% per year, so that a 0.25% decline over the 16-week trial would have been expected. The anabasum patients were considered stable and did not show a decline from baseline. The objective was to show that the drug did not make the patients worse, so that stable FEV1 is a positive outcome.

One of the secondary endpoints we consider meaningful is reduction in mediators of inflammation in the sputum that would indicate an inflammatory process. These are considered early markers, since the trial was not long enough to detect changes to inflammation itself. We see the rapid decline in these markers as a predictor of reduced inflammation in the target tissues.

Acute pulmonary exacerbations requiring treatment with intravenous antibiotics showed a decrease from placebo. During the 16-week trial, the anabasum patients had lower infection rates in sightly larger groups. The exacerbation rate showed a numerical benefit for the treatment groups, with an annualized rate of 0.86 per year in the placebo group compared with 0.21 per year for the high dose group, a drop of nearly 75%. Due to the seriousness of infections requiring intravenous antibiotics, we see this as an important benefit to be included in future studies.

Risks

As with many pharmaceutical companies in the development-stage, this company is open to many risks.

Clinical trial risk (safety): Despite demonstrating a strong safety profile with a wide therapeutic index, clinical development carries safety risks when delivered to frail orphan patient populations. Corbus’s ongoing Phase 2 studies will be dosing with an ultrapure formulation of ajulemic acid, which possesses higher relative CB2/CB1 selectivity and a potentially wider therapeutic index.

Clinical trial risk (efficacy): Phase 2 clinical trial data from four distinct trials will be available for anabasum, the company’s only clinical candidate in development. Failure to reach statistical significance in one or more of these trials would significantly decrease the likelihood of approval. Our valuation is based on anabasum’s potential in the treatment of rare inflammation and fibrotic diseases. Nevertheless, we view the preclinical data demonstrating reduction in fibrosis and inflammation biomarkers as encouraging.

Regulatory risk: As with other drug development companies, Corbus will require approval from regulatory agencies. In addition, anabasum is a Schedule I controlled substance due to its chemical structure as a synthetic endocannabinoid mimetic, which requires greater regulation, including certifications, security, and recordkeeping, as mandated by the DEA. We note that anabasum has not demonstrated psychotropic effects. However, these regulations could affect the marketability of the drug.

Reimbursement risk: If anabasum is approved for use, Corbus will need to seek and achieve reimbursement from various entities, including governments and private and public payers. Without reimbursement, Corbus could fail to generate revenues successfully.

Financing risk: The pro-forma cash position of Corbus was $42 million, including its recently performed equity financing. We estimate the company may burn approximately $30 million during the next 12 months. Corbus may not be successful in raising additional funding on favorable terms or at all to sustain future operations. Corbus will require additional financing to bring anabasum to the market.

Competitive risk: A number of competitive agents are in development for the treatment of cystic fibrosis, diffuse cutaneous systemic sclerosis, and dermatomyositis. These agents could be approved before anabasum, and potentially affect anabasum’s sales in its target indications.

Our Takeaway

Although we are encouraged by the trial results, there is much uncertainty regarding the company’s valuation. We recommend to hold off until further information is released regarding the developmental progress of the drug.

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