Insider And Smart Money Move Into Corbus Pharmaceuticals As Pipeline Progresses

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Financials and Timing

Corbus is well capitalized at the moment with over $13M in cash and a quarterly burn rate of less than $2M. That gives it about a year and a half before it needs to refinance, and given the amount of institutional interest, private placements look likely in the future. To that extent, dilution is likely. But one year from now, two out of the three phase 2 trials will be completed barring unforeseen delays, and how Resunab performs on these will have a much more magnified effect on the stock than any dilutive financing.

We can expect cash burn to increase as Corbus is funding two out of the three trials itself. The third trial for dermatomyositis will be the last to be completed, but since the trial is paid for already, it is not a financial drag. Assuming quarterly cash burn rate doubles this year as a result of funding two of Resunab’s three trials, Corbus still has three quarters of runway, which should get it through September, just on the cusp of completion of the cystic fibrosis and systemic sclerosis trials. We can expect some dilution then to get the company through December, and then it all depends on the results.

As a point of reference, the company has issued 11,666,802 shares (see page 11) so far in 2015 to a float of 25.46M. Since then, the share price has correspondingly been cut nearly in half year to date, which is to be expected. I don’t believe dilution to that extent will be necessary in 2016 as the company already has over $13M, but there may be some. Anticipation as December nears could bring shares up and counteract any dilution as well.

To put it simply, if Resunab fails the first two trials, it will likely fail all three, which could result in a total loss for investors. If it succeeds in one or more, especially for the cystic fibrosis indication for which it has both Orphan and Fast Track status, just take a look at Vertex Pharmaceuticals (NASDAQ:VRTX) for a sense of how valuable effective CF drugs are. That’s your risk/reward profile.

As Insider Monkey states, the smaller companies that comprise a hedge fund’s portfolio are generally where the big gains are made. However, due to high competition and the large amounts of capital under management, the majority of hedge funds cannot allocate solely to small caps as liquidity in these stocks is too low. Instead, they must pick up stock in larger, slower growth companies to park capital. As individual investors who generally don’t control hundreds of millions of dollars, we don’t have this problem.

Conclusion

Corbus is a development-stage biotech with just one pipeline candidate. This makes it a very risky allocation, as if it fails to successfully demonstrate efficacy in at least one of its three phase II indications, or if Resunab trials reveal safety issues, it will not have any clinical assets to fall back on. However, we can look at the latest insider buying, as well as the increased institutional ownership as an indication that professional analysts and those familiar with the company’s inside operations have faith in Resunab’s potential.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

This article was written by Austrolib and was originally published on Seeking Alpha. The author is long CRBP.

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