- By Matt Winkler
Corbus Pharmaceuticals Holdings Inc. (CRBP), the best-performing Nasdaq-traded biotech stock of 2016, is on the move again. Data from a phase II trial of its flagship cannabinoid Resunab on cystic fibrosis is due any day now. This time though, it is not just retail investors getting in front of the news. Corbus is now drawing a large amount of institutional attention from several directions.
The intrinsic value of CRBP
Here is a look at who is buying Corbus and what we think is driving their decisions. First, a brief introduction to the company.
Corbus is focused on the development of drugs in the inflammatory and fibrotic disease space. Its lead asset is Resunab, which is where the vast majority of the company's value rests right now. The science that underpins Resunab's mechanism of action is based on cannabinoid science. Specifically, on the harnessing of what are called CB2 receptors, which are cannabinoid receptors that make up the endocannabinoid system. These receptors are found on the surface of immune cells and play a key role in the inflammatory process.
To simplify the MOA, a couple of signaling molecules are responsible for inflammation. Another few are responsible for tissue healing. In a standard immune response to a pathogen, both sets of signaling molecules are switched on. In a faulty immune system activation, however, inflammation is caused where it is not wanted or needed. This sort of unwanted inflammation is at the root of many of the problems with cystic fibrosis and a host of other inflammatory conditions. It is also the target of Resunab.
The theory is that by binding to CB2 receptors, Resunab can create the increased activation of the pair signaling molecules responsible for tissue healing and reduce activation of the pair responsible for inflammation.
Corbus is currently testing this theory across three separate phase II trials, in three indications - cystic fibrosis, systemic sclerosis and dermatomyositis. The results for systemic sclerosis, also known as scleroderma, are already in and showed clear efficacy.
As for the institutional investors frontloading the upcoming data release, as of the end of the most recent quarter, the company's largest institutional owners are Knoll Capital Management, Cormorant Asset Management, Vanguard Group, Perceptive Advisors, FMR, Millennium Management and Blackrock. Of these seven funds, five increased their positions during the final quarter of last year, while two decreased slightly. Those that did sell some shares, Vanguard and Perceptive, remain in the top four holders list, so we expect the sale was initiated to take some profit off the table after Corbus' circa 450% run throughout 2016, as opposed to being a strategic decision to reduce exposure long term.
It goes without saying that some of these names, for a biotech company, are choice backers. Millennium, Vanguard and Blackrock are household names in the financial space. Perceptive is headed up by biotech guru Joseph Edelmen, who launched the fund in 1999 and has since achieved an average annual return of about 30%.
So there is some big-name interest and we have looked at the asset these names are interested in. Why are they loading up specifically now?
The most recent data release related to the systemic sclerosis indication, which Corbus reported at the end of last year. The drug outperformed placebo in the American College of Rheumatology (ACR) Combined Response Index in diffuse cutaneous systemic sclerosis (CRISS) score. This is an industry standard measure, and the endpoint of the study, reaching 33% at week 16 versus 0% for placebo. An open-label expansion is ongoing based on the positive data and will continue until the end of this year. This was a real value driver for the company and ensured positive sentiment as the new year rolled in. With Orphan Designation and Fast Track status already in place, we should see a pivotal kickoff this year if it is required. There is a chance the Food and Drug Administration will decide it can approve the drug based on the expansion data. Approval is anticipated for 2019. The market for this one, on approval, totals 90,000 individuals globally.
The cystic fibrosis study, again in phase II, was just completed. The company expects to put out top-line resluts before the end of the first quarter, about a month away at the latest. This is our next major catalyst, which could really drive some upside momentum if the data hits press as supportive of efficacy. Corbus expects approval in this indication by early 2021 if all goes to plan. This market, on approval, would add 75,000 patients to the 90,000 scleroderma target population. It is also funded in part by a $5.5 million grant from the Cystic Fibrosis Foundation, of which Corbus had received $3.5 million as of Sept. 30.
The third indication in focus is the dermatomyosis indication, which is an ongoing phase II. We do not have too much information on this one since Corbus has been pretty tight-lipped on the progress of the study. We do know, however, that it is funded in full (to the end of phase II) by the National Institutes of Health. Under the terms of the funding, Corbus retains all the rights and data ownership on completion.
Data is expected to hit press for this indication at some point during the third quarter of this year. In addition, there is an open-label extension that will run for about 12 months once the trial completes. Approval for this one is anticipated in 2022. Upon approval, the market will add a further 50,000 patients to the company's target population. That is a total of 215,000 patients Corbus could be targeting within five years.
So to wrap things up, one reason big names could be piling into this one right now is that - at its current market capitalization - there seems to be plenty of room for upside revaluation, especially if the upcoming data is positive. Corbus is currently valued as an early-stage biotechnology company, but if the three development assets hit on their endpoints (and there are plenty of opportunities for them to do so this year), then it will be a late-stage developer with close to a quarter of a million target patients. At the premium price these sorts of Orphan Designation drugs command, that is a lot of revenue potential.
Disclosure: Long CRBP.
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This article first appeared on GuruFocus.
The intrinsic value of CRBP