Check out the latest Corbus Pharmaceuticals earnings call transcript.
For a while, investors were snapping up the stocks of any company remotely associated with marijuana, convinced investing in weed was the next way to get rich. Pot stocks cooled off in 2018, but certain companies working on cannabis-based drugs continue making steady progress on new therapies. Corbus Pharmaceuticals (CRBP -2.97%) is one such company -- a clinical-stage biotech that's developing drugs for rare inflammatory diseases that work by targeting the body's endocannibinoid system.
Inflammatory and fibrotic, or scarring, diseases arise when the body's immune system goes out of control. Inflammation is the natural response to invasion or injury to the body, with the immune system working to clear the affected body part of pathogens, damaged cells, or irritants. Once the cause of cell injury is removed, the body normally resolves the inflammation response.
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For reasons not completely understood, certain rare diseases cause the body to turn on the immune response without ever triggering the resolution process, and the ongoing inflammation causes tissue damage or even tissue death. The traditional approach to these diseases is to inhibit the inflammation response, but the downside is that in doing so, the immune system is suppressed, depriving the body of its natural defenses with potentially serious consequences.
A new approach to inflammation
Corbus' lead drug, lenabasum, takes a different approach by targeting the natural mechanism that resolves inflammation, effectively flipping the "off switch" for the process, rather than targeting the system that triggers and maintains the immune response. Corbus has been making progress in advancing lenabasum, formerly called resunab and anabasum, through clinical trials for treatment of four rare diseases: systemic sclerosis, dermatomyositis, cystic fibrosis, and lupus.
The endocannabinoid system is the master regulator of inflammation in the body and includes two main receptors, designated CB1 and CB2. Lanabasum targets CB2 receptors, which are expressed on immune cells and, when activated, initiate a series of events that result in a shift from a production of pro-inflammatory mediators to production of pro-resolving mediators.
Systemic sclerosis causes organ inflammation and fibrosis and is the most lethal of the systemic autoimmune diseases, with a 10-year mortality rate of up to 60%. There are about 200,000 patients with the disease in the U.S., Europe, and Japan, presenting a market opportunity for Corbus of between $1.4 billion and $2.2 billion. Phase 2 test results for lenabusam have been positive, with 87% of patients showing significant improvement. Corbus is currently conducting a phase 3 study for lenabasum in systemic sclerosis and expects data in 2020, with a commercial launch in 2021.
Dermatomyositis is another rare and serious autoimmune disease that's characterized by skin and muscle inflammation and has a 30% five-year mortality rate. This condition represents a market opportunity of between $1 billion and $2 billion to treat 80,000 patients. Eighty-four percent of the participants in the phase 2 trial had a meaningful improvement, and a phase 3 trial has begun.
There currently are no drugs targeting inflammation for sufferers of the progressive genetic disease of cystic fibrosis, and the 70,000 patients in Corbus' target markets represent a market opportunity of $700 million to $1 billion. Corbus is conducting a phase 2 trial measuring the effectiveness of lenabasum in reducing lung inflammation in cystic fibrosis patients, with data expected in 2020.
Finally, the National Institutes of Health is conducting a phase 2 study of lenabasum for systemic lupus erythematosus, data is expected early next year and represents a step toward a potential market of $2 billion to $3 billion.
A recent acquisition opens up new possibilities
Corbus announced in September that it signed a licensing deal with Jenrin Discovery for exclusive rights to develop and market drugs based on 600 compounds that target the endocannabinoid system. The most promising of these drug candidates is CRB-4001, which Corbus hopes can be used to target diseases with organ-specific fibrosis.
CRB-4001 targets the CB-1 receptor and inhibits its activity rather than activating it. CB-1 receptors are found in the brain, and other companies, such as GW Pharmaceuticals, are using compounds derived from marijuana to target those receptors to treat epilepsy, pain, and nausea. CRB-4001, however, doesn't cross the blood-brain barrier and instead is aimed at CB-1 receptors in organs such as the liver, lungs, heart, and kidneys. Corbus believes that inhibiting the activity of these receptors will be useful in treating various diseases of these organs.
Corbus expects to enter a phase 1 study of CRB-4001 in 2019 for treating nonalcoholic steatohepatitis (NASH). NASH is a huge market opportunity, perhaps as big as $35 billion, and there's a crowded field of drug companies racing to get a piece of that prize. Corbus is encouraged that Johnson & Johnson is also testing a CB1-targeting drug for NASH, because it potentially validates the approach, and CRB-4001 could have several advantages over the drug giant's candidate, including being a pill instead of an injection.
Of the remaining drugs in the Jenrin pipeline, Corbus expects to advance one or two new drug candidates per year into clinical testing, starting in 2020.
Patience required
Corbus looks like an interesting opportunity, but it carries significant risks. Trial results for lenabusam have delivered consistently good news. Phase 2 trials of the drug in systemic sclerosis and dermatomyositis achieved positive results, demonstrating a strong safety profile without suppressing the immune system. Study extensions have shown continuing improvement in the patients. Results in cystic fibrosis have been encouraging, and the jury is still out on lupus.
Until a few months ago, Corbus was a one-trick pony with all its bets placed on lenabusam. The Jenrin deal changed this, so now the company has the possibility of developing a wider range of therapies based on manipulation of the endocannabinoid system.
Investors would be wise to continue viewing this company's prospects as solely riding on lenabusam. The CRB-4001 drug is still a long way from commercialization, and any other molecules from the Jenrin deal won't make it over that hurdle until the late 2020s. If lenabusam fails for some reason, Corbus shareholders will suffer. But lenabusam's chances are looking better. Corbus' stock has basically gone nowhere in the past two years, while much of the risk of lenabusam's winning approval has been taken out with successful trial results. The balance of risk and reward has not been more favorable for Corbus shareholders since 2016.
Corbus has enough cash to get through 2019, but with lenabusam commercialization expected in 2021, Corbus could make a dilutive secondary stock offering and will probably sign up partners to take the drug to the U.S. and European markets at the cost of some of the profit, just as it did earlier this month with Kaken Pharmaceutical for the Japanese market. That development could end up being a drag on the stock, or it could help it by resolving a major point of uncertainty.
Profit for Corbus is at least two years away, maybe much more. But positive news flow from test results this year and next may be enough to get investors to take notice, as they did in 2016. For investors with tolerance for some risk and the patience to wait, Corbus is an attractive bet.
