Corcept Begins Recovery After Disastrous Launch Of Korlym

Last year, the drug developer Corcept Therapeutics (CORT) received FDA approval for their flagship product Korlym (mifepristone) for the treatment of Cushing’s syndrome.

Investors were initially ecstatic about the drug’s approval, since it was the only drug available for Cushing’s Syndrome patients that would be on the market. It’s also worth noting that Korlym was granted orphan drug status by the FDA, which gives it 7 years of exclusivity on the market (as opposed to the standard 5). Considering how popular orphan drugs were amongst biotech investors last year, it wasn’t surprising to see major interest in CORT from the market.

The FDA approval for Korlym was on February 17, 2012. Instead of a “sell the news” reaction, investors were happy to bid up the price of CORT above $4/share. Corcept, apparently eager to hit the market, launched the drug on April 10th, and investors kept the stock steady in anticipation of further developments.

CORT didn’t run into any trouble until July 2012, when it announced a public offering of 11 million shares worth of common stock. The company claimed that it needed the money to fund the clinical development of Korlym for additional indications and for other compounds in the pipeline (like CORT 108297) but it was also suggested that the company needed more money for the marketing of Korlym for Cushing’s Syndrome. This wasn’t particularly alarming for CORT investors, and the stock only dropped enough to counteract the effects of the share dilution.

It wasn’t until August 7th when the company its second quarter results that investors began to panic. The company posted a net loss of $7.6 million for the quarter, which was only marginally better than the $8.9 million worth of losses posted in Q2 2011 despite the fact that they had a highly anticipated drug on the market for four months. Even worse was the actual sales revenue of Korlym, which came in at $875,000. While the cost of sales was surprisingly low ($48,000), the sales volume was extremely disappointing. To break even on its operations, Corcept would have to grow Korlym sales by approximately 870%!

Still, investors were willing to cut Corcept some slack since drug launches can take extra time to pick up steam. It was also encouraging to see that Corcept had an enormous pile of cash. The company had $34.9 million on June 30th, and would also be adding the $46.1 million gained from the aforementioned public stock offering in July. Although Korlym wasn’t pulling its own weight, Corcept was in good financial shape and investors were willing to wait a bit longer.

On October 31st, Corcept posted Q3 2012 results which were only marginally better than the results we saw in the second quarter. The company managed to post a larger net loss of $8.3 million, and increased Korlym sales to $1.1 million. Also worth noting is that Korlym wasn’t available for the entirety of the second quarter, so the implied 26% quarterly sales growth is actually a much smaller figure. For some reason, Korlym wasn’t able to show any momentum despite the complete lack of competition.

Understandably, the market punished the stock. The stock lost about half of its value, dropping from $2.50 to $1.32 by November 8th. While Korlym’s performance was extremely poor relative to initial investor expectations after FDA approval of the drug in early 2012, it’s important to consider that Corcept’s market capitalization was roughly $130 million at that point. Corcept, with about $100 million in cash at the time (and only about $30 million in debt) was quite undervalued.

If you’ve been following CORT in recent trading, you can notice that CORT has seen an inflow of buyers that are willing to extend a little more faith in Korlym and the rest of the company’s pipeline. We’ve also seen some renewed bullishness from analysts both old and new. Janney Capital initiated coverage of Corcept just yesterday with a buy rating and a $3.00 price target.

The opinion is still quite mixed on Corcept. On one hand you have bears who are pointing at the very weak launch of Korlym, and on the other you have bulls who are willing to bet on the value of the rest of Corcept’s pipeline as well as the potential for Korlym to turn around. I think that we should give Korlym another quarter to show signs of potential in the Cushing’s Syndrome market before we pass judgment on the drug, but things look grim so far. The rest of Corcept’s pipeline, particularly the sNDA that could be submitted for Korlym in the treatment of psychotic depression, looks promising.