Corcept Therapeutics Incorporated

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Corcept Therapeutics is a biopharmaceutical company focused on the discovery and development of drugs to treat severe metabolic, oncologic, and neurologic disorders, with a primary focus on Cushing’s syndrome and oncologic indications.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Corcept Therapeutics is a commercial-stage biopharmaceutical company focused on discovering and developing drugs to treat severe metabolic, oncologic, and neurologic disorders by modulating the effects of cortisol.

The core of Corcept’s business revolves around its proprietary compound, Korlym (mifepristone), an FDA-approved treatment for Cushing’s syndrome, a rare but serious endocrine disorder. The company is also developing relacorilant, a selective cortisol modulator which it hopes will become the future of care for many Cushing’s patients, and is in phase 3 trials for treating hypercortisolism. In addition, it is also developing a drug for treating cancer in combination with other treatments (Exicorpan). These drugs all function by modulating the cortisol hormone, which has a wide range of impacts on the body.

The company’s revenues are primarily derived from the sales of Korlym, with a growing emphasis on advancing relacorilant.

  • Revenue Distribution: Currently, CORT’s revenue is predominantly from the sale of its only commercial product, Korlym. Their clinical programs are still in development and do not yet generate meaningful revenue. There is an expectation of revenue generation from Relacorilant after it’s approval.
  • Industry Trends: The pharmaceutical industry is experiencing a trend towards targeted therapies and personalized medicine, which is where Corcept’s expertise lies with its focus on hypercortisolism. Given the complex nature of Cushing’s syndrome, there is a clear need for targeted therapies. Also, there are a bunch of smaller companies going for rare diseases, which is a more profitable business due to factors like lower competition and higher prices. On the other hand, more companies are getting into oncology as it is a huge market.
  • Margins: Corcept has historically maintained a good gross margin of around 80% due to its focus on specialized therapies. Operating margins, however, have been variable, influenced by R&D expenses and marketing investments. They are currently profitable, but could face challenges to profitability if their drugs fail in clinical trials or face competition.
  • Competitive Landscape: CORT operates in a unique space for now with its Cushing’s syndrome drugs. However, there are other companies working on treatment of hypercortisolism and oncology drugs. They do need to worry about biosimilars when their patents for the current generation of drugs expire. The long-term success hinges on their innovation pipeline and their ability to maintain a competitive edge in specific niches.

What makes the company different is that they’re focussed on drugs that specifically target cortisol. The company has a proprietary formula for it.

Financial Analysis

Analyzing the most recent financials is important, as past history is not indicative of their future.

  • Recent Earnings: In the latest earnings, they reported a net product revenue of $146.6 million for the three months ended September 30, 2023, compared to $105.5 million for the same period last year, as well as a net income of $31.3 million, vs a net income of $31.5 million for same period last year. This indicates continued revenue growth from Korylm. The main expenses of the company were research and development, as it should be with a company that is not just trying to market drugs but also researching new drugs. The company has a total assets of $721.1 million and total liabilities and shareholder’s equity of $721.1 million as well, which indicates a clean balance sheet. They had a total of $655.6 million of cash equivalents and marketable securities, which gives them a very high liquidity.
  • Revenue and Growth: Corcept’s financial performance in the last year indicates that the company has increased revenue substantially on a YoY basis. This has been driven by strong sales growth in their Cushing’s syndrome treatment. They are also looking to reduce their reliance on the older product by bringing relacorilant to market. The increase in revenue is directly proportional to an increase in the price of the product, the volume of the product sold and the strength of its sales department.
  • Profitability: Corcept is profitable, generating positive net income. They have a healthy profit margin and EBITDA margin. That being said, they’re still reliant on their key drug, Korylm, so if its sales growth decreases, the whole business takes a hit, as evidenced in last financial quarter. But since they are also looking into other drugs like relacorilant, the future may still be bright.
  • Capital Structure: The company has relatively low debt. Their liquid assets are high enough to offset all liabilities and still have some left over. There is no apparent problem with short-term or long-term solvency.
  • Cash Flow: While cash flow from operations varies due to the timing of product sales, their CFO is positive and sufficient to fund operations. They have substantial cash from investment activities as well as from financing activities, with buyback of shares, to increase value for their investors.

Moat Analysis

While Corcept has carved a niche in the treatment of Cushing’s syndrome with Korlym, its current competitive advantages are not that significant to warrant a large moat rating:

  • Proprietary Drug Formula: The biggest moat is that they possess the IP for their primary molecule and it’s formulation. They own the rights for the cortisol modulator, mifepristone and a few other drugs. Patent protection, however, is limited, and once expired competitors can create generics. They also need to make a new drug before they hit the patent cliff to keep their moat up. While their relacorilant also has a lot of promise, it is still in clinical trials and so it’s success is not guaranteed.
  • Market Share in Cushing’s Syndrome: While they have a very significant share of the Cushing’s market, there is potential for competition from new entrants. As they are dependent on a niche business, the addressable market is not that big for their drug.
  • Niche Market Expertise: The company does have expertise in developing drugs for hypercortisolism and endocrine disorders. They also understand the process of drug trials and commercialization. However, other bigger pharmaceuticals can enter this space if it becomes very lucrative for them.

Moat Rating: 2/5. Corcept has a narrow moat due to their proprietary compounds for Cushing’s syndrome treatment, as well as some manufacturing expertise and familiarity with the market. But this is not enough for the company to gain long-term, sustainable competitive advantage. Also, they are very dependent on a very specific market, so any fluctuations in this market will severely impact them.

Risks to the Moat and Business Resilience

There are several risks that can impact CORT’s business and could erode their current moat.

  • Patent Expiry: The biggest risk is patent expiry and the entrance of generics. Once competitors can enter the market, their profits could decrease substantially, while their brand name doesn’t give enough pricing power in their niche market.
  • Clinical Trial Failures: If the phase 3 trials for relacorilant or their oncology drugs fail or are unsuccessful, this would directly affect their ability to generate future profits and cause immense loss for the company as they invested a lot in it.
  • Pricing Pressure and Reimbursement: The company’s ability to command premium pricing and receive favorable reimbursement terms could be limited by payers and regulators, especially with newer drugs competing with their current market. There are concerns about changes in government healthcare policies and their effect on companies’ ability to get drugs and medications approved or be reimbursed for.
  • Competitive Entry: The emergence of new competitors with novel therapies or more efficient manufacturing processes could erode market share and compress margins, given the specific market that they operate in.
  • Operational Execution Risks: The company must effectively manage clinical trials, regulatory approvals, manufacturing, and marketing. Missteps in any of these areas could harm their financial performance. There has been some controversy around the quality of some clinical trials and also of the drug in past, so investors may have a degree of uncertainty around the company’s practices.
  • Acquisition Risk: There is always a risk of acquisition when it comes to small drug companies like Corcept, and if acquired by another pharmaceutical company there is a risk of their pipelines being sold off, changed, or discontinued. This can lead to instability for the company. Also, the company may overpay for an acquisition, reducing their value.

Business Resilience: Due to their niche focus on cortisol modulation, CORT’s business model offers some resilience to broader economic conditions, but it is very vulnerable to industry-specific risks in the pharmaceuticals and biologics industries. They rely on a few key products and are not widely diversified, giving them high reliance on their products being successful and maintaining a good market share. Also, any major product failure or competition could significantly impact their revenue and profitability and they don’t have much power to fight it.

Understandability Rating: 3/5

Corcept’s business model is moderately easy to understand. While the company’s focus on hormone regulation and specific disease indications adds a level of complexity, the core business of developing and selling drugs is well-understood. Still, the intricacies of pharmaceutical research and development can make their financial outlook and pipeline a little difficult to gauge.

Balance Sheet Health: 4/5

Corcept’s balance sheet is in good shape. They have no long-term debt and most of their short-term debt are mainly deferred tax liabilities. Their assets are also well maintained, with a lot of liquid assets.

Their positive cash flow from their operations and their high profit margin as well as large liquid reserves make it very good. The company’s solvency ratios are also within reasonable limits. Their strong balance sheet positions the company well to weather any upcoming problems. Their large cash reserve also gives a competitive advantage. However, they are not a company with lots of historical performance or experience, so any future projections are based on very little information, which creates uncertainty.