Cullinan Oncology, Inc. (now Cullinan Therapeutics, Inc.) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited filing signed November 14, 2022. The company is a clinical-stage oncology biopharmaceutical business with no approved products or product-sales revenue.
Financial performance and position
| Metric | Q3 2022 | Nine months 2022 | Comparable 2021 |
|---|---|---|---|
| Revenue | None | None | $18.9 million license revenue in nine months 2021 |
| Research and development expense | $19.7 million | $70.6 million | $12.7 million and $36.9 million, respectively |
| General and administrative expense | $10.1 million | $28.9 million | $5.7 million and $15.7 million, respectively |
| Net income (loss), consolidated | $(24.9) million | $136.3 million | $(18.3) million and $(33.3) million, respectively |
| Net income (loss) per common share, diluted | $(0.54) | $2.96 | $(0.40) and $(0.76), respectively |
| Net cash used in operating activities | Not separately presented | $101.7 million | $28.3 million |
The nine-month 2022 profit primarily reflects a one-time $276.8 million gain on the June sale of Cullinan Pearl; it is not indicative of recurring operating profitability. The company recorded $44.0 million of income tax expense for the nine-month period, largely related to the sale, and a $2.5 million tax benefit in Q3.
At September 30, 2022, cash and cash equivalents were $242.7 million, short-term investments $333.3 million, and long-term investments $29.4 million. The company reported $576.0 million of cash, cash equivalents and short-term investments, plus $30.7 million of long-term investments and interest receivable. Total assets were $617.2 million and stockholders’ equity $586.1 million. No funded debt was reported; operating lease liabilities totaled $4.7 million. Management said available cash and investments were expected to fund operations for at least 12 months from the financial statements’ issuance date.
Changes versus prior comparable period
- Q3 operating expenses increased to $29.8 million from $18.4 million, with higher R&D and G&A spending. Nine-month operating expenses rose to $99.5 million from $52.6 million.
- R&D growth reflected clinical, preclinical and manufacturing activity, particularly for CLN-619, CLN-617 and CLN-049, alongside increased early-stage research and personnel costs.
- G&A increased mainly due to equity compensation, headcount, professional services and occupancy; nine-month 2022 costs also included $2.0 million related to the Cullinan Pearl sale.
- Operating cash use increased year over year. Cash and cash equivalents rose by $182.9 million during the first nine months of 2022, substantially reflecting the $275.0 million cash proceeds from the Cullinan Pearl transaction.
Business developments, outlook and risks
- In June 2022, Taiho acquired Cullinan’s interest in Cullinan Pearl, which held rights to zipalertinib (CLN-081/TAS6417) outside Japan and Greater China. Cullinan received $275.0 million upfront and may receive up to a further $130.0 million tied to regulatory milestones; those milestones are uncertain.
- Under a concurrent agreement, Taiho and Cullinan share zipalertinib development costs equally, with each eligible for 50% of future U.S. pre-tax profits. Cullinan retained an option to co-commercialize in the United States. The FDA had granted zipalertinib Breakthrough Therapy designation; the filing reported initiation of a pivotal study in Q4 2022.
- CLN-049 and CLN-619 were in clinical trials; management expected initial clinical data in mid-2023. The company expected to submit IND applications for preclinical programs CLN-617 and CLN-978 in the first half of 2023.
- Management expects operating losses and higher R&D spending to continue. Funding estimates depend on development costs, trial progress and other assumptions; the company may need additional capital, which could dilute shareholders or require it to limit or delay programs.
- Key risks include clinical and regulatory uncertainty, trial enrollment and safety, reliance on third-party manufacturers and research organizations, intellectual-property protection, competition, and the possibility that COVID-19-related disruption could affect operations or access to capital. The company reported no material legal proceedings and said disclosure controls were effective at the reasonable-assurance level.
- In October 2022, after quarter-end, Cullinan paid $30.7 million for additional Cullinan MICA shares, bringing its reported ownership to 92% as of October 31, 2022.
Investor verification points
- Confirm the timing and results of the pivotal zipalertinib study and planned CLN-049 and CLN-619 data releases.
- Track whether the $130.0 million in potential zipalertinib regulatory milestones is achieved and how the Taiho cost- and profit-sharing arrangement develops.
- Assess cash burn against the stated 12-month-plus runway, including the impact of planned clinical and manufacturing spending and the post-quarter $30.7 million Cullinan MICA investment.
- Review the tax and cash consequences of the Cullinan Pearl sale and distinguish the one-time gain from recurring operating performance.
- Monitor clinical, regulatory, manufacturing, trial-enrollment and financing risks, as well as potential dilution from equity financing or subsidiary funding.