Curis, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Curis is a clinical-stage biotechnology company developing cancer therapeutics. Its reported revenue is principally royalties from Erivedge, commercialized by Genentech and Roche; most Erivedge royalty rights have been sold to Oberland. Financial amounts below are in millions unless otherwise noted.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $2.742 | $2.856 | $7.811 | $6.717 |
| Operating loss | $(4.711) | $(5.323) | $(18.623) | $(17.022) |
| Net loss | $(5.974) | $(6.436) | $(22.391) | $(23.533) |
| Loss per share, basic and diluted | $(0.11) | $(0.19) | $(0.52) | $(0.71) |
| Operating cash used | — | — | $(20.024) | $(20.606) |
- Q3 gross royalty revenue was $2.720 million, down 6% year over year; nine-month royalties were $7.681 million, up 7%. Nine-month revenue also included a $0.211 million milestone from previously licensed technology.
- Research and development expense was $4.705 million in Q3, down 9%, and $17.459 million for nine months, up 18%. The year-to-date increase reflected ImmuNext costs and higher CA-4948 and CI-8993 clinical and manufacturing spending. General and administrative expense was $2.613 million in Q3 and $8.593 million year to date.
- Net loss margins were approximately 218% of revenue for Q3 and 287% for the nine-month period; operating loss margins were approximately 172% and 238%, respectively.
- At September 30, cash and cash equivalents were $23.555 million, with $0.816 million of restricted cash and no investments reported. Current assets were $28.302 million and current liabilities $9.123 million. Total liabilities were $74.322 million, exceeding total assets of $45.714 million; stockholders’ deficit was $28.608 million.
- Cash and restricted cash totaled $24.371 million at quarter-end, up $7.972 million from year-end. Investing activities provided $4.421 million and financing activities provided $23.575 million over nine months.
- Debt included a $0.890 million unsecured PPP loan at 1% interest, with $0.222 million current and $0.668 million long-term. Separately, the liability for sold future royalties was $59.337 million; it generated $3.848 million of imputed interest expense for nine months.
Material changes versus the prior comparable period
- Q3 revenue declined 4%, largely reflecting lower Erivedge royalties; nine-month revenue increased 16%, primarily from higher royalties and the $0.211 million milestone payment.
- Q3 net loss improved 7% year over year, while nine-month net loss improved 5%. The nine-month comparison benefited from the absence of the prior-year $3.495 million debt-extinguishment loss, partly offset by higher R&D spending and imputed royalty interest.
- Cash and cash equivalents increased from $15.430 million at December 31, 2019, supported by equity financings and a PPP loan. Curis issued 14 million shares in a June registered direct offering for $17.5 million gross proceeds, and also sold shares through Aspire Capital and its JonesTrading at-the-market program.
- Common shares outstanding increased from 33.242 million at year-end 2019 to 56.653 million at September 30, 2020. The balance sheet reports a new $7.029 million operating lease right-of-use asset and $7.036 million lease liability, following commencement of the Lexington facility lease in May.
Outlook, commentary, and key risks
- Management expected September 30 cash of $23.6 million to fund planned operations through the second quarter of 2021, but concluded cash was insufficient to support current operations for the 12 months following filing. The filing states that these conditions raise substantial doubt about Curis’s ability to continue as a going concern.
- Curis expects continuing operating losses and cash outflows and says it needs substantial additional capital. Potential sources include equity sales under agreements with Aspire Capital and JonesTrading, other financings, or strategic transactions; availability and terms are uncertain. If funding is unavailable, programs may be delayed, reduced, or discontinued.
- Near-term development focus is CA-4948 and CI-8993. CA-4948 is in Phase 1 trials for lymphoma and for AML/MDS; a planned combination study with ibrutinib was expected to begin enrollment in Q4 2020. CI-8993 began enrolling a Phase 1a/1b solid-tumor trial in September 2020. COVID-19-related site restrictions, enrollment and data-collection delays, supply risks, and market disruption could affect trials, royalties, and financing.
- Curis discontinued further enrollment in the fimepinostat/venetoclax study after observing no efficacy signal warranting continuation, and no further patients were to be enrolled in the CA-170 mesothelioma study based on initial data. Future studies for both programs were under evaluation.
- Curis’s revenue is highly concentrated: Genentech represented 100% of gross revenue in Q3 and 97% for the first nine months of 2020. Erivedge royalties face competition from sonidegib and are subject to royalty reductions; a portion of royalties is also allocated to Oberland.
- The Oberland arrangement carries default-related risks, including potential loss of retained royalty rights and a repurchase obligation at a multiple of specified payments. The PPP loan may be forgiven in whole or in part, but forgiveness is not assured.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Curis obtained financing after the filing date sufficient to address the stated going-concern shortfall, and how subsequent cash burn compares with management’s forecast through Q2 2021.
- Latest enrollment, safety, efficacy, and timeline updates for CA-4948 and CI-8993, including the effects of COVID-19 disruptions.
- Current Erivedge sales, royalty receipts, royalty reductions, and payments or milestone eligibility under the Oberland agreement.
- Subsequent share issuance under the Aspire Capital and JonesTrading programs, remaining capacity, and resulting dilution; the filing reported 58,817,444 shares outstanding as of November 3, 2020.
- Status of PPP loan forgiveness and any material changes in debt, lease obligations, or the Oberland royalty liability.