Curis, Inc. — Q2 2020 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context
Curis is a clinical-stage biotechnology company developing cancer therapeutics. Its principal near-term programs were CA-4948 and CI-8993. Erivedge royalties from Genentech and Roche were its main source of revenue; Curis relies on collaborators for commercialization and has not established product sales of its own.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $2.36 million | $2.09 million | $5.07 million | $3.86 million |
| Research and development | $5.28 million | $5.62 million | $12.75 million | $9.69 million |
| General and administrative | $2.39 million | $2.53 million | $5.98 million | $5.67 million |
| Loss from operations | $5.43 million | $6.14 million | $13.91 million | $11.70 million |
| Net loss | $6.71 million | $7.21 million | $16.42 million | $17.10 million |
| Loss per share, basic and diluted | $0.17 | $0.22 | $0.44 | $0.52 |
- Revenue was almost entirely royalties: Q2 royalty revenue was $2.45 million, up 14%; six-month royalty revenue was $4.96 million, up 16%. The six-month period also included $0.21 million of milestone revenue from previously licensed technology. Gross revenue was 100% from Genentech in Q2 and 96% for the six months.
- Q2 net loss narrowed year over year, while six-month operating loss increased, principally as research and development spending rose 32% to support ImmuNext, CA-4948 and CI-8993 programs. There was no material product-sales margin to assess; the filing reports $0.25 million of royalty costs for the six-month period.
- Cash used in operating activities was $14.15 million for the six months, compared with $13.90 million in 2019. Investing activities provided $4.58 million, and financing activities provided $17.76 million. Cash, cash equivalents and restricted cash ended at $24.59 million.
- At June 30, cash and cash equivalents were $23.62 million and investments were approximately $0.001 million; restricted cash was $0.97 million. The company reported an accumulated deficit of approximately $1.03 billion and stockholders’ deficit of $30.38 million.
- Debt consisted of the $0.89 million unsecured PPP loan, split between current and long-term portions. The $60.19 million liability for sold future Erivedge royalties is a separate liability. Operating lease liabilities totaled $7.20 million.
Material changes and financing
- In June, Curis sold 14 million shares at $1.25 per share in a registered direct offering, raising $17.5 million gross; the filing cites approximately $1.5 million in placement-agent fees and other estimated offering expenses. Shares outstanding increased from 33.24 million at year-end 2019 to 50.64 million at June 30, 2020.
- Curis also had access to up to $27 million of additional share sales under its Aspire Capital agreement, subject to terms and market conditions, and a separate $30 million at-the-market program with JonesTrading. No shares had been sold under the JonesTrading program by June 30.
- The Oberland royalty-sale liability declined from $62.48 million at year-end to $60.19 million, after $4.87 million of payments and recognition of imputed interest and issuance-cost amortization. The agreement transfers a portion of future Erivedge royalties and includes potential milestone payments tied to royalty collections.
- Six-month other expense was lower than in 2019, when results included a $3.50 million debt-extinguishment loss. In 2020, imputed interest on the royalty-sale liability remained a significant expense.
Outlook, risks and unusual items
- Liquidity and going concern: Management expected the $23.6 million of cash, cash equivalents and investments at June 30 to fund planned operations into the first half of 2021, but concluded it did not have sufficient cash to support current operations for the 12 months following the filing. The filing states that substantial doubt exists about Curis’s ability to continue as a going concern. Additional financing or a strategic transaction may be necessary; neither is assured.
- Development outlook: Curis planned to focus near-term resources on CA-4948 and CI-8993. CI-8993’s IND was cleared in June, with Phase 1a/1b testing planned for the second half of 2020. In July, after quarter-end, the first patient was dosed in a CA-4948 AML/MDS Phase 1 trial; a CA-4948/ibrutinib combination trial was also planned for the second half of 2020. These are plans, not results or guarantees.
- Pipeline setbacks: Curis stopped enrollment in the fimepinostat/venetoclax study after observing no efficacy signal warranting continuation, and stopped further enrollment in the CA-170 mesothelioma study based on initial data. Future studies for both were under evaluation.
- COVID-19: Restrictions at clinical sites slowed enrollment in CA-4948 studies and could delay planned CI-8993 testing; supply, trial-site wind-down costs and Erivedge prescriptions and royalties were also potential areas of impact. Curis said it could not predict the pandemic’s overall effect.
- Other risks: Curis depends heavily on Erivedge royalties, which are subject to competition and royalty reductions, and a portion is owed to Oberland. An Oberland default could trigger remedies against royalty-related collateral. Clinical, regulatory, manufacturing, collaborator, financing and Nasdaq-listing risks remain material. Curis reported that Nasdaq compliance with the market-value and bid-price requirements had been regained in July 2020.
- The $0.89 million PPP loan carries 1% interest and may be eligible for partial or full forgiveness, but Curis gave no assurance forgiveness would be granted.
Most important facts for investors to verify
- Whether subsequent financing, cash burn and trial spending extend the stated runway, and how management’s going-concern assessment changes.
- Actual enrollment, safety and efficacy updates for CA-4948 and CI-8993, including the effects of COVID-19-related site delays.
- Erivedge sales, royalty receipts, royalty reductions and payments to Oberland, including whether any royalty milestones are achieved.
- Further equity issuance under Aspire Capital or JonesTrading, resulting dilution, and the availability of other capital sources.
- Whether the PPP loan was forgiven and whether any material changes occurred in Nasdaq listing compliance or the pipeline plans after June 30, 2020.